Canada has surpassed South Africa as the cheapest global provider of electricity, a new survey by energy cost management consultancy NUS Consulting shows.

The ‘2011 International Electricity Report and Price Survey’, which analyses 16 countries, also cautions that South Africa is unlikely to recapture its long-held position as lowest-priced provider, owing to increases that have already been approved for the period 2010 to 2013 and further increases that may be approved beyond that point. Eskom has already indicated that it may seek a further two increases of 25% a year for the next price determination period from 2013 to 2016.

The report records Canada’s cost per kilowatt-hour (kWh) as US7.98c, following a 3.1% rise in that country’s prices for the 12 months to April 2011. It calculates South Africa’s prices as being 7% higher, at US8.55c/kWh, on the back of a 27.8% increase during the period of review.

Italy and Germany remain the most expensive countries surveyed, with prices of US19.70c/kWh and US18.56c/kWh respectively, while Spain, with a 16.4% increase in the period, produced the third most expensive power at US15.37c/kWh.

NUS Consulting South Africa’s acting GM Michelle Lamprecht tells Engineering News Online that the survey is based on prices as of June 1, 2011, for the supply of 1 000 kW with 450 hours use – the typical consumption of a medium-sized factory, or a large commercial property.

The prices were derived from the eThekwini, Ekurhuleni, Johannesburg, Tshwane, Cape Town, as well as direct Eskom sales and have been adjusted for a dollar/rand exchange rate of 0.1463. For deregulated supplies internationally, June 1 contract pricing was obtained during the week of April 26, 2011.

Lamprecht notes that, in line with the National Energy Regulator of South Africa’s (Nersa’s) award of average price increases of 25% a year between 2010 and 2013, South Africa is “unlikely to regain the number one spot for cheap electricity in the foreseeable future.”

South Africa 27.8% increase was also the highest recorded in the 2011 survey, but the country was not alone in implementing increases of more than 20%. Germany and Finland’s costs increased by 24.8% to US18.56c/kWh and US12.11c/kWh respectively, the UK recorded an increase of 24.5% to US15.10c/kWh, while Poland’s cost rose 21% to US11.87c/kWh.

The Energy Intensive User Group’s Mike Rossouw says that the survey confirms industry’s view that South Africa has officially forfeited it lowest-cost advantage.

He also tells Engineering News Online that the position will “never” be recaptured, owing to the fact that South Africa has to build new capacity at a time when prices for new generation are high. Further, it will have to replace much of Eskom’s amortized fleet from 2020 onwards.

Econometrix economist Tony Twine concurs, saying that South Africa will continue to shift up the cost curve for the foreseeable future and will, thus, “permanently lose” its long-held position as the world’s cheapest producer.

Prior to the power crisis of 2008 and the recent rounds of Nersa-approved increases, Eskom argued that South Africa’s tariff were unsustainable and that its industrial tariffs were 70% cheaper than the next cheapest, being Canada.

VICIOUS CYCLE

However, industry is warning that even South Africa’s industrial prices are no longer cheap. In fact, ArcelorMittal South Africa’s chief technical officer Jean-Jacques Aernout has told Engineering News Online that the group is looking at further energy savings and power generation projects to enable its mills to adapt to power prices that are already at German levels and are set to breach Italian-type levels in the not too distant further.

Rossouw warns that, unless South Africa manages its price path in the coming years, it could enter a “vicious circle”, whereby energy-intensive companies retreat, which, in turn, could lower sales and result in yet higher prices as Eskom and others sought to recoup their revenue entitlement.

In other words, surging prices could result in even less minerals beneficiation and manufacturing, which goes against the current economic-policy grain.

Twine says surging prices will force companies to adopt conservation schemes as they “learn to use less electricity per ounce of gross domestic product, as it were”. He adds that the greater cost reflectivity should also stimulate the introduction of independent power producers.

But Twine believes that difficult economic and political choices will have to be made as South Africa moves to implement its Integrated Resource Plan (IRP) for electricity between now and 2030.

Rossouw argues that the IRP cannot and will not be static and will have to adjust to the threats posed by a price path that rises too aggressively.