The impact of increased electricity prices on consumer demand

Abstract

The impact on demand resulting from an electricity price increase is unknown, Dekenah, Heunis, Gaunt and Cheek (2003). This study focused on large Eskom customers (industry and mining) and the impact of increased electricity prices (Eskom Megaflex Time-of-Use tariff) on their electricity demand is analysed. Since, the impact of this can be only be realised in the long-run (> 5 years), this study made use of historical data. In particular, the impact of the revised Megaflex tariff in 2002, which increased high season (winter) peak active charges by approximately 40% against an approximate reduction of 30% in the low season (winter) was analysed. It was found that the price elasticity of large Eskom customers is inelastic in the short-run (< 2 years) and elastic in the long-run. This is particularly evident in the Manufacturing sector. Furthermore, it was found that price is not the only input cost in the short-run, but economic factors such as commodity prices also influence consumption behaviour. This is particularly evident in the Mining sector. It was also found that alternatives (i.e. mandatory and voluntary load reduction programmes, etc.) impact electricity load profiles. In conclusion, this study found sufficient evidence in support of the research hypothesis. Copyright