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South Africa's shrinking economy helps keep the lights on

Statistics SA said this month that electricity consumption fell 3.7 percent in September from a year earlier.

FILE: Energy experts and Eskom officials say a key reason behind the sustained power supply is a drop in demand. Picture: freeimages.com

JOHANNESBURG - South Africa's power company Eskom has kept the lights on for the longest period this year, partly because power demand is declining as the economy weakens, industry players said.

Eskom, which supplies 90 percent of electricity to Africa's most advanced economy, has only cut power for 2 hours and 20 minutes in the past 95 days, thanks also to better maintenance of its ageing plants and supply from the first phase of the new Medupi coal-fired plant.

From November 2014, South Africa suffered almost daily blackouts as Eskom struggled to meet demand, one of the major reasons the economy contracted in the second quarter.

But a warmer than usual winter, which ended in August, has helped to stem power shortages and the utility company has forecast steady supply until April 2016.

However, energy experts and Eskom officials say a key reason behind the sustained power supply is a drop in demand.

Statistics South Africa said this month that electricity consumption fell 3.7 percent in September from a year earlier, without giving a breakdown.

In October, the government cut its economic growth forecast for 2015 to 1.5 percent from its projected 2.0 percent in February.

"The saving grace for Eskom - not this economy - is that since 2008 this economy has been in solid decline, it has never fully recovered. The depressed economy is helping Eskom reduce power cuts," said a senior Eskom insider, who did not want to be named.

Eskom spokesperson Khulu Phasiwe said having more generating units running had largely helped it meet demand, and "obviously, the slow down in the economy is a contributing factor."

The Energy Intensive User Group of Southern Africa (EIUG), which represents big South African companies, including miners and the country's top power consumer ArcelorMittal South Africa, said its customers were feeling the pinch from higher electricity prices.

Steelmaker ArcelorMittal has scaled back output sharply as its peers around the world grapple with a global supply glut that has sent producers' shares tumbling.

Some firms were also generating their own power, EIUG said.

As demand drops, however, Eskom has to raise its tariffs to make up for any loss of revenue, EIUG's spokesperson Shaun Nel said. Power has risen to about 30 percent of its members' operating costs from eight percent, he said.

"You will have this negative spiral, where increases in electricity prices are reducing demand, which has the further effect of increasing electricity prices," Nel said.

Eskom has asked the energy regulator to let it to recover $1.6 billion in costs incurred from running expensive diesel plants, which may mean further increases in tariffs.

"It is a foregone conclusion that prices will have to increase, because they were so low for so long," Phasiwe said.

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