Demand for green electricity amongst business consumers in the Western and Northern Cape of South Africa

De Villiers, Cecile A. (2010-12)

Thesis (MBA)--University of Stellenbosch, 2010.


Climate change is one of the most serious issues the world is facing today. With an economic slowdown globally, huge food shortages and record-high fuel prices, it has never been so important for countries to guard their natural resources to ensure future sustainability. The South African energy generation industry, of approximately 40 000 Mega Watt (MW), consists largely (90%) of coal-fired power stations, with the remainder comprising of nuclear and pumped storage schemes which are regarded as environmentally neutral. It is only recently that Eskom and independent power producers (e.g. Darling Independent Power Producer Wind farm with an estimated 10 MW) embarked on utilising South Africa's natural resources to generate electrical power. South Africa's access to inexpensive coal and paid off coal-fired power stations has made it difficult to justify the investment in renewable energy. However, on 31 March 2009 South Africa became the first African country to introduce a feed-in-tariff for renewable energy (Gipe, 2009). The hope is that this initiative would stimulate the investment in green energy generation. Eskom and municipalities are currently the only entities that have licences from the National Energy Regulator of South Africa (NERSA) to buy bulk electricity from power producers. The question therefore arises: if green electricity is more expensive to generate and is sold at a price premium to Eskom and municipalities, would they pass the premium on to consumers; can they differentiate the green electricity product and will consumers be willing to buy at a premium price? This research study aims to answer if businesses would be willing to pay a premium for green electricity, why they would be willing to buy it, which factors influence the purchasing decision and what barriers exist that will deter a purchase. A survey was conducted on businesses in the Western and Northern Cape of South Africa. The businesses sampled have a notified maximum demand of 50kVA or higher and excludes the re-distributor (City of Cape Town) customers. Approximately ten per cent of businesses would be willing buy green electricity. Most of these businesses have indicated that they are willing to pay a premium of five to nine per cent for green electricity. The businesses that are willing to pay the largest premiums (>10%) are in the electricity, gas, water, finance, insurance, real estate, business services, manufacturing, transport, storage and communications sector. Businesses that are willing to buy green electricity: • Have a strategy to reduce their carbon footprint; • Want to be community leaders (altruistic motivators); • Have as their biggest barrier the additional cost of green electricity; and • Feel that power utilities should be required to include a minimum percentage of green energy in their energy mix.

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