SMEs need bright plan for series of energy tariff hikes

SMEs have been urged to plan for significant electricity increases over the next few years if they want to survive the current harsh economic climate.

Small businesses would need to factor increases into budgets and financial plans, and look at alternative energy sources, as Eskom would be passing on the cost of infrastructure development to consumers in a series of hikes.

Mila Loubser, Head of Engineering Intelligence, a division of Energy Partners that does forecasting, modelling and monitoring in the energy sector said South Africa was still likely to see above inflation increases in electricity prices over the next few years, making it important for business owners to consider alternative sources of energy.

“Since 2008 the average tariff increase in South Africa has been around 300%. According to our research, the next eight years will likely see a year-on-year tariff increase of at least 6% to 8%. In light of the upcoming 2017 Budget Speech, we are also waiting to find out if the government will introduce a new carbon tax. If this is the case, tariff increases could be as high as 13%,” Loubser says.

Whereas larger companies are able to more easily absorb the cost, this trend would have the largest impact on SMEs.

“As we have seen in previous years, energy tariff hikes and other power related issues such as load shedding, had massive impacts on the operating costs and the already low profit margins of SMEs. There are, however, opportunities for smaller companies to reduce the impact of power costs and supply on their business.”

The Banking Association of South Africa said in a recent statement that SMEs had been identified as productive drivers of inclusive economic growth and development in South Africa and around the world, but they encountered challenges.

These include: crime and corruption; appropriate technology and low production capacity; adequate skilled labour; and finance and obtaining credit.

Cala van der Westhuizen, spokeswoman for Energy Partners Home Solutions, said SMEs should take advantage of the incentives for the installation of renewable energy solutions. “SMEs can claim a percentage of the cost of solar and other renewable energy solutions back from SARS. Some banks also offer financing to their business banking clients for renewable energy solutions.”

There is also the opportunity to get financing options from service providers.

Ben Bierman, managing director of Business Partners Limited, told SME South Africa that prospects for SMEs overall were looking better this year when compared with 2016.

This was due to improved economic growth and an easing of inflation that was expected, a better rainfall forecast for the year ahead, and improved business confidence.

Challenges included difficulties in increasing the tax base and questions around the sustainability of the social grant system.