The more that energy costs, the less economic activity there can be” (Robert Zubrin)
It has been 13 long years since we first experienced load shedding in 2007. Since then, businesses have lost thousands of hours of productivity and significant amounts of money to these “rolling blackouts”.
The situation is not going to improve – more load shedding is predicted, by Eskom itself, for the next five years together with even higher electricity tariffs. Given the impact of load shedding and the high cost of electricity, business owners are well-advised to understand and assess the risks faced in terms of electricity supply and to implement strategies to mitigate this risk.
Impact on companies
In addition to its devastating impact on the economic environment in which companies operate, all businesses that use electricity for machinery, technology and light, experience a loss of production during power outages – even those with backup batteries or generators.
Smaller and medium sized businesses that cannot afford alternative energy solutions are disproportionately disadvantaged. Unable to provide any service, they lose customers too.
Companies also suffer physical damages from load shedding, for example, to computers and other electronic equipment, perishables damaged in refrigerators and raw materials wasted as production cycles are interrupted, and the inability to deliver to clients as load shedding affects traffic flow.
During load shedding, companies are also exposed to a greater security risk, as well as a theft and burglary risk, as security systems and processes are compromised, which, in addition, could affect their insurance cover.
Six ways to mitigate your electricity risk
Another example is Section 12B of the Income Tax Act, which provides for a capital allowance for movable assets used in the production of renewable energy and incentivises the development of smaller solar PV energy projects with an accelerated capital allowance of 100% in the first year for solar PV energy of less than 1MW.
The companies tax rate in South-Africa is 28%. With this incentive, the value of a new solar power system may be deducted as a depreciation expense from the company’s profits. This means that the company’s income tax liability will be decreased by the same value as the value of the installed solar system. This reduction can also be carried over to the next financial year as a deferred tax asset. This is a direct saving of 28% on the purchase price from day one on the solar system!