Volume 25 Number 4 • November 2014
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Volume 25 Number 4 • November 2014 CONTENTS 2 The sensitivity of the South African industrial sector’s electricity consumption to electricity price fluctuations Roula Inglesi-Lotz 11 ANN-based evaluation of wind power generation: A case study in Kutahya, Turkey Mustafa Arif Özgür 23 Performance analysis of a vapour compression-absorption cascaded refrigeration system with undersized evaporator and condenser Vaibhav Jain, Gulshan Sachdeva and Surendra S Kachhwaha 37 Mapping wind power density for Zimbabwe: a suitable Weibull-parameter calculation method Tawanda Hove, Luxmore Madiye and Downmore Musademba 48 Application of multiple regression analysis to forecasting South Africa’s electricity demand Renee Koen and Jennifer Holloway 59 A systems approach to urban water services in the context of integrated energy and water planning: A City of Cape Town case study Fadiel Ahjum and Theodor J Stewart 71 Improving stability of utility-tied wind generators using dynamic voltage restorer G Sivasankar and V Suresh Kumar 80 Renewable energy choices and their water requirements in South Africa Debbie Sparks, Amos Madhlopa, Samantha Keen, Mascha Moorlach, Anthony Dane, Pieter Krog and Thuli Dlamini 93 Energy consumption and economic growth nexus: Panel co-integration and causality tests for Sub-Saharan Africa Basiru Oyeniran Fatai 101 Energy models: Methods and characteristics Najmeh Neshat, Mohammad Reza Amin-Naseri and Farzaneh Danesh 112 Hybrid electromechanical-electromagnetic simulation to SVC controller based on ADPSS platform Lin Xu, Yong-Hong Tang, Wei Pu and Yang Han 123 Investigations on the absorption spectrum of TiO2 nanofluid A L Subramaniyan, Sukumaran Lakshmi Priya, M Kottaisamy and R Ilangovan 128 Dynamic performance improvement of wind farms equipped with three SCIG generators using STATCOM Othman Hasnaoui and Mehdi Allagui 136 Details of authors 142 Index to Volume 25: February–November 2014 The sensitivity of the South African industrial sector’s electricity consumption to electricity price fluctuations Roula Inglesi-Lotz Department of Economics, University of Pretoria, Pretoria, South Africa Abstract argues that the current prices are not cost-reflective, Numerous studies assume that the price elasticity of and second, its capacity expansion plans include electricity demand remains constant through the investing in two new power plants that will increase years. This, in turn, means that these studies the company’s operating costs. Before the next assume that industrial consumers react in the same electricity price restructure, it is imperative for poli- way to price fluctuations regardless of the actual cy-makers to understand, and in a way, ‘predict’ the price level. This paper proposes that the price elas- reactions of consumers to price changes. Even more ticity of industrial electricity demand varies over important, the national electricity consumption time. The Kalman filter methodology is employed in trends do not necessarily represent each sector’s an effort to provide policy-makers with more infor- individual behaviour. Different price structures as mation on the behaviour of the industrial sector well as different electricity profiles are the main rea- with regards to electricity price changes, focusing on sons why different economic sectors should be the period 1970 to 2007. Other factors affecting examined separately and treated accordingly. electricity consumption, such as real output and Energy (and more specifically electricity) plays employment, are also captured. The findings of this an essential role in the production capacity of a paper show that price sensitivity has changed since country. It is a crucial role, specifically for the man- the 1970s. It has decreased in absolute values from ufacturing sector where energy is considered an -1 in 1980 to -0.953 in 1990 and then stabilised at irreplaceable input. In South Africa, the industrial approximately -0.95 which indicates that the indus- sector is responsible for an average of 47% of the trial sector has experienced an inelastic demand. In total electricity consumption (DoE, 2009), which other words, the behaviour of industrial consumers makes this sector one of the most important ones did not vary significantly during the 2000s. In the from an energy consumption point of view. long run and as the prices increase, probably reach- Ziramba (2009) studied the energy consumption of ing the levels of the 1970s or even before, the the industrial sector in South Africa and its interac- industrial sector’s behaviour might change and the tion with other variables such as industrial output elasticity might end up at levels higher than one and employment (but not electricity prices). More (elastic). recently, Inglesi-Lotz and Blignaut (2011a) found that, among various economic sectors such as agri- Keywords: electricity consumption; Kalman filter; culture and transport, the industrial sector was the price elasticity; industrial sector only one whose electricity consumption behaviour is sensitive to price fluctuations during the period 1993 to 2006. Following Inglesi-Lotz (2011), this paper propos- 1. Introduction es that the sensitivity of the industrial sector’s elec- In South Africa, choosing the correct and appropri- tricity consumption to price fluctuations (price elas- ate electricity price regime has been under discus- ticity) has been changing through the years. As sion during the last decade. During March 2012, the Inglesi-Lotz (2011) also points out, ‘focus on varia- National Energy Regulator South Africa (NERSA) tion is more important than only examining the re-evaluated and reduced the agreed rate of level of change’ – especially for the South African increase of the electricity price for 2012. Eskom has case after the price restructuring of 2009/10. The also expressed its intentions for further application fluctuations are so drastic that one has to take into on price rises for two main reasons: first, Eskom account changes in behaviour. Thus, the purpose of 2 Journal of Energy in Southern Africa • Vol 25 No 4 • November 2014 this paper is to estimate the time-varying sensitivity Many studies have been conducted on the ener- of the industrial sector’s electricity consumption to gy (electricity) demand of the industrial sectors in price changes, using the Kalman filter econometric various countries within different geographical methodology for the period 1970 to 2007. (See regions and with different economic backgrounds. Section 3 for a discussion on the reasons for the These studies also use numerous methods. selection of the time period). Different variables are used as factors other than This paper combines and extends the results by prices affecting the demand depending on the spe- Inglesi-Lotz (2011) and Inglesi-Lotz and Blignaut cific region and the time period. But all-in-all, the (2011a) in an effort to provide policy-makers with major determinants of the industrial sector’s energy more information on the behaviour of the industri- (electricity) demand in the majority of the studies al sector with regards to electricity price changes. are output, price of electricity and employment (Al- The findings will assist regulators and policy-makers Ghandoor et al., 2008; Jamil & Ahmad, 2011). in future decisions on price changes, a topic Table 1 presents a summary of international and extremely relevant and crucial to the current South local studies and their findings (in chronological African case. order) that deal with the industrial energy (electrici- This paper is structured as follows: Section 2 ty) demand. This collection of studies, although by provides a brief overview of studies that deal with no means exhaustive of the literature, is indicative the industrial sector’s energy or electricity consump- of the focus on a variety of countries (developed tion, as well as a summary of the South African and developing) for different time periods. A variety studies that deal with electricity prices and their of numerical estimations of the price elasticity, effect on the economy either in its entirety or spe- depending on the country and more importantly cific sectors. Section 3 presents the methodology the period of the sample, is also observed. and the data used. Section 4 presents the empirical For South Africa, only one study that sheds results, and Section 5 summarises the findings and some light on the reaction of the industrial sector concludes by discussing some possible policy impli- (among others) to the changes of prices is identified cations. (Inglesi-Lotz & Blignaut, 2011a). Ziramba (2009) also studies the industrial sector’s electricity 2. Literature review demand reactions but excluded price from the fac- During the last few decades, literature has paid spe- tors affecting it. Another recent study by Inglesi-Lotz cial attention to price elasticities of energy demand. and Blignaut (2011b) looks at the different eco- A possible reason for this is concerns regarding the nomic sectors and the factors that affect their environmental effects of the rising energy demand increasing electricity consumption. However, due internationally, and the ever-increasing need to find the nature of the method used (decomposition tech- appropriate instruments (if existing) to control it. niques), the effects of price fluctuations were not The industrial sector, specifically, attracted more studied. Other studies also look at electricity attention since it currently consumes approximately demand trends in South Africa (Odhiambo, 2009; 37% of the world’s