Electricity cost risk modelling of the Energy Conservation Scheme (ECS) for the gold mining industry of South Africa

The Department of Mineral and Energy (DME) together with Eskom initiated the National Electricity Response Team (NERT) that resulted in the establishment of the Power Conservation Program (PCP). This program consists of two subdivisions namely the Energy Conservation Scheme (ECS) and Electricity Growth Management (EGM). EGM focuses mainly on the framework and how new connections or additional electrical consumption should be managed. The objective of the ECS scheme is to motivate ECS customers to reduce electricity consumption by enforcing penalty charges when the customer consumes more than the monthly allocation. The ECS has set a target for an overall electrical energy reduction of 10% measured from the established ECS consumer baseline or reference consumption. A variable electricity tariff structure is applied to a certain percentage of the excess electricity consumed over the monthly electricity allocation. The penalties allocated to electricity consumption that is more than 10% of the monthly allocated quota could be as much as R11.91 per kWh. These costs or penalties pose a great financial risk to large electricity consumers such as the gold mining industry. This prompted the derivation of an electricity cost risk and scenario prediction model that could support the gold mining industry when the ECS is launched. The derived model quantifies the electricity cost risk relative to the assumed price increase of electricity for the gold mining group.