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Electricity price increase a double whammy for SMEs

By in Business, Economy, Finance on April 11, 2016

Small business owners should brace themselves for a two-fold setback due to the current electricity tariff increase which impacts on profits and ultimately the spending power of consumers.

Sanjeev Orie, Head of Business Value Adds at FNB Business says because of the tariff increase, the use and availability of energy has yet again been put in the spotlight as one of the biggest challenges that limits the productivity and growth of small businesses in the country.

“April will be a particularly difficult month as SMEs come to terms with the 25 basis points hike in interest rates, followed by the increase in fuel levy and electricity tariffs. Moreover, the fact that electricity price increases will have a direct impact on consumers is not making the situation any easier,” says Orie.

“Not long ago businesses struggled with load shedding as power cuts disrupted operations, resulting in the loss of revenue,” adds Orie.

“With power supply having stabilised, the focus has now shifted to managing costs, making it essential for small businesses to identify alternative means to reduce electricity consumption and lower their operating costs to unsure the sustainability of their businesses.”

Last year, FNB received an overwhelming response when the bank financed generators to businesses and consumers, proving that SMEs are eager to find proactive ways of dealing with electricity challenges.

Orie says investment in alternative energy solutions, like solar power, should be considered by SMEs that are committed to reducing their dependence on the grid.

Although solar power requires a large capital investment, it can save businesses costs in the long-term, helping them to hedge against future electricity price increases and shortages. This solution would further allow SMEs to benefit from incentives offered by the government for using alternative energy sources.

When used effectively, solar power has been proven to significantly reduce electricity consumption. For example, a fuel station can use solar power during the day when the sun is shining and turn back to grid power at night.

Long-term energy efficiency strategies will be key for businesses that want to lower costs. Furthermore, small business owners have to educate and work together with their staff to reduce inefficiencies and make sure that costs are minimised as much as possible.

Orie encourages small businesses that are eager to invest in alternative energy solutions to approach their bank or financial services provider to find out more about financing solutions available, to help them overcome power challenges.