All businesses have to continually engage in capital investment to improve and maintain processes, equipment and facilities. Governments also invest in infrastructure projects like roads, rail and utilities provision. Whether private or public organization, when capital investment is not undertaken, the effects will cause problems.In South Africa, no power generation plants had been built for about 20 years from the early 1990s.With a growing economy since the mid 1990s, this has caused problems for many businesses. In 2008, the country exceeded its generation capability which caused power blackouts. The power problems hit one business sector particularly hard, namely the mining sector. Ore smelters and mines consume vast quantities of power and the South African economy is hugely dependent on this sector. Why no investment in 20 years? According to the Financial Times website (10 April, 2010), a major problem was low electricity prices, which in turn implied little cash for reinvestment.

To overcome this issue, electricity prices are set to rise two-fold by 2013 from their 2008 levels. However, additional power generation capacity takes time to build. In response, smelting operations like International Ferro Metals invested in their own on-site generation facility. The company produces 10 per cent of its power requirements by recycling heat from its smelters. This not only helps protect the company from power outages, but also protects to some degree against rising costs. A sound investment in the longer term it would seem.

Questions 

1 When evaluating an investment in energy generation solely on cost considerations, can a manager make the right decision?

2 Thinking about the International Ferro Metals example given above, what non-financial benefits might arise other than protecting against power outages?