20062006 secret for a red future secret for a red future six issues in restructuring electricity...

SECRET for a RED future

2006

SECRET for a RED future SECRET for a RED future Six issues in Restructuring Electricity DistributionSix issues in Restructuring Electricity Distribution

Trevor GauntTrevor Gaunt

University of Cape TownUniversity of Cape Town


2006

1980s 1980s

Duvha

Drakensberg

Koeberg

Tutuka

LethaboMatimbaKendal

Matla

Palmiet35’000 MW

30’000 MW

25’000 MW

20’000 MW

15’000 MW


2006

Slowdown!Slowdown!

35’000 MW

30’000 MW

25’000 MW

20’000 MW

15’000 MW


2006

ReactionReaction

• Mothball and reduce construction

• 1987- new Electricity and Eskom Acts, focus on Distribution

• Electrification: Electricity-for-All and National Electrification Programme

• Restructuring


2006

Electricity’s contributionElectricity’s contribution

Economic development

– Efficiency, growth, financial return

Social development

– Equity, justice, poverty alleviation

Socio-economic development

– Long-term sustainable changes of lifestyle


2006

Development politicsDevelopment politics

Participants’ values, interests, resources

Political action

Structures and systems of control and influence

Achievements


2006

Other outcomesOther outcomes

Participants’ values, interests, resources

Political action

Structures and systems of control and influence

Unintended consequences

Achievements

Size

Complexit

y Lack of

understandin

g


2006

• Skills

• Entitlement

• Capacity

• Reliability

• Environment

• Tariffs

My six issuesMy six issues

Time for only a few illustrations


2006

Capacity in Western CapeCapacity in Western Cape

• Without Koeberg, network is inadequate to supply Cape load.

• Loss of one unit at Koeberg taken as “infrequent” for planning *.

• In practice, “two units not available” is likely ‘contingency’.

Demand

Supply

MW

2005

* P Naidoo et al, at IEE 8th International Conference ACDC Power Transmission, London, March 2006

• Consequence: large interruptions inevitable.


2006

Universal accessUniversal access

-6000

-4000

-2000

0

2000

4000

6000

8000

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Targ

et

Urban

Rural

000s


2006

Capacity to respondCapacity to respond

WJ Balot, SAPP SJ Lennon, Eskom

Presented in 2001, forecasts from 1999


2006

Capacity IssueCapacity Issue

• EDI does not have enough electricity to meet the needs of customers,

• networks do not reach all the customers, • existing networks are under severe

strain, and • the institutions cannot respond

adequately to the needs.


2006

Rights and responsibilitiesRights and responsibilities

• Escom/Eskom formed to provide adequate and economical supply

• Municipal responsibility for services in local areas

• Utilities meet customer needs:

Economic: large industries – without constraint? Social: households – how much? other energy?

subsidized?

Gen & Tx

Metros & Munics

Eskom Dist

Customers


2006

Entitlement IssueEntitlement Issue

• Customers are entitled to receive electricity,

• many suppliers are entitled to participate in electricity delivery,

but …• limits on customers and suppliers are

unclear.


2006

Carbon emissionsCarbon emissions

• Natural gas is better than coal

• Renewables (eg wind, bagasse) are better than natural gas

• Most renewables are expensive

• Renewable energy subsidies and carbon taxes divert funds from other social needs


2006

Best optionsBest options

• Coal – local and low cost• Hydro – foreign dependency • Renewable energy – need grid codes

and research to support viable DG• Nuclear – advantage of low emissions

and low cost

[Eskom]


2006

Environment IssueEnvironment Issue

In South Africa:

• Central generation and conventional distribution most attractive,

• Scope for limited renewable energy DG,

• … other renewable energy policies not justifiable locally - despite importance of environmental sustainability.


2006

Tariff rationalizationTariff rationalization

• Tariffs changed by municipal demarcation, but restructuring not only way.

• NER objective – no progress in ten years. • ESCOs add tariff variety.

Objectives: simplicity stability cost reflectivity transparency of subsidies


2006

Social tariffsSocial tariffs

Free Basic Electricity:• Local choice• Variety• Increases difficulty of rationalization

BEST recommendations: not free default tariff nationally uniform restricted capacity

y = -0.151Ln(x) + 1.0954

R2 = 0.902

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0 50 100 150

Consumption bin (kWh/mth)

Pri

ce

ela

sti

cit

y o

f c

on

su

mp

tio

nMeasured elasticity


2006

Justify restructuringJustify restructuring

• Restructuring was proposed to raise funds needed for electrification

• NEP met numerical targets without restructuring utilities or tariffs

• Government (fiscus) took over funding after 2000

• Concepts underlying first restructuring proposals apparently incorrect


2006

Tariffs IssueTariffs Issue

Tariff rationalization • significant potential for implementing

economic and social policies,• … without proposed radical

organisational change,

but …• virtually neglected. Why?


2006

Interruption costsInterruption costs

• Tariffs do not represent interruption costs.

• Interconnected grid designed to improve reliability despite faults: N-1 criterion.

• Large systems complex reliability:

– Multiple failures

– Risk and consequence

• Low quality (low voltage, dips, harmonics) also costs customers.


2006

Managing reliabilityManaging reliability

• Grid as vehicle for energy competition.

• Market for reliability?

Performance regulation

But stochastic failure events do not represent well the system reliability.


2006

Reliability IssueReliability Issue

Reliability • Technical planning, operations and

maintenance,• … should include supply costs and

interruption costs,

but …• cannot be managed by utility profit

objectives and fines for failures.


2006

Technical skillsTechnical skills

• Engineering skills needed to plan, build, operate and maintain the physical system.

• Universities and technical colleges under-resourced.

• Skilled people have diverse needs.

• Diverse utilities offer staff a range of opportunities.


2006

ExclusionExclusion

• Race and gender policies.

• Private sector support of small municipalities.

• Unfilled posts in large utilities.

• New projects draw skills from operations and maintenance.


2006

Skills IssueSkills Issue

• Present policies inadequate for training and retaining technical skills,

and …• uncertainty makes conditions worse.


2006

• Skills

• Entitlement

• Capacity

• Reliability

• Environment

• Tariffs

ImplicationsImplications

Complex and real.

Simplistic proposals will not work.


2006

ElectrificationElectrification

• Emphasis on grid electrification.

• Need policies for entitlement, tariffs and reliability.

• Progress towards universal access depends on NT.

• Success depends largely on skills availability.


2006

Grand restructuringGrand restructuring

ANC Electrification Conf, 1993 NELF

EWG

NER

ERIC

6=REDs?

ESCOs?

EDI Consultants

Electricity for All, 1990

EDRC Electrification Restructuring, 1991

6 REDs + E?

Tariff regulation?

RED One, 2005

Asset transfer? Staff transfer?

Eskom Dist restructured

Municipal responsibility?

City Power to E?


2006

RealityReality

REDs were an academically elegant solution for 1990, … but since then:

• achievements in connections• NT funding for electrification and FBE• skills loss through uncertainty• investment in trying to make REDs work

shows complexity of central control• failed responsibility for capacity

developmentNeed policy to reflect TODAY’s situation


2006

RecommendationRecommendation

• Forget simplistic restructuring and REDs.• EDI Holdings staff to strengthen NERSA.• Restructure distributors incrementally.• Munic’s must meet their responsibilities.• Compare performance on basis of clear,

accurate, appropriate and easy-to-understand information.

• Failures lose electricity rights and assets.• Attend to SSkills, EEntitlement, CCapacity,

RReliability, EEnvironment and TTariffs.

20062006 secret for a red future secret for a red future six issues in restructuring electricity...

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