New approaches needed for utilities, municipalities

 

Utilities and municipalities need to innovate and be optimised to address South Africa’s power challenges and stay relevant, say experts ahead of the Power-Gen & DistribuTECH Africa conference and exhibition taking place from 18 to 20 July 2017 at the Sandton Convention Centre. Key industry stakeholders have highlighted the need for utilities and municipalities to change in order to ensure stable, future-proof power supplies for South Africa.

Ken Robinson, managing director and associate director at Accenture, and a speaker at the event, says that South Africa’s generation crisis is largely under control, but that power supply challenges loom in distribution. The bulk of this distribution problem lies with municipalities.

Some years ago, the regulator estimated a backlog in the region of R80-billion in municipal power infrastructure maintenance, and the problem is increasing. If this situation is not addressed, more blackouts will occur with rural areas and small towns dying and massive migration to metros, putting more pressure on metro infrastructures. To support employment and assure quality of life everywhere, you need electricity everywhere, he says.

Robinson says the situation demands national intervention. The maintenance backlog is largely due to institutional capacity and funding, so steps should be taken at a national level to address those issues. He proposes that if the biggest challenge lies in skills, a process be initiated by the National Energy Regulator of South Africa (NERSA) whereby the electricity distribution licenses of the worst performing municipal distributors be cancelled, and Eskom be tasked with supplying those failing municipalities.

If the key issue proves to be capital, we need to look to private sector capital, he said. We saw private sector successfully engage on the renewables programme, so there is no reason private sector investment could not be secured for municipal power investments, provided there is an assurance private sector investors would be paid.

South African National Energy Development Institute (SANEDI) CEO Kevin Nassiep believes optimising utilities and the grid itself could go some way to assuring sustainable power supplies in South Africa. We need to effectively harmonise our energy systems, achieve the right energy mix, and look to best practice in optimising the value utilities can create, he said. South Africa’s power market missed an opportunity to privatise, which would have led to greater efficiencies, he adds. “You only have to look at Telkom and Sasol versus SAA to see how things could have worked out.”

Nassiep says that while South Africa has enjoyed a stable power supply in recent months, the true test will come when winter sets in properly. He says we need to assess ways and means to structure the energy mix to ensure that it is cost-effective and sustainable. Gas turbines have been employed at exorbitant cost – with turbines running on diesel at a cost of between R4 or R5 per kilowatt hour, where conventional pricing is between 70 c and R1,40 per kilowatt hour, according to Nassiep.

Sustainability would be supported by optimising the value utilities can create. They could be offering a variety of services, for example, if they combined data over power line with power supply as a bundled offering, they would put themselves into an entirely new market space, he notes.

Achieving the right mix

The right energy mix is key to meeting South Africa’s growth needs. Nuclear and renewables present solutions to the country’s power challenges, says Nassiep, but at the same time, it should be noted that coal is a stable baseload and provides direct jobs to around 77 000 people.

In addition, optimal use of renewables demands improved renewables storage capacity. However, solar and wind could support municipal power effectively, Nassiep adds. Municipalities have a significant role to play in addressing South Africa’s power challenges. Most are already looking at self-sufficiency and either generating their own power or buying their own power from independent power producers.

Bertha Dlamini, Power-Gen & DistribuTECH Africa brand ambassador and speaker, believes municipalities need to do more to achieve an optimal energy mix. Most electricity distributing municipalities are only considering their integrated energy mix strategies now, and are yet to fully implement same. However, the undertaking by Eskom to sign more PPAs is a good propellant for increased energy source diversification.

Dlamini agrees that utilities must embrace change. Renewables, distributed generation, and smart grids demand new capabilities, competencies and different operating culture. This also demands a regulatory reform. Customers are becoming more independent and the competition for customers will increase.

The Smart City agenda introduces another dimension requiring energy utilities or electricity distributing municipalities to become enablers of change.

While utilities must contend with their existing operating models becoming obsolete, they need to look at various pragmatic ways to evolve into the new operating model that requires an integrated strategy for a diversified energy mix, different relationships with customers, modernised distribution network, digitisation, and an ability to synthesise data into meaningful business information that enables effective strategy execution, and efficient service delivery, she says.

Contact Leigh Angelo, leigh@tradeprojects.co.za

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