SECRET for a RED future Six issues in Restructuring Electricity Distribution

1. SECRET for a RED future Six issues in Restructuring Electricity Distribution Trevor Gaunt University of Cape Town SECRET for a RED future

2. Palmiet Kendal Matimba Lethabo Tutuka Koeberg Drakensberg Duvha Matla 1980s 35’000 MW 30’000 MW 25’000 MW 20’000 MW 15’000 MW SECRET for a RED future

3. Slowdown! 35’000 MW 30’000 MW 25’000 MW 20’000 MW 15’000 MW SECRET for a RED future

4. Mothball and reduce construction 1987- new Electricity and Eskom Acts, focus on Distribution Electrification: Electricity-for-All and National Electrification Programme Restructuring Reaction SECRET for a RED future

5. Economic development Efficiency, growth, financial return Social development Equity, justice, poverty alleviation Socio-economic development Long-term sustainable changes of lifestyle Electricity’s contribution SECRET for a RED future

6. Development politics Participants’ values, interests, resources Political action Structures and systems of control and influence Achievements SECRET for a RED future

7. Other outcomes Participants’ values, interests, resources Political action Structures and systems of control and influence Size Complexity Lack of understanding Achievements Unintended consequences SECRET for a RED future

8. Skills Entitlement Capacity Reliability Environment Tariffs My six issues Time for only a few illustrations SECRET for a RED future

9. 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’. MW Demand Supply 2005 Capacity in Western Cape • Consequence: large interruptions inevitable. * P Naidoo et al, at IEE 8th International Conference ACDC Power Transmission, London, March 2006 SECRET for a RED future

10. Universal access SECRET for a RED future

11. Capacity to respond Presented in 2001, forecasts from 1999 SECRET for a RED future

12. 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. Capacity Issue SECRET for a RED future

13. Escom/Eskom formed to provide adequate and economical supply Municipal responsibility for services in local areas Utilities meet customer needs: Rights and responsibilities Gen & Tx Eskom Dist Metros & Munics Customers Economic: large industries – without constraint? Social: households – how much? other energy? subsidized? SECRET for a RED future

14. Customers are entitled to receive electricity, many suppliers are entitled to participate in electricity delivery, but … limits on customers and suppliers are unclear. Entitlement Issue SECRET for a RED future

15. Carbon 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 SECRET for a RED future

16. Best 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] SECRET for a RED future

17. 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. Environment Issue SECRET for a RED future

18. Tariffs changed by municipal demarcation, but restructuring not only way. NER objective – no progress in ten years. ESCOs add tariff variety. Tariff rationalization • Objectives: • simplicity • stability • cost reflectivity • transparency of subsidies SECRET for a RED future

19. Free Basic Electricity: Local choice Variety Increases difficulty of rationalization Measured elasticity Social tariffs • BEST recommendations: • not free • default tariff • nationally uniform • restricted capacity SECRET for a RED future

20. 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 Justify restructuring SECRET for a RED future

21. Tariff rationalization significant potential for implementing economic and social policies, … without proposed radical organisational change, but … virtually neglected. Why? Tariffs Issue SECRET for a RED future

22. 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. Interruption costs SECRET for a RED future

23. Grid as vehicle for energy competition. Market for reliability?  Performance regulation But stochastic failure events do not represent well the system reliability. Managing reliability SECRET for a RED future

24. 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. Reliability Issue SECRET for a RED future

25. 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. Technical skills SECRET for a RED future

26. Race and gender policies. Private sector support of small municipalities. Unfilled posts in large utilities. New projects draw skills from operations and maintenance. Exclusion SECRET for a RED future

27. Present policies inadequate for training and retaining technical skills, and … uncertainty makes conditions worse. Skills Issue SECRET for a RED future

28. Skills Entitlement Capacity Reliability Environment Tariffs Implications Complex and real. Simplistic proposals will not work. SECRET for a RED future

29. Electrification • Emphasis on grid electrification. • Need policies for entitlement, tariffs and reliability. • Progress towards universal access depends on NT. • Success depends largely on skills availability. SECRET for a RED future

30. Electricity for All, 1990 EDRC Electrification Restructuring, 1991 ANC Electrification Conf, 1993 NELF NER ESCOs? EWG Tariff regulation? Municipal responsibility? ERIC Asset transfer? Staff transfer? 6=REDs? EDI Consultants Eskom Dist restructured 6 REDs + E? RED One, 2005 City Power to E? Grand restructuring SECRET for a RED future

31. 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 development Need policy to reflect TODAY’s situation Reality SECRET for a RED future

32. 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 Skills, Entitlement, Capacity, Reliability, Environment and Tariffs. Recommendation SECRET for a RED future