1. 20062006 SECRET for a RED future SECRET for a RED future Six issues in Restructuring Electricity Distribution Trevor Gaunt University of Cape Town

2. 20062006 SECRET for a RED future1980s Duvha Drakensberg Koeberg Tutuka Lethabo Matimba Kendal Matla Palmiet 35’000 MW 30’000 MW 25’000 MW 20’000 MW 15’000 MW

3. 20062006 SECRET for a RED futureSlowdown! 35’000 MW 30’000 MW 25’000 MW 20’000 MW 15’000 MW

4. 20062006 SECRET for a RED futureReaction Mothball and reduce construction 1987- new Electricity and Eskom Acts, focus on Distribution Electrification: Electricity-for-All and National Electrification Programme Restructuring

5. 20062006 SECRET for a RED future Electricity’s contribution Economic development –Efficiency, growth, financial return Social development –Equity, justice, poverty alleviation Socio-economic development –Long-term sustainable changes of lifestyle

6. 20062006 SECRET for a RED future Development politics Participants’ values, interests, resources Political action Structures and systems of control and influence Achievements

7. 20062006 SECRET for a RED future Other outcomes Participants’ values, interests, resources Political action Structures and systems of control and influence Unintended consequences Achievements Size Complexit y Lack of understanding

8. 20062006 SECRET for a RED future Skills Entitlement Capacity Reliability Environment Tariffs My six issues Time for only a few illustrations

9. 20062006 SECRET for a RED future Capacity 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 8 th International Conference ACDC Power Transmission, London, March 2006 Consequence: large interruptions inevitable.

10. 20062006 SECRET for a RED future Universal access

11. 20062006 SECRET for a RED future Capacity to respond WJ Balot, SAPPSJ Lennon, Eskom Presented in 2001, forecasts from 1999

12. 20062006 SECRET for a RED future Capacity 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.

13. 20062006 SECRET for a RED future Rights 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

14. 20062006 SECRET for a RED future Entitlement Issue Customers are entitled to receive electricity, many suppliers are entitled to participate in electricity delivery, but … limits on customers and suppliers are unclear.

15. 20062006 SECRET for a RED future 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

16. 20062006 SECRET for a RED future 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]

17. 20062006 SECRET for a RED future Environment 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.

18. 20062006 SECRET for a RED future Tariff 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

19. 20062006 SECRET for a RED future Social tariffs Free Basic Electricity: Local choice Variety Increases difficulty of rationalization BEST recommendations: not free default tariff nationally uniform restricted capacity Measured elasticity

20. 20062006 SECRET for a RED future Justify 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

21. 20062006 SECRET for a RED future Tariffs Issue Tariff rationalization significant potential for implementing economic and social policies, … without proposed radical organisational change, but … virtually neglected. Why?

22. 20062006 SECRET for a RED future Interruption 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.

23. 20062006 SECRET for a RED future Managing reliability Grid as vehicle for energy competition. Market for reliability?  Performance regulation But stochastic failure events do not represent well the system reliability.

24. 20062006 SECRET for a RED future Reliability 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.

25. 20062006 SECRET for a RED future Technical 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.

26. 20062006 SECRET for a RED futureExclusion Race and gender policies. Private sector support of small municipalities. Unfilled posts in large utilities. New projects draw skills from operations and maintenance.

27. 20062006 SECRET for a RED future Skills Issue Present policies inadequate for training and retaining technical skills, and … uncertainty makes conditions worse.

28. 20062006 SECRET for a RED future Skills Entitlement Capacity Reliability Environment TariffsImplications Complex and real. Simplistic proposals will not work.

29. 20062006 SECRET for a RED futureElectrification Emphasis on grid electrification. Need policies for entitlement, tariffs and reliability. Progress towards universal access depends on NT. Success depends largely on skills availability.

30. 20062006 SECRET for a RED future Grand 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?

31. 20062006 SECRET for a RED futureReality 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

32. 20062006 SECRET for a RED futureRecommendation 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. SEC RETAttend to Skills, Entitlement, Capacity, Reliability, Environment and Tariffs.