Financing of Electrification in Financing of Electrification in - - PowerPoint PPT Presentation

Financing of Electrification in Financing of Electrification in Africa Africa: :

Lessons from the South African experience Lessons from the South African experience

UPDEA Conference – 2005: Ghana Presented by: T. L. Steyn

• Sr. Project Engineer – Eskom Distribution
• Standing of RSA Electricity Distribution

Industry

• Electrification Methodologies Presented
• Financial Prospects of Residential Energy

Market

• Lessons Learnt
• Opportunities for Africa
• Conclusions

Contents

Summary

• Past Decade: 4.5 million Connections
• Cost of infrastructure is ± R12 billion
• Similar program for Africa:

– In order of $ 15 billion for 35% households

• Financed from within the electricity sector
• Principle sponsors - industrial and mining

customers

• Cross subsidization sanctioned at a political

level

• Capital recovery - not very likely.

Summary

• Risk in long-term sustainability
• Cost of operations – Indications less than

turnover

• Mal-alignment in the market - is a perception

that Africa can ill-afford.

• Option: Selective marketing / Private sector

participation.

• Macro parameters – Determine Course of

Africa’s Initiative.

• Imperative - Policy as to how electrify

Standing of RSA Electricity Distribution Industry - 2001

• Streetlights - Kimberley in 1882
• Steady build-up of industry ever since
• Base energy consumption of ± 178 TWh
• Domestic sector ± 33.8 TWh
• Estimated 6.58 million customers

Composition of South Africa's Electricity Consumption - 2001

Mining, 17% Domestic, 19% Manufacturing, 42% Agriculture, 2% Transport, 3% General ****, 5% Commercial, 10%

World Standing: Eskom

• Energy sales - 9’th
• Generating Capacity - 11’th
• Producing more than 95% of SA electricity
• Distributing 55% of End User Power
• Historically: Supply Mining Industry
• Rural Areas: Supplier of Last Resort

Composition of Eskom Customer Base: Energy Sold - 2003

Distributors, 37.0% Residential, 9.3% Industrial, 24.0% Mining, 15.9% Agricultural, 4.0% Traction, 1.9% International, 3.2% Commercial, 4.5%

• Before 1990 - 2.24 million Residential

Connections

• Growth of 14.5% p.a. over period of 108

years

• Past Decade: 4.5 million New Connections
• Cost of infrastructure is ± R12 billion
• Growth Rate of this Expansion ± 10% p.a.
• Household’s Access to Electricity: 68%

SA Electrification

South Africa's Electrification Programme

500,000 1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Year Cummulative New Connections

Municipalities Eskom

Electrification Status

• Eskom – Executed 2/3 of Electrification

Program

• Growth of 35% in its Customer Base
• Relative Small Part of its Business – Less

than 10%

• Municipalities – Structural Problems in

Participating

• Industry Fragmented – Different Tariffs
• Need for Restructuring - Regional Electricity

Distributors (RED’s)

Change in SA Residential Energy Market

No of Customers ['m] Total Energy Sold [TWh] 2001 Municipalities 3.27 27.2 Eskom 3.13 7.4 Domestic Total 6.4 34.6 1990 Municipalities 2.13 19.5 Eskom 0.112 1.08 2.242 20.58

Growth in SA Residential Energy Market

Growth - p.a. (1990-2001) No of Customers Total Energy Sold Municipalities 4.0% 3.1% Eskom 35.4% 19.1% Overall 10.0% 4.8%

Map of proposed RED’s

Electrification Kick Off – Early1990’s

• New South African political dispensation -

– Reconstruction & Development Program

• Provide Basic Services for Disadvantage

Communities

• Eskom Presence in Rural Areas – Principle

Agent of Electrification

• At the time - Residential customer base - ±

100,000 Connections

• Ruling Energy Consumption:

± 800 kWh/Customer /Month

Eskom Residential Market: pre - Electrification

20000 40000 60000 80000 100000 120000 140000 160000 1950 1955 1960 1965 1970 1975 1980 1985 1990

Year Number of Customers

100 200 300 400 500 600 700 800 900 1000

Average Energy Consumption [kWh/month]

Number of Customers Energy Sales [kWh/month]

Electrification Program- Background

• Effect of Capital Cost - Ingenuity to Optimize

Technology

• Initially Deep Rural - New Bulk Infrastructure -

Cost Reduced

• Cost ratio between Cities and Rural – Supply

Rating

• Rural: 2.5-20 A per house
• City Household: 20-60 A per house
• Employed Electronic Pre-paid Metering

Typical Capital Cost of Electrification

Average Cost per Connection Year 1995 2001 Urban R 2,170 R 2,674 Rural R 3,568 R 2,622

Electrification Methodologies Presented

• Blanket Approach: 90% of the South African

Program

• Maximize Political Acceptability
• Rationale: Economy of Scale
• Once-off Site Establishment / Administrative

Control

• Reduce Cost per Connection
• Community Involvement - Prioritize

Electrification

• Townships - Fully Electrified per Project
• Mean Time - Others Left Dark

Alternative method of electrification

• KaNgwane - North-eastern border of South Africa
• Area Totaling ± 3000 km²
• Eskom & Local Community - 50:50 Partnership
• Transitional Electricity Distributor (TED) - Period

1994-1997

• Partial Extension of Network – Wide Area as Possible
• Selective marketing for new Residential Customers
• All Capital Funded on Loan Agreement: SA

Development Bank

• Panel of Local Consulting Engineers Manage

Program

TED Profile

• Staff complement - 161
• Total Customers - 63 500
• Energy Distributed -1997: 240 GWh.
• Connection Fee: 2.5 x National Fee
• Market Principle - Price Discrimination
• Test Customer’s Need for Service –> Better

Utilization

• Politically Adverse

Category of Customers (Energy Delivered): TED - 1997

Large supply users 24% Business Users 9% Agriculture 5% Domestic (Conventional) 46% Domestic (Pre- paid) 16%

TED - Extent of Capital Programme

• 5,000

10,000 15,000 20,000 25,000 30,000 35,000 1993 1994 1995 1996 1997 Year Cummulative No of Customers R 1,500 R 2,000 R 2,500 R 3,000 R 3,500 Cost / New Connection No of Domestic (Conventional) No of Domestic (Pre-paid) Cost per Connection

Financial Prospects of Residential Energy Market

• Capital Recovery - Not Very Likely
• Direct Capital Grant from Central Government

Introduced

• Risk in Long-term Sustainability
• Restricted References - Operating Expenditure
• Source Documents - Eskom & TED Year Reports
• Define Cash Flow Indicator:

Turnover: Operating Expenditure

• Split Pre-Paid Customer from Conventional Metered

Customers

Eskom Residential Market - Normalized

R - R 10.00 R 20.00 R 30.00 R 40.00 R 50.00 R 60.00 R 70.00 R 80.00

1998 1999 2000 2001 2002 2003 Year Monetary Value per Month 170 175 180 185 190 195 200 205 210 Monthly Energy Consumption [kWh] Turn-over / Customer Operating Cost / Customer Energy [kWh] / Customer

Eskom Pre-Paid Residential Market

• Normalized

R - R 5.00 R 10.00 R 15.00 R 20.00 R 25.00 R 30.00 R 35.00 R 40.00

1998 1999 2000 2001 2002 2003 Year Monetary Value per Month 70 80 90 100 110 Monthly Energy Consumption [kWh] Turn-over / Customer Operating Cost / Customer Energy [kWh] / Customer

n/a

Eskom Residential Market - Liquidity (Normalized)

• 15%
• 10%
• 5%

0% 5% 10% 15% 20% 25% 30%

1998 1999 2000 2001 2002 2003 Year "Cash Flow" : Turn-Over "Cash Flow" : Turn-over (Residentail) "Cash Flow" : Turn-over (Pre-Paid)

n/a

Residential Market - Financial Status

• Consumption per Customer: Reduced ± 75 %
• Initial Economic Model: Required ± 350 kWh

per Month per Customer

• Growth in Pre-paid base – Pressure on

Sustainability

• Need to Increase Average of Sales
• Operating Expenditure – Require High Focus

TED Operations

• Conventional Metered Customers – Close to

required Average

• Pre-paid Customers – In Line as National

Figures

• Liquidity –Appeared to be Sustainable

TED - Level of Domestic Energy Demand

100 150 200 250 300 350 400 450 1993 1994 1995 1996 1997 Year Energy [kWh/Month/Customer] Domestic - Conventional [kWh/month] Domestic - Pre-paid [kWh/month] Domestic - Average [kWh/month]

TED - Liquidity (Normalized)

R - R 20 R 40 R 60 R 80 R 100 R 120 R 140 R 160 1993 1994 1995 1996 1997 Year Value per Customer per Month

• 15.0%
• 10.0%
• 5.0%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

"Cash Flow" : Turn-Over Turnover / Customer / Month Operating Expenditure / Customer / Month "Cash Flow" : Turn-Over

Lessons Learnt

• Continuation of Electrification: 3- 6% increase in

Residential Tariffs Required

• No Significant Economic Development at Township

Level

• Pre-paid metering hasn’t solved Non-payment
• Its Reliability is Questionable
• Endemic Energy Theft
• Information on Operations and Maintenance is

Lacking

• Pressure on Management of Customer Data Bases

Reconciliation of Eskom Residential Customer Base

Year 2002 2003 "New" No of Residential Customers (Year on Year Movement) 123,858 92,987 No of Electrification Connections (per Programme) 209,056 173,094 Variance (disconnected customers and homes that no longer exist as a result of floods and other reasons)

• 85,198
• 80,107

Opportunities for Africa

• South Africa - Consumption per Capita >

Total of Continent

• NEPAD – Expectation for Africa:
• Increase Access to 35% of Households in 20

Years

• In Terms of Hydro Potential – Fair

Expectation

Electricity Statistics - Africa

Situation Analysis - 2004 South Africa Africa No of Population [ 'm] 45 785 Total Electricity Consumption [TWh] 162 351 Domestic Electricity Consumption [TWh] 32 Total Electricity per Capita [kWh/year] 3634 447 Domestic Electricity per Capita [kWh/year] 727 Hydro Power - Produced 1999 [TWh] 73.2 Hydro Power - Potential [TWh/Year] 1888 Hydro Power Produced : Electricity Consumed 21% Electricity Consumed : Potential Hydro Power 19%

Scenario 1 - Africa @ SA Total Electricity Intensity Potential Electricity Consumption [TWh] 2852 Electricity Required : Potential Hydro Power 151% Scenario 2 - Africa @ SA Domestic Electricity Intensity Potential Electricity Consumption [TWh] 570 Electricity Required : Potential Hydro Power 30% Scenario 3 - Africa @ 50 kWh per Month per Household Potential Electricity Consumption [TWh] 8 Electricity Required : Potential Hydro Power 0.42%

Scenarios for Energizing Africa

Possible Futures for Africa

• NEPAD Target – Required Growth Rate of 6.5% p.a.
• Most Achievable - South Africa’s Equaled 10% p.a.
• Conventional Growth Rates - 50 years for 100% Connection
• Capital Requirements – Not Prohibitive Compared to War in Iraq
• Wars End : Power Networks go into Perpetuity
• Requires Sustainability of Revenues with Operating

Expenditures

Possible Future Outcomes for Africa

Present - 2004 SA Africa Africa No of Population 44,500,000 785,000,000 785,000,000 Electricity Consumption [TWh] No of Households 10,700,000 157,000,000 157,000,000 No of Households with Electricity 7,118,415 15,700,000 15,700,000 Ratio of Households with Electricity 66.5% 10.0% 10.0% People per Household 4.16 5.0 5.0 Forecast SA Africa Africa Level of Electrification 100% 35% 100% By Year 2014 2024 2050 Total of Households to be Connected 3,581,585 39,250,000 141,300,000 Total of Households to be Connected per Year 358,159 1,962,500 3,071,739 Composite Growth Rate 4.2% 6.5% 5.1% Total Capital Required ['b] R 9.0 R 98.1 R 353.3 Total Capital Required ['b] $1.3 $14.7 $53.0

Conclusions

• South African Program – Largely Effected by :

– Excess generating capacity – Highly developed electricity market & – Relative cheap coal

Conclusions

• Imperative - how electrification is

implemented

• Need to be sustainable
• Maximize benefit
• Consideration of Alternatives

– Other Sources of Energy – Different business Models

Conclusions

• Democratize energy: Develop Energy Agent
• Solar “power stations” - selling charged

batteries

• Retailing “last mile”
• Electricity Market needs natural Growth Path
• Cost Reflective Service what Customer can afford