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Sep 30, 2011

Once despised, prepayment electricity meters are gaining market acceptance

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The country is set to meet its universal electricity access target of 2014 – when all communities, households, clinics and schools can look forward to being electrified, maintains President Jacob Zuma.

Energy Minister Dipuo Peters notes that South Africa has increased electricity access from under 30% in 1994 to over 80% of the population by 2010.

Playing a pivotal role in meeting the universal access target is the roll-out of prepaid electricity meters (PPMs) in South Africa, which were once viewed as a tool to mitigate against widespread rates boycotts by activists to increase internal pressure on the apartheid government, which was becoming increasingly isolated abroad.

The concept was not developed in Africa, but power utility Eskom is viewed as the pioneer when it comes to massive deployment of PPMs. It was the first utility worldwide to start a large-scale roll-out of PPMs on a national basis.

Today, Eskom confirms there are about ten-million PPMs installed in South Africa. Other emerging markets are drawing on the South African experience to gain knowledge on prepaid electricity, as the country has enhanced the technology and developed standards for manufacturers, even developing a local industry that exports its products.

It is expected that another 250 000 PPMs a year will be installed to meet the universal electricity access targets. It is interesting to note that the costs of labour and transport often outweigh the cost of the technology in the roll-out of the new system.

South Africa also has a free basic electricity allocation of 50 kWh/m, and municipalities get a grant, which allows people on the indigent list to collect free tokens for their monthly allocation.

History of PPMs in South Africa
The concept of electricity for all was first articulated by Eskom in 1988, when the utility had only between 60 000 and 80 000 customers. Prepayment was regarded as a solution because it would simplify billing and the need for meter readers in many areas where there was no infrastructure – no roads, let alone street names.

Prepaid electrification was truly kickstarted around 1994 and 1995, as part of the Reconstruction and Development Programme, which saw about 300 000 PPMs being installed a year, mainly in rural areas, such as the Eastern Cape, KwaZulu-Natal and the Northern Cape.

About four-million of the ten-million PPMs in South Africa today are directly managed by Eskom. Others are largely controlled by municipal utilities.

In the City of Cape Town, for example, there are currently 486 000 PPMs operational in the city’s area of electricity supply, which accounts for about 75% of the supply connections within its municipal boundary, explains City of Cape Town electricity services director Dr Leslie Rencontre.

In 1993, the City of Cape Town adopted a policy that all new domestic residences with a supply connection of up to 100 A three phase would be metered using a PPM. The reason for this limit was that 100 A three phase was the largest-capacity PPM available on the market. The average house has a 60 A single-phase connection. At that time, free conversions to PPMs were offered to encourage consumers to change to the prepayment system. The free conversion offer continued until 2000, by which time about 70% of domestic consumers had converted to prepaid.

The systems in South Africa have essentially remained the same over the past 20 years, with some modifications and improvements along the way.

One of these improvements is ‘split metering’, which has now been introduced as the standard for new installations. After a pilot study of the split metering system, it was implemented about a year ago.

Prior to split metering, PPMs were installed inside the customer’s house – making auditing and inspections difficult for the utility. However, the PPM has now been split into two parts – the circuit breaker, or ‘brain’ of the meter is now located outside the house – often atop a pole to discourage tampering with the device, and the customer-machine interface (customer interface unit) is located inside the house. This is where customers can punch in their 20-digit encrypted codes for electricity bought and monitor consumption.

“Split metering is an excellent technology to support the revenue protection programme,” says Eskom prepaid development manager Deon van Rooi.

Another major change in systems has been the progression to online vending, which significantly increases the vending footprint, improving convenience and introducing various payment channels. Online vending also increases control in the prepaid environment, centralising the management of tariffs, transactions and customer data, as well as reducing the opportunities for fraud.

Van Rooi notes that it allows customers to buy tokens nationwide from ATMs, cellphones and the Internet, as long as one has the meter number. This enables ubiquitous vending.

He adds that, with developments in inform-ation and communication technology, the opportunities for prepaid are increased; this is why it is important for new products to be interoperable and able to integrate with existing equipment, since there are already ten-million PPMs in the country.

Online vending also presents increased business opportunities for new enterprises. One such company, which has grown in the prepaid electricity vending space, is Blue Label Telecoms subsidiary Cigicell.

Cigicell is one of the seven national electricity vending agents in South Africa, and supplies services in about 40 of the 50 municipalities with PPMs, and outsources prepaid token vending to a third party.

“Municipalities that use third-party distributors to increase access to prepaid electricity experience a significant increase in their revenue collections,” says Cigicell CEO Alan Kodesh.

At present, Cigicell alone handles between 11-million and 12-million prepaid electricity transactions a month, and estimates that about R800-million in prepaid electricity is bought in South Africa every month.

Blue Label has an extensive distribution network in South Africa, with over 140 000 points of presence, where transactions can be made for commodities such as electricity, prepaid airtime and other services.

Kodesh explains that the company acts as an agent for municipalities, delivering their service to customers. Cigicell collects a commission on every transaction (margins are on average 1.8% of the sale).

Municipalities that outsource distribution and vending responsibilities to a third party put out a tender and, usually, look for companies that have an established footprint in the area, adequate technology systems and experience, as well as empowerment credentials and financial stability.

Benefits of Prepaid
Eskom acting GM for research testing and development Barry MacColl explains the benefits of prepayment for electricity are that customers can adequately budget for their electricity in advance. The PPMs also allow for automatic switch-off when the credit meter expires, and prepayment can be used as a way for a utility to increase cash flow and manage bad debt.

He adds that, for the utility, PPMs lower operating costs and management complexity, largely because the operational complexity is hidden by the technology, which has a simple interface.

The benefits to the community are heralded as improved services and accuracy, with no cutoffs and reconnection fees, no deposits to be paid or bill discrepancies.

The job-creation potential of prepaid electricity is also highlighted, with Eskom noting that there is significant potential for skills development beyond manufacturing, through the development of downstream small, medium-sized and microenterprises in the areas of token sales and meter audits.

Because consumers are more aware of, and can monitor, their consumption, there are also energy efficiency spin-offs. In 1993, the City of Cape Town determined that the average saving in electricity consumption in houses with PPMs was in the order of 10%.

Components of Prepaid
Components of prepayment start with a management system – a computer system with database, management tools, reporting and security features. MacColl says the maintenance of the customer database is imperative.

Vending outlets, or computer-based terminals, where tokens are sold, are also an important component of prepayment. And, of course, the actual PPMs – an electronic meter with a display, a keypad and a dis- connect switch.

Eskom explains that standardisation of PPMs is vital. Initially, proprietary meters were used, with different meters of different sizes from different suppliers using different tokens and each supplier had its own vending systems. This meant that, if a meter failed, it would have to be replaced with the exact same make of meter and there was a strong possibility of being locked into using one supplier.

Van Rooi explains that Eskom has been instrumental in establishing Standard Transfer Specification (STS) meters, and these have a common base for easy replacement of faulty meters, use of standard tokens (a 20-digit barcode) and make use of common vending systems from different suppliers.

This, he adds, eliminates the possibility of being locked into procuring from a single supplier. STS is a secure common language protocol used to transfer standard encrypted tokens between prepaid meters and common vending systems from different suppliers.

Eskom sits on the STS board and the standards were developed by the utility. The aim is to keep the design and installation of PPMs as simple as possible.

Testing of compliance with STS standards by various manufacturers is also done at Eskom’s premises on behalf of the STS Association.

Prepaid Lessons Learned
Unfortunately, it is not all smooth sailing, and Eskom notes there are factors that will impact on the performance of PPMs for those utilities that still intend to implement the system. These factors include unreliable meters with unproven technology being installed, meter tampering and vandalism, and database integrity becoming problematic if the system is slow to update.

The success of a prepayment system is based on accurate meter data. One of the issues is that there is a lack of real-time data, or near real-time data; however, with recent developments in prepayment technology, this is fast changing. Work is being done on integrating smart meters, which allows a utility to remotely retrieve consumption data from PPMs. This would allow for improved monitor- ing and management of systems.

If vending systems are not properly managed, issues may be experienced with the integrity of sales owing to data corruption as well as a loss of cash from vending stations owing to poor security.

The shortage of skilled prepayment staff in the country is another challenge, as well as the lack of revenue management skills available.

Failure to measure energy delivered to all towns, settlements and customers accurately also requires attention as it impacts on energy loss calculation and reporting.

There is also a risk that customers may reject the prepayment system. MacColl states that this does not happen as often anymore, although PPMs were once considered to bring “weak electricity” as the systems could support only 2.5 A, and, thus, plugging in multiple appliances would trip the system. Today 20 A and 60 A systems are the most common.

Rencontre notes that the acceptability of PPMs in Cape Town can be gauged by the response to the initial roll-out of PPMs in 1993. A marketing company was employed at that time to encourage consumers to convert to prepayment; however, its services were suspended after two months because of the huge number of applications that streamed in.

“Word of mouth was more effective than any marketing campaign. Waiting lists for installations grew to a peak of almost 50 000 and we were installing 250 meters each day to try to match the demand.”

He adds that there was a conscious strategy to ensure that PPMs were not labelled as meters for any particular segment of the community.

Keys to Success
MacColl stresses that, through experience, Eskom has realised the critical success factors for prepaid systems, and first of these is to know and understand the reasons for installing a PPM.

He stresses there should be a strong service philosophy and customers should be engaged at all times. There should also be a strong supporting structure for prepayment systems within the organisation.

Van Rooi says there should be a sound procurement strategy within the organ- isation, with set criteria for manufacturers to qualify for tender processes. “Never implement a proprietary system,” he emphasises.

It is also important to keep databases accurate by doing updates regularly, in real time, or near real time.

Certain utilities have had trouble with this, and certain Johannesburg utility City Power customers have complained that they were still receiving postpaid electricity bills after they had installed PPMs and had paid for electricity used in advance.

Further steps to success, adds MacColl, are that energy balancing must be performed monthly. This can be done using statistical or feeder metering and monitoring at the substation in an area, ensuring that the electricity consumption equals the revenue collected in the area. This can be compared through sales area codes.

There have been problems, such as fraud and data malfunctions, the Eskom team agree, but, after 20 years in the game, “we may get issues, but we don’t get surprises”, concludes MacColl.

Edited by: Terence Creamer
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