The electricity distribution network will become increasingly important – and has to become increasingly smart – to meet future electricity needs amid the growth of variable and decentralised generation, a range of experts say.
The electricity distribution industry will have to change drastically to overcome the pressing issues it faces, starting with visibility and control over the network.
This flow of data is critical to enable the grid to respond in real time to system dynamics and to allow for effective energy management, says veteran energy-sector strategic adviser Dr Willie de Beer.
“The historical model of one supplier of bulk energy and capacity is outdated. A sustainable distribution system requires multiple energy inputs (inclusive of inputs as close as possible to the load nodes), energy storage capability and a level of distribution self-healing,” he says.
The profit margins of the historically centralised generation and monopoly transmission and distribution model covered the required investment in transmission and distribution infrastructure, with sufficient margins to subsidise those who could not afford electricity. However, with rising primary energy costs – mainly the cost of coal – this is increasingly challenging, says Council for Scientific and Industrial Research Energy Centre head Dr Clinton Carter-Brown.
The ability to mark up and pass through rising costs has become a challenge. Consumers who can afford to supplement their grid-sourced energy are doing so, thereby reducing their grid electricity costs and inherently reducing the related subsidies used to help support low- or no-income users.
The business models and tariffs do not cater for this scenario and the financial viability of the utility is impacted on by this, which typically responds by increasing tariffs, driving more people to alternative energy solutions and ending in a utility death spiral, he emphasises.
“The solution to this problem is a new business model that keeps customers connected to the grid, allowing them to supplement their grid-based electricity with embedded generation and energy storage. The grid provides benefits and services for those connected, including night-time energy, high levels of reliability, reactive power and a level of fault tolerance. Presently, grid costs are bundled with generation energy costs in retail tariffs and, hence, the cost and value of the grid are not visible to consumers.”
Specifically, energy-intensive users, which include many industrial operations and commercial businesses, will benefit from grid access to meet their energy needs, and the distribution network can facilitate the sale and transmission of power from Eskom or other power producers, adds Carter-Brown. In such a scenario, these energy-intensive users should pay grid service charges to wheel energy from multiple sources.
International examples where the use of renewables exceeds 15% of grid capacity indicate that grids must be smart to manage the volatility effectively, highlights State-owned South African National Energy Development Institute smart grids, data and knowledge management GM Dr Minnesh Bipath.
The discussion about the structure of the electricity industry must consider the structure of a smart grid, he emphasises.
University of Cape Town Energy Research Centre senior researcher Dr Hilton Trollip highlights that the transmission portion of the grid is wholly controlled by Eskom, as well as about 60% of the distribution grid, with the remaining 40% controlled by municipalities.
“The retail price of electricity has risen 400% in real terms since 2007, resulting in electricity sales declining. As an energy- and electricity-intensive economy, this has been associated with an economic decline, especially in the manufacturing sector,” he highlights.
To overcome the challenge of expensive electricity, many retail outlets, businesses, factories and even mines are deploying their own generation assets to secure at least a portion of the electricity their operations require.
However, Trollip states that Eskom wields asymmetric power, owing to its control over the transmission portions of the grid and its status as a vertically integrated monopoly, and has resisted the transition to a new energy future.
“Decisions that make significant economic sense, such as allowing additional independent power producers to sell power over the grid, have been delayed to protect Eskom, which negatively impacts on municipalities’ ability to secure power supply for clients.”
South African Local Government Association energy and electricity head Nhlanhla Ngidi highlights that there are no easy, quick solutions to the challenges around the structure of electricity tariffs and its concomitant impacts, including defection and nonpayment by customers and municipalities.
Part of the required reforms must ensure that municipalities become sustainable entities again in the future.
“Reforms must allow for economic activity and development within municipalities to ensure that people within them are employed and able to pay for services,” he says.
The electricity industry is going through fundamental changes and needs to implement reforms and reviews of the business models to address the changes and ensure sustainability even during the current transition. The model for supplying electricity needs a total overhaul, adds Ngidi.
Capital and operational investments are required to refurbish the grid, and must be linked to a business model that facilitates the recovery of these costs on an ongoing basis, says Carter-Brown.
Ensuring that the fees required from users and municipalities to support and improve the grid flow to the network business is necessary, and this requires a change in tariff structure and possibly in the collection processes, he says.
Specifically, the cost of generation and the network fees must be separated in the tariff structure.
A revenue structure that can facilitate energy trading over the network is also an important part of the transition to an intelligent energy market, avers Bipath.
The grid could play a very important role where the continuous availability of energy to support a business operation, lifestyle or any other specific condition is required, adds De Beer.
“With the correct grid configuration and supporting guidelines or policies, the benefits for prosumers (electricity consumers that produce some of their own power) and grid owners or operators that can be derived from a portfolio of grid and alternative energy options are significant.”
Embedded in this is, partially, the secret to the survival of the electricity distribution industry, he emphasises.
“Rebuilding confidence in the industry will require greater transparency and client participation, ethical conduct, accountability and decisive leadership. One of the immediate steps required is to unbundle the infrastructure-related costs from the energy consumption and associated services costs,” adds De Beer.
The tariff structures should also be designed to encourage clients to participate in the new portfolio of energy options, he says.
“The ability of the distribution sector to move towards sustainability is highly dependent on the market and system operations structure that will be put in place.”
If the approach is to restrict the distribution sector in terms of where it may participate and from whom it may procure energy continues, the unbundling of Eskom Generation and Eskom Transmission will have very little benefit for the distribution sector, warns De Beer.
“The cost associated with procuring capacity and energy is killing the distribution sector. Should municipalities remain customers of Eskom Distribution, which is currently the position of a number of municipalities in the proposed unbundled business, the challenges will remain.
“It is, therefore, essential that the market and system operations structures be addressed in the interest of South Africa, the clients and the electricity supply industry. As a result, any reform initiative, without addressing in parallel the managing of the industry debt, will find it difficult to yield the desired results.”
A sustainable grid implies sufficient revenue to meet the required liabilities and grow the business; it is then essential to consider the client mix and select the most appropriate technology to meet the specific requirements, emphasises De Beer.
“It is essential to clearly define the future growth potential and factor this into the design of the solution.”
It is possible to refurbish elements of grid infrastructure to support and enable smart grids, and many of the new components and equipment are designed to serve in smart grids, adds Carter-Brown.
South Africa must upgrade its grid to be able to use and manage new variable energy sources and to wheel the energy from where it is produced to where it is needed, states Trollip.
“With our indigenous energy sources, including renewable sources, South Africa could have the cheapest electricity in the world, which we can use to industrialise [and] beneficiate mineral resources and power the economy. Such an energy grid can also be environment friendly and sustainable, if we commit to using renewable sources and energy storage,” he says.
In this grid architecture, economies of scale help to ameliorate costs, while competition between energy producers help to drive down the cost of energy. However, for this to happen, there must a well-understood plan to transition from the current grid architecture to a smart grid so that each role-player, including suppliers, service providers, municipalities and Eskom, can deliver against this objective, explains Trollip.
The infrastructure investment backlog figure stood at R68-billion in 2014, and includes the distribution infrastructure backlog of assets under the control of municipalities and Eskom. The distribution infrastructure backlog is growing at an alarming rate and there is very little evidence of any ownership of the challenge, emphasises De Beer.
While the decrease in load and associated sales provides some “breathing space” for the industry, there are numerous examples of transformers, switchgear and cables failing as a result of ageing, overloading, lack of maintenance or a combination of these.
“It is very difficult to see how we will be able to grow the economy if the growth is, among others, dependent on reliable and sustainable electricity supply to mining, industrial and commercial customers. Without addressing the distribution infrastructure investment backlog, it is to be expected that there will be an escalation in the frequency and duration of outages faced in metros, other cities and towns.”
Another key consideration is whether to develop one smart grid or a series of smart grids controlled by each municipality. A national smart grid addresses the problems of a lack of technical electricity skills – including support skills for new digital systems – in municipalities by consolidating the skills, services and control within the new business, while municipalities focus on the sale of electricity and revenue collection, says Bipath.
A national grid would also ensure that the new business controls all regulated wires, which extend up to the meters in business or houses, so that they are well managed, adhere to strict quality standards and provide the necessary smart grid benefits and functions, including effectively managing bidirectional energy flows and variable energy sources to maintain a stable grid, he says.
“South Africa cannot afford a structure of 187 electricity distribution operations. There is a need for substantial consolidation and an urgent need to reform the electricity supply industry market and associated arrangements. Without allowing participants to buy energy at the best price, irrespective of the source, the electricity distribution industry cannot survive. It is prudent to look at alternative funding options and participation in the industry,” concludes De Beer.