Contents Financing of Electrification in Financing of Electrification in • Standing of RSA Electricity Distribution Africa: Africa : Industry • Electrification Methodologies Presented • Financial Prospects of Residential Energy Lessons from the South African experience Lessons from the South African experience Market • Lessons Learnt UPDEA Conference – 2005: Ghana • Opportunities for Africa • Conclusions Presented by: T. L. Steyn Sr. Project Engineer – Eskom Distribution
Summary Summary • Past Decade: 4.5 million Connections • Risk in long-term sustainability • Cost of infrastructure is ± R12 billion • Cost of operations – Indications less than • Similar program for Africa: turnover – In order of $ 15 billion for 35% households • Mal-alignment in the market - is a perception that Africa can ill-afford. • Financed from within the electricity sector • Option: Selective marketing / Private sector • Principle sponsors - industrial and mining participation. customers • Macro parameters – Determine Course of • Cross subsidization sanctioned at a political Africa’s Initiative. level • Imperative - Policy as to how electrify • Capital recovery - not very likely.
Composition of South Africa's Standing of RSA Electricity Distribution Electricity Consumption - 2001 Industry - 2001 General ****, 5% Agriculture, 2% Transport, 3% Mining, 17% Commercial, 10% • Streetlights - Kimberley in 1882 • Steady build-up of industry ever since • Base energy consumption of ± 178 TWh • Domestic sector ± 33.8 TWh Domestic, 19% • Estimated 6.58 million customers Manufacturing, 42%
World Standing: Eskom Composition of Eskom Customer Base: Energy Sold - 2003 Traction, 1.9% International, 3.2% Agricultural, 4.0% • Energy sales - 9’th Mining, 15.9% • Generating Capacity - 11’th Distributors, 37.0% • Producing more than 95% of SA electricity • Distributing 55% of End User Power • Historically: Supply Mining Industry • Rural Areas: Supplier of Last Resort Industrial, 24.0% Residential, 9.3% Commercial, 4.5%
SA Electrification South Africa's Electrification Programme 5,000,000 • Before 1990 - 2.24 million Residential 4,500,000 Municipalities Eskom Cummulative New 4,000,000 Connections 3,500,000 Connections • Growth of 14.5% p.a. over period of 108 3,000,000 years 2,500,000 2,000,000 • Past Decade: 4.5 million New Connections 1,500,000 • Cost of infrastructure is ± R12 billion 1,000,000 • Growth Rate of this Expansion ± 10% p.a. 500,000 0 • Household’s Access to Electricity: 68% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Year
Change in SA Residential Energy Market Electrification Status • Eskom – Executed 2/3 of Electrification No of Customers Total Energy Program ['m] Sold [TWh] • Growth of 35% in its Customer Base 2001 • Relative Small Part of its Business – Less Municipalities 3.27 27.2 than 10% Eskom 3.13 7.4 • Municipalities – Structural Problems in 6.4 34.6 Domestic Total Participating 1990 • Industry Fragmented – Different Tariffs 2.13 19.5 Municipalities • Need for Restructuring - Regional Electricity 0.112 1.08 Eskom Distributors (RED’s) 2.242 20.58
Map of proposed RED’s Growth in SA Residential Energy Market Total Energy Growth - p.a. (1990-2001) No of Customers Sold 4.0% 3.1% Municipalities Eskom 35.4% 19.1% Overall 10.0% 4.8%
Electrification Kick Off – Early1990’s Eskom Residential Market: pre - Electrification • New South African political dispensation - 160000 1000 Average Energy Consumption Number of Customers 900 – Reconstruction & Development Program 140000 Number of Customers Energy Sales [kWh/month] 800 • Provide Basic Services for Disadvantage 120000 700 [kWh/month] Communities 100000 600 • Eskom Presence in Rural Areas – Principle 80000 500 Agent of Electrification 400 60000 300 • At the time - Residential customer base - ± 40000 200 100,000 Connections 20000 100 • Ruling Energy Consumption: 0 0 1950 1955 1960 1965 1970 1975 1980 1985 1990 ± 800 kWh/Customer /Month Year
Electrification Program- Background Typical Capital Cost of Electrification • Effect of Capital Cost - Ingenuity to Optimize Technology Average Cost per Connection • Initially Deep Rural - New Bulk Infrastructure - Cost Reduced Year 1995 2001 • Cost ratio between Cities and Rural – Supply Rating Urban R 2,170 R 2,674 • Rural: 2.5-20 A per house Rural R 3,568 R 2,622 • City Household: 20-60 A per house • Employed Electronic Pre-paid Metering
Electrification Methodologies Presented Alternative method of electrification • KaNgwane - North-eastern border of South Africa • Blanket Approach: 90% of the South African • Area Totaling ± 3000 km² Program • Eskom & Local Community - 50:50 Partnership • Maximize Political Acceptability • Transitional Electricity Distributor (TED) - Period • Rationale: Economy of Scale 1994-1997 • Once-off Site Establishment / Administrative • Partial Extension of Network – Wide Area as Possible Control • Selective marketing for new Residential Customers • Reduce Cost per Connection • All Capital Funded on Loan Agreement: SA • Community Involvement - Prioritize Development Bank Electrification • Panel of Local Consulting Engineers Manage Program • Townships - Fully Electrified per Project • Mean Time - Others Left Dark
TED Profile Category of Customers (Energy Delivered): TED - 1997 Agriculture Domestic (Pre- 5% paid) Large supply users 16% • Staff complement - 161 24% • Total Customers - 63 500 • Energy Distributed -1997: 240 GWh. • Connection Fee: 2.5 x National Fee • Market Principle - Price Discrimination Business Users • Test Customer’s Need for Service –> Better 9% Utilization • Politically Adverse Domestic (Conventional) 46%
Financial Prospects of Residential Energy TED - Extent of Capital Programme 35,000 R 3,500 Market 30,000 R 3,000 Cummulative No of 25,000 • Capital Recovery - Not Very Likely Cost / New Connection Customers • Direct Capital Grant from Central Government 20,000 Introduced R 2,500 15,000 • Risk in Long-term Sustainability • Restricted References - Operating Expenditure 10,000 R 2,000 • Source Documents - Eskom & TED Year Reports 5,000 • Define Cash Flow Indicator: Turnover: Operating Expenditure - R 1,500 Year • Split Pre-Paid Customer from Conventional Metered 1993 1994 1995 1996 1997 Customers No of Domestic (Conventional) No of Domestic (Pre-paid) Cost per Connection
Eskom Pre-Paid Residential Market Eskom Residential Market - Normalized - Normalized 110 210 R 40.00 R 80.00 Turn-over / Customer Operating Cost / Customer 205 R 35.00 R 70.00 Monthly Energy Consumption Energy [kWh] / Customer Monetary Value per Month 200 100 R 60.00 Monetary Value per R 30.00 Consumption [kWh] Monthly Energy 195 R 50.00 R 25.00 [kWh] Month 190 R 40.00 90 R 20.00 n/a 185 R 30.00 R 15.00 Turn-over / Customer 180 R 20.00 80 R 10.00 Operating Cost / Customer 175 R 10.00 Energy [kWh] / Customer R 5.00 170 R - 70 R - 1998 1999 2000 2001 2002 2003 1998 1999 2000 2001 2002 2003 Year Year
Residential Market - Financial Status Eskom Residential Market - Liquidity (Normalized) 30% • Consumption per Customer: Reduced ± 75 % 25% • Initial Economic Model: Required ± 350 kWh 20% "Cash Flow" : Turn-Over per Month per Customer 15% "Cash Flow" : Turn-over (Residentail) • Growth in Pre-paid base – Pressure on 10% "Cash Flow" : Turn-over (Pre-Paid) Sustainability 5% • Need to Increase Average of Sales 0% 1998 1999 2000 2001 2002 2003 • Operating Expenditure – Require High Focus -5% n/a -10% -15% Year
TED Operations TED - Level of Domestic Energy Demand 450 400 [kWh/Month/Customer] 350 • Conventional Metered Customers – Close to Energy 300 required Average • Pre-paid Customers – In Line as National 250 Figures 200 • Liquidity –Appeared to be Sustainable 150 100 Year 1993 1994 1995 1996 1997 Domestic - Conventional [kWh/month] Domestic - Pre-paid [kWh/month] Domestic - Average [kWh/month]
Lessons Learnt TED - Liquidity (Normalized) R 160 30.0% 25.0% R 140 Value per Customer per Month • Continuation of Electrification: 3- 6% increase in 20.0% "Cash Flow" : Turn-Over R 120 Residential Tariffs Required 15.0% • No Significant Economic Development at Township R 100 Level 10.0% R 80 • Pre-paid metering hasn’t solved Non-payment 5.0% R 60 • Its Reliability is Questionable 0.0% • Endemic Energy Theft Turnover / Customer / Month R 40 -5.0% Operating Expenditure / Customer / Month • Information on Operations and Maintenance is R 20 -10.0% Lacking "Cash Flow" : Turn-Over R - -15.0% • Pressure on Management of Customer Data Bases 1993 1994 1995 1996 1997 Year
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