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Critical Issues
Electricity Distribution Industry
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Restructuring Electricity Distribution
Interests of Distributors
Power Shortages and the Economy
Importance of Independent Grid
The Electricity Crisis
Presentation by
Eustace Davie, Doug Kuni & Temba Nolutshungu
FMF Energy Policy Unit
Restructuring Electricity
Distribution
• Eliminating maintenance backlogs
– Cost to fix backlog R35 billion. Value of distribution assets R260 billion (2008
estimated valuation)
– Municipalities need capital and the skilled manpower
– They can utilise the assets to acquire both through contracting out or the sale
of the assets
• Conflict of interest – electricity versus rest
– Distribution grids are being starved of maintenance because municipalities are
using electricity resources to do other things
– A solution must be urgently found in order to avoid blackouts at the distribution
level
– There is no perfect solution that will satisfy everyone but there are workable
solutions that ensure that the necessary maintenance is carried out and the
municipalities derive some income
• Avoiding distribution level blackouts
– Blackouts must be avoided for economic and political reasons
– They destroy production and are also politically unpopular
Restructuring Electricity
Distribution
• Contracting out maintenance
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Municipalities could hire the capital and skills to catch up on the maintenance and
upgrading of distribution grids
This could be in the form of concessions or maintenance agreements
Every local authority could find its own solutions
It is essential that they get expert technical and legal advice
• Selling distribution grids
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Distribution grids could be sold on a basis that stipulates the maintenance and
upgrading the purchaser will do and the time frame
Strict quality requirements can be built into contracts
At the end of a period of (say) 20 years the grids could revert back
• Competing suppliers at consumer level
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In New Zealand there is competition at the household consumer level
Consumers have a choice
Competition reduces prices
Interests of Distributors
• Access to grid by competing generators
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Currently SA has a vertical monopoly comprising generation, transmission and
distribution
This is the worst of all worlds for municipal distributors
Distributors have no choice of supplies from competing generators
• Distributors buying directly from competing generators
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Distributors should be able to buy from competing generating companies
This would allow them to sell on at better prices
• Wheeling from generators to distributors
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Wheeling power over the transmission grid from competing power producers is
essential
Access to the grid by independent power producers would change conditions
dramatically for distributors
Interests of Distributors
• Existence of an electricity market
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Increases choice at wholesale and retail level
Aids the efficient use of electricity
• Efficient use of available electricity
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Smoothes the utilisation of power over 24hrs
Reduces the concentration of the off-take in peak hours
Power Shortages and the
Economy
• Electricity generation deficits and blackouts
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Why are the lights on? With current shortages where is the electricity coming from?
Given the 5000MW power deficit SA has we should be having load-shedding
It would be less costly to the economy to have load-shedding rather than the
measures that are being followed to avoid them
• Effect on industrial development
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The 2007/8 blackouts cost the economy an estimated R50bn to R119bn
Keeping on the lights is equally costly
The loss of production, development and investment is very large
Loss of industrial developments that has not happened must be equally large
• Effect on property development
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Shopping centres, housing and other developments have been halted
Potential developers are told that they cannot go ahead until they provide evidence
that they will have access to adequate electricity supplies
Power Shortages and the
Economy
• Loss of Gross Domestic Product (GDP)
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The loss of GDP at the 2007/8 level of load-shedding was estimated by a statistician
to amount to 2.5% to 6% if carried out every fourth day over a year
Cutting supply to avoid load-shedding if sustained would reduce GDP by 3.3% to
2.5%
• Loss of Foreign Direct Investment (FDI)
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It is not possible to know how much FDI has been lost but investors will think twice
about investing in a country with an uncertain electricity supply
Importance of Independent Grid
• Independently-owned and operated
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An independently-owned and operated high-voltage power grid is essential to solve
SA’s electricity supply problem
An independent grid will encourage IPP’s to invest in new generation capacity
without the uncertainties that currently exist
• Unobstructed access for IPPs
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Unobstructed access to the grid by IPP’s is the key to unlocking increased electricity
supplies and the avoidance of load-shedding
By the time current building and planned power production is completed electricity
demand will have increased further
More power will be needed and with access to the grid IPP’s could immediately start
building plants
• Wheel to distributors and large users
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If IPP’s could wheel directly to distributors and large users they could plan to provide
the electricity that Eskom cannot and will not be able to supply
They could bring development to SA that would otherwise not happen
Importance of Independent Grid
• Introduce competition
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Competition plays an important role in all aspects of the economy
It increases consumer choices and makes an economy consumer-directed
It improves the efficiency of the use of resources
• Bring down prices to customers
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Competing providers bring down prices to consumers
They ensure a range of qualities and prices to meet the needs of different consumers
Free competition puts the customer in the driving seat
• Ensure no more load-shedding
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An independent grid and conditions that encourage investment by IPP’s will provide
the best conditions for the rapid reduction and elimination of the electricity deficit
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Already there is a large pent-up demand that is not being utilised
The Electricity crisis
• Load-shedding through inadequate generation –
Let in the IPPs
• Threat of infrastructure failure – Contract out
maintenance or sell distribution networks
• The situation is urgent
• What is required now is urgent action on the part of
the Legislative arm of government and urgent
implementation by the Executive