Experiences and Lessons Learned Electrification Indaba

byWolsey Barnard

Executive Manager: INEP

15 March 2012

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• Electrification programme in country has two distinctive periods – prior 2001 and post 2001;

• Prior 2001 - industry “number” chasing era;

• Post 2001 – “integrated” era, ensure processes are aligned with different Government policies;

• This Indaba is 10 years into the 2nd era;

• Good time to recap and asked seriously what was the “Experiences and Lessons learned” in this period.

Introduction

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Connections between 1994 and 2011

ProvinceElectrified Houses:

Municipalities & Eskom

Eastern Cape 974 873

Free State 357 839

Gauteng 633 219

KwaZulu Natal 878 867

Mpumalanga 535 356

Northern Cape 130 135

Limpopo 915 098

North West 628 184

Western Cape 364 172

Total 5, 417 743

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Enabling circumstances for effective electrification progammes

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Requirements for effective electrification Following environment/circumstances is required to have an effective electrification programme:

• Stable and effective electricity distribution industry;• Correct customer numbers and mix;• Integrated electrification planning and monitoring

unit/agency;• Ring-fenced capital subsidy system for electrification;• Long-term transparent subsidy system; • Good project management systems need to be in place;• Effective financial and technical monitor systems to be

in places as a key component of any electrification programme;

• Required national/regional technical standards while projects need to be monitored against these standards;

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Requirements for effective electrification (…2) Following environment/circumstances is required to have an effective electrification programme (continue): •Sufficient number of consulting engineers and contractors that are available to partake on a continuous basis in the electrification projects;•All stakeholders and role-players need to understand the electrification policy/rules;•Multi-year funding must be available for projects;•Pre-paid meters the most effective revenue collection method for electrification customers;•Common/standardization of technology from network designs to vending and IT platforms; •Electrification customers have to make a financial contribution to ensure responsibly for service/infrastructure.

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Misconception regarding electrificationFollowing misconception exist regarding electrification:

• Electrification is only an electricity industry challenge – it is a social challenge;

• Every new research breakthrough will result in new electrification product/implementation method;

• Pilot projects will solve electrification problems - very few pilot projects are suitable for mass roll-out;

• Electrification does not make commercial sense – at the most it can be a break even venture:

• Recover connection costs via tariffs - consumption levels of rural costumers so low that it is impossible to recover capital and operations cost from the tariffs alone;

• In most instances not even possible to recover operation costs to supply a rural customer;

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Misconception regarding electrification (cont..)Following misconception exist regarding electrification projects (continue): •Metering technology can solve financial viability of electrification projects – non of the current metering solution (pre-paid meters, smart meters etc) can fulfil such a roll;•Electrification are completed with the switch-on ceremony - most electrification projects are designed to address only current needs and does not take into consideration (1) increase demand as customers financial position improving or (2) other economic activities emerged as a result of the upliftment/development of a community due to electrification.•Renewable energy technology systems requires no maintenance – need service providers and community responsible to take ownership of asset.

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Challenges in current electrification progamme

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ChallengesMunicipalities and Eskom• Slow delivery of electrification projects by Municipalities and certain Eskom regions.• Lack of skills within Municipalities – technical and project management.• Majority of Municipalities are not performing as required - internal procurement processes

takes too long, even up to 7 months to appoint the consultants and just as long to complete the appointment of the contractors.

• Eskom internal project management systems and ‘red type’ is slowing down delivery in certain regions.

• Lack of implementation of FBE. • Consulting engineers and contactors not geographically spread according to backlogs in

country.• Municipalities do not have purchase bargaining power.

Non-grid programme• Slow roll-out of non-grid connections due to negative political perceptions and practical

short comings.• Current non-grid systems not addressing basic electricity needs of customers – does not

address heating and cooking needs.• Non-grid service providers struggle to exist financially due to small customer base and

rural location.

• Regulations promulgated recently increase non-grid installation costs dramatically.

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Challenges (...2) Electricity industry • Shortcomings in EDI are starting to have a very negative effect on the delivery of new

connections.• Municipalities use electrification funds to do upgrading of existing networks.• Due to the nature of EDI, different electrification technical standards are implemented by

Municipalities and Eskom.

Funding and cost of connections• More and more connections done in rural areas – connections costs increase sharply and

subsidy level have to be increased accordingly.• Electrification fund allocated in next 3 years will not increase annually above CPI - connection

costs on average have increased annually by 12% over last 3 years.• Pressure is increasing on fund - received 4.2 times more applications from municipalities than

what was available for 2012/13 financial year. Last 6 years INEP received 50% of the funding as projected in 2003/4 to address backlogs.

• Annual budgetary process force projects to be planned and designed on an annual basis and not on a multi-year (project completion) basis.

• High energisation/switch-on cost charged by Eskom. Municipalities have to pay up front , not as previously over 10 to 15 yrs period.

• No soft loans or grants nationally or internationally available for normal grid extension, except if grid is renewable feed.

• Difference in National and Local Government financial years.

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Challenges (...3)INEP• Planning, Monitoring and evaluation of electrification programme limited due to

lack of resources – funding and HR;• Limited national planning capacity within INEP – Eskom Distribution and

Transmission expansion and planning is dictating electrification roll-out.• INEP resources are stretched, since more and more operational involved in

municipal projects.

General• EIA and land clam process that took sometimes more than two years to resolve; • Late delivery of housing projects.• Sharp increase in hard ware cost (transformers, switch gear, cables) – increase in

base metals prices.• Corruption staring to became a serious issue.• Local manufactures cannot compete with low cost imported equipment

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Thank you

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Current estimated backlogs

Province Backlog

Eastern Cape 621 081

Free State 196 529

Gauteng 846 669

KwaZulu Natal 827 720

Limpopo 296 878

Mpumalanga 221 185

Northern Cape 48 810

North West 159 338

Western Cape 202 885

Total 3 421 094