Illegal connections will follow Eskom tariff hike IOL.co.za
January 18, 2010
Eskom’s proposed 35 percent tariff hike will lead to more illegal connections because electricity users cannot afford the cost of power, the SA Institute of Electrical Engineers and COSATU said Monday. “This tariff hike will have far-reaching implications. One of them will be the escalation of energy theft,” the institute’s president Du Toit Grobler told hearings in Durban, organised by the National Energy Regulator of SA (NERSA).
Eskom wanted a 35 percent tariff hike each year for the next three years. COSATU secretary in KwaZulu-Natal, Zet Luzipo, said the electricity hike would force resort to illegal connections and the use of dangerous forms of energy, including indoor coal burning and paraffin stoves, he said. Grobler proposed that Eskom should design a tariff hike for the next ten years so that consumers would not be adversely affected. He said the proposed tariff hike would also reduce economic growth, slow down the pace of recovery from the recession and lead to numerous job losses. He raised concerns about people who did not pay for electricity and criticised municipalities that wrote off unpaid energy bills.
Questions and Answers for Dr. John Lamola
What are the vulnerabilities of municipal power distribution grids in this instance?
The federal government has stripped Eskom, the quintessential para-statal utility, down to its core competency more than once. 350 local power distribution grids remain under municipal governments to strengthen local political accountability in South Africa. Because municipal energy companies purchase energy wholesale from Eskom and retail it to end-users, the municipality is caught in the middle of each Eskom price hike.
The municipality must mark up the wholesale price to cover its costs and collect it from its customers. However, this retail collection has proven problematic in the past under more favorable economic and pricing environments than we contemplate here: In June of 2008, the CoT discussed adding the collection of ZAR2 billion in uncollected energy bills to the Smart Grid Tender’s requirements.
A35% increase in wholesale energy pricing will have a radical impact on end-users’ ability to pay for energy. But Eskom will look to the CoT government treasury for payment. In the meantime, end-users will have a new incentive to find ways to get energy without paying for it. Many people are out of work, and wages of the employed are static and inadequate to sustain a 35% energy price hike.
End-users are likely to dispute their bills, refuse to pay their bills, or even seek methods and middlemen who can provide ways to obtain energy without detection and therefore without paying for it. In Karachi, Pakistan this phenomenon has resulted in a current situation where more than 50% of the energy produced by the Karachi Electrical Service Corp. being stolen by ‘organized crime’ for its own use at no cost.
The municipal energy company will incur higher operational costs to detect energy fraud / theft, manage energy bill disputes, and control energy distribution in this new disrupted / disordered user market.
As costs rise, revenues will plummet from customer disorder in the marketplace. Revenue disruption forces more support from tax-payers – whether local or federal – at a time when the overall economy is in recession that diminishes tax revenues.
As the wholesale energy supplier and creditor, Eskom is the first to be paid, and therefore is absolved of these difficulties. All these difficulties fall on the municipal energy company and its ultimate underwriter, the taxpayer.
How will municipal power distribution grids protect themselves from these vulnerabilities?
The municipal energy company must not allow itself to get behind in confronting any of these issues.
A smart grid management system is required to monitor energy access and usage – not only at customer meters, but also throughout the grid. This requires sensors on all power links and transformers that communicate bilaterally with the management system so that detection and energy control are both accomplished in real time.
Energy usage detection and control must be transparently independent of personnel interventions – either in the central or outside plant facilities.
The absolute integrity of every energy record generated by reports from sensors and meters, and the system’s commands to them must be secured and objective evidence thereof accessible in the system to solve disputes that may arise.
The self-aware and articulated energy management system can enforce the rule of law and prevent disorder and disruption of the energy usage market. Fraud and theft detection and enforcement can operate in real-time and minimize revenue loss at the lowest cost possible.
An objective, accurate vision of energy usage can educate users in more productive less costly energy uses, while protecting the common grid from unintended waste, damage, and loss consequences that will otherwise reduce energy availability to everyone, while raising costs for all parties.
Under the best of circumstances, today energy systems must generate a minimum of 2 kilowatt hours for every single kilowatt hour that is actually used. Municipal energy companies can prevent this over-production from increasing, and eventually they can diminish this over-production requirement with a successful smart grid management system.
What are the right smart grid technologies and what should they cost?
According to the U.S. Federal Energy Research Commission (“FERC”), the recent USD3.4 billion [ZAR25.48 billion] Smart Grid Investment Grant (“SGIG”) Program disbursements entail about 10 million new smart meters. There’s enormous variability in the costs of the smart-meter roll-outs as described by the various SGIG grants against matching private investments (all of which must exceed the grant):
- 79% of grants expect associated costs of < USD500 per meter [ZAR3,746 per meter]
- 18% of grants expect associated costs of USD500 – 1,000 per meter [ZAR3,746 – 7,492 per meter]
- 2% of grants expect associated costs of USD1,000 – 2,000 per meter [ZAR7,492 – 14,986 per meter]
- 1% of grants expect associated costs of > USD2,000 per meter [>ZAR14,986 per meter]
The projects themselves surprisingly seem to be one-offs, each intending to validate one organization’s view of the new generation of smart grid. This program also tells us that even in these smallish percentages of planned deployment (less than 10% of the projected U.S. meter requirement nationally), the costs are huge. Getting to the FERC’s ‘partial adoption’ could easily cost another USD15 billion [ZAR112.36 billion] of government funding, and another USD20 billion to 30 billion [ZAR149.8 billion to 224.7 billion] in private investment. The numbers to get to a fuller adoption are far higher.
How will municipal power distribution grids acquire these protection strategies?
The municipal energy company has only three alternatives to acquire these energy management systems:
- Acquire them outright with taxpayer funding from the national or city treasury
- Acquire them outright by borrowing against the proceeds of increased tariffs over a protracted period of time
- Execute a service agreement with TWU to utilize smart grid application and communications services in return for providing grid management discretion and right of way to TWU.
o Benefits of the TWU third alternative
- Provides the smart grid applications and communications support as a service on a pay-as-used basis, effectively subsidized by communications revenues
- Follows the energy company’s preferred smart grid strategy, and
- Avoids up-front energy company capital expenditures,
- Achieves sufficient cost-savings to justify the smart grid within its service life cycle, the complete portfolio of smart grid applications must be deployed.
- Smart pricing features and functions can be gradually and carefully introduced so their benefits and costs are well understood by customers before their usage patterns are negatively impacted by energy market pricing.
- Smart grid application benefits can be judiciously divided between the utility and the consumer with full transparency to assure fairness and overall acceptance of the new technology.