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Electricity Distribution Industry (EDI) South Africa

Electricity Distribution Industry (EDI) South Africa. Presentation to the Joint Parliamentary Portfolio Committees of ENERGY and COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS 26 July 2012

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Electricity Distribution Industry (EDI) South Africa

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  1. Electricity Distribution Industry (EDI) South Africa Presentation to the Joint Parliamentary Portfolio Committees of ENERGY and COOPERATIVE GOVERNANCE AND TRADITIONAL AFFAIRS 26 July 2012 Co-prepared by Dr Willie de Beer, Former COO EDI Holdings and Mr Deon Louw, Former General Manager RED ONE EDI Holdings presented by Deon Louw

  2. Presentation Content • Overview • Challenges • Prognosis • Options • Conclusion

  3. Abbreviations Used • ADAM - Approach to Distribution Asset Management • EDI - Electricity Distribution Industry • ESI - Electricity Supply Industry • NIRP - National Integrated Resource Plan • Rbn - Billion Rand

  4. ESKOM Generation Distribution Industry Residential Municipalities Metering & Billing Business Current ESI Structure Currently, South Africa operates in the traditional mode of vertical integration with financial and physical flows following the same path EDI Transmission = Physical Energy Flow = Financial Flow

  5. OverviewBased on EDI Holdings 2008 Report Values • The EDI is an asset intensive business • Asset base replacement value ~ R260 billion • Distribution overhead lines >400 000 km • Distribution underground cables >210 000 km • Average age of asset base ~45 yrs • Customer centric business • Serving ~9.2 million customers • Large employer • ~31 000 people employed in the EDI • On average 26% of electricity staff are 50 and older, 62% are between 31 & 50 and 12% are under 30 • Average age of electricity staff in critical technical positions >50 years • 35% average vacancy rate • Significant player in the economy of South Africa

  6. Challenges • Despite pockets of good performance the EDI infrastructure shows that reliability and asset management needs urgent investment • Current practices in the EDI are no guarantee for business sustainability and economic growth • Evidence of significant under investment in people development, infrastructure and asset management • Deterioration of electricity service delivery in many areas in the country • Supply interruptions cost the Economy ~ R2.9bn to R 8.6bn p.a (2006)* • The EDI Holdings infrastructure assessment (2008) and the development of the Approach to Distribution Asset Management (ADAM), revealed that: • The maintenance, refurbishment and strengthening backlog ~R27,4 billion (2008) • The backlog is growing at a rate of ~R2.5bn per annum • Note: *Cost to the economy of unplanned system outages, based on the NIRP 2006 guidelines (NERSA, NIRP report 17January 2006)

  7. Maintenance, Refurbishment & Replacements • Average Electricity Distribution Network life span is 50 years • With proper maintenance, refurbishment and replacement the remaining life of the network should be kept at an average of 25 years to generally keep expenditure even over years and at a minimum. • This means that generally 2% of the network should be replaced yearly together with appropriate maintenance and refurbishment. • Current value of 2% replacement is approx R6.5bn. • We estimate a shortfall of nearly R35bn in 2011 terms • Under current circumstances the average remaining life of the network is therefore aging with another year after every two years of operation. • It was estimated that the network average age was 45years in 2008. It would therefore be 47 Years currently

  8. Book Value vs Network Age Rbn Current Value Age (Years)

  9. Typical Asset Maintenance Cost Cost Teething Problems Asset Life - Years

  10. Problems Facing the Distribution Industry • Stop the ageing of the infrastructure • Reduce maintenance cost by pulling out of the upward curve of the bathtub asset cycle • Compounded operation cost due to: • Huge tariff hike due to generation capacity increase • Additional funds needed to drastically increase the replacement and refurbishment of assets • Huge network expansion due to electrification at lower affordable tariffs but not balanced out with cross subsidisation of sufficient industry growth • Training of sufficient electrical staff • Financial, Maintenance and Network Support Technology vs Skills of Operational Staff

  11. Prognosis • While there is a plan in place to address the generation related challenges, there is no integrated strategy/plan in place to address the distribution related challenges • Currently the public perceives any electricity outages as Eskom Generation related, whereas many are related to distribution network related failures • Current performance of the EDI-side will not be able to underpin the projected economic growth or create sustainable jobs • Performance of the EDI-side is deteriorating at a rapid rate and service delivery is going to become an even bigger challenge going forward • If we are serious about a sustainable solution to the electricity challenges of South Africa; the EDI and the electricity supply industry (ESI) as a whole, requires an integrated and holistic approach, with support; from government, all industry players, business and citizens of this country

  12. Options • To ensure amongst others the sustainability of the EDI, to support the required economic growth and create job opportunities in South Africa , it is essential that: • Staff recruitment, training/development and retention be addressed • Technology be leveraged to enhance service delivery and to improve amongst others customer service, revenue management & network performance • Update the ADAM plan, adopt it and roll it out as an integrated multi year plan to address the current electricity distribution infrastructure related challenges • Identify the entities and institutions with capacity to provide assistance/consolidation to bring about improvement in the areas where the biggest challenges are

  13. Conclusion • Visible and committed strategic leadership/sponsorship and firm decisions are required to bring about the desired change in the EDI • The support of every participant in the EDI will be required to bring about the desired change • From a technology deployment perspective it is essential to move away from the business as usual approach and pursue appropriate technology solutions and create a more intelligent grid which will improve service delivery • For an EDI infrastructure turnaround strategy ito of governance and finance, It would be advisable to consider a similar approach as what is used in respect of the national electrification program • It is essential that the infrastructure funding allocation be defined and that the investment of the money earmarked for infrastructure is correctly applied • The infrastructure investment must be monitored to ensure that the refurbishment and replacement backlog shrinks

  14. THANK YOU

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