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Energizing Africa – A perspective from the South African electrification experience

1. The Essence of this Perspective One of the main driving forces behind the New Partnership for the Development of Africa (NEPAD) is to liberalize the population from energy deprivation. The conventional paradigm to address this challenge is the roll out of the electrical network to as many households as possible. In this context the South African electrification program has brought about a change to about 4.5 million homes the past fifteen years (Gqulu, 2004). Inception to date cost of infrastructure was ± $ 1.81 billion. Projecting this programme to the rest of the African continent will require an investment in the order of $ 15 billion to reach a significant level of 35% electrified households. The funding of such an initiative will be the critical question and can either be from a mixture of political sources or be obtained in the free market. The major part of the South African electrification drive was financed from within the electricity sector, the principle sponsors being the industrial and mining customers and this cross subsidization was sanctioned at a political level. Only recently, a capital grant from central government was introduced. Also, at the present consumption rates the annual turnover is apparently not exceeding operational cost. In part, this bare testimony to mal-alignment in the market and the possibility for capital recovery can, at this stage, be taken as non-existent. An evaluation of the South African experience can therefore provide a valuable input on how to address the energy needs of Africa. More than 90% of the electrification methodology followed in the South African programme was the blanket approach whereby the different villages were prioritized and fully electrified one by one. Whilst this delivers an economy of scale at execution phase, it eventually causes distorted price signals. A more economically sound approach, which was exercised on a low-key profile in South Africa during the same period, with a fair component of private sector participation, was to do selective marketing. This entailed the extension of the electrical network to groups of customers that are capable of paying for the real value of the service, consequently delivering a consumption rate of three times the national average, thus bringing about electrification in a more sustainable and viable manner within the residential market. Investigating the two different methodologies provides a stark choice to Africa on the challenge of energy development. Whilst the first method is politically more acceptable and visible at a national and corporate level, the latter appears to be better in terms of long term sustainability as well as being politically acceptable at local level. There is no question about the demand for electricity on the African continent but there are few means by which governments can command enough resources along political lines on the scale that will address full electrification.

1 Note: For Comparison Purposes (where applicable) the Average Exchange Rate -2003 for the South African Currency was R6.67 to $1.00 American Dollar.

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Therefore, to establish a conceptual programme for energizing Africa, it is imperative that a policy be formulated as to how electrification can best be implemented. By evaluating the methodologies of two different programmes followed in South Africa, a contribution can be made to the subject under discussion.

2. Status of the South African Electrification Initiative The foremost mindset to grant people access to energy is to roll out an electrical network to as many households as possible. In this sense, a section of the South African public has already, for a number of years, had access to a well-established electricity industry. This has came about from the time that street lights were installed in the diamond mining town of Kimberley in 1882 till today when the country can look back at an extraordinary electrification programme the last decade. It is from this background that the domestic energy market can be assessed with some practical references for the future.

Composition of South Africa's Electricity Consumption - 2001

Mining, 17%

Domestic, 19%

Manufacturing, 42%

Agriculture, 2%Transport, 3%General ****, 5%

Commercial, 10%

Figure 1

The recent structure of the electricity market, presented in figure 1, is on a base of ± 178 TWh for 2001, as per latest official figures (NER, 2001), whereof ± 33.8 TWh is for the domestic sector with an estimated 6.58 million customers. The South African electricity market is distinguished by the sizable, vertical integrated utility Eskom which ranked 9’th in the world in terms of energy sales (Eskom, 2003) and 11’Th in terms of generating capacity. Nationally, Eskom is producing more than 95% of electricity consumed (NER, 2001) and is distributing power to 55% of the end-users. In line with international movement towards the liberalization of markets, there is an imminent restructuring of the South African power industry (Eberhard, 2001) and one of the outcomes will be the amalgamation of Eskom’s Distribution business with that of Municipalities to form Regional Electricity Distributors (RED’s). All of this is to be executed under the auspices of the South African Government’s Department of Mineral & Energy Affairs (DME, 2004b). The present dispensation whereby municipalities are the supply authorities for the areas that are essentially located around the central business districts of municipalities and Eskom for the surrounding countryside happened by historic default. Eskom’s origin (refer to Eskom Heritage available at http://www.eskom.co.za) of building power stations to the developing mining industry at the start of the 20’th century eventually lead to a position of becoming the supplier of the last resort. Due to its

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electrical network that interconnected the far-flung power stations with the load centres of the cities, it became the dominant electricity reticulation authority in the rural areas. When the new South African political dispensation arrived at the early 1990’s the new regime formulated the Reconstruction & Development Programme, which was an ambitious plan to make basic services available to disadvantaged communities, especially those located in the “homelands” of Apartheid South Africa. Being already present in the remote rural areas, Eskom became the main agent of implementing South Africa’s latest electrification programme. The reason for stating it in this way is because Eskom was, up till 1992, only involved on very limited scale in the residential market, mostly reticulating minor municipalities and small holdings, as opposed to the scale of autonomous supply authorities of the cities and bigger municipalities (Table-1). However, nationally a sizeable Eskom customer base of more than 100,000 connections was established by 1990 (Figure 2).

Eskom Residential Market: pre - Electrification

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Figure 2

The average growth for number of - and energy sales per customer during the relative stable macro environment of 1953 to 1973 was 6.6% p.a. and 3.9% p.a. respectively. The irregular change in customer numbers from 1974 onwards was due to the transfer of supply areas from Eskom to the growing cities and cannot be used to deduce typical growth rates. It also illustrates the need for RED’s due to the growing load centres that are moving into Eskom’s area of supply. Although the growth rates of the Eskom residential market during that time were fairly substantial, compared to other economic indicators, that effort has been overshadowed by the electrification programme of the last 15 years. To date, an estimated 4.5 million new connections have been made at a capital cost of R12 billion (Gqulu, 2004). The split between connections that were done by Eskom and the municipalities is presented in figure 3.

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South Africa's Electrification Programme

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Figure 3

Due to this expansion programme 80% of urban households and 50% of rural ones now have access to electricity. The overall figure for South Africa is 68%. To put this progress in perspective, the split of the 2001 domestic customer base (NER, 2001) compared with that of 1990 (Eskom, 1990) which is indicative of the market before the onset of electrification, illustrate it on a quantitative base:

No of Customers ['m]

Total Energy Sold [TWh]

2001Municipalities 3.27 27.2Eskom 3.13 7.4Domestic Total 6.4 34.6

1990Municipalities 2.13 19.5Eskom 0.112 1.08

2.242 20.58

Table 1: Composition of South African Residential Market By looking at the numbers in table 1, it can be seen that the major part of the thrust was in the number of the customers and not in the increase of energy consumption. By normalizing these figures, the level to which the market structure was changed can be illustrated.

Growth - p.a. (1990-2001) No of Customers Total Energy

Sold Municipalities 4.0% 3.1%Eskom 35.4% 19.1% Overall 10.0% 4.8%

Table 2: Growth Rate in Residential Market

The growth rate for the municipalities (table 2) was rather moderate but it has to be taken into account that the exceptionally high growth rate for Eskom was of quite a low base. The overall growth rate for the industry was, however, fairly strong but not exceptional, especially on the side of energy consumption.

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Reviewing the electrification drive from the Eskom perspective (figure 4), it can also be seen that it was executed against the backdrop of being a relative small part of its business. Although the overall growth rate of 35.4% p.a. is notable, it could rely on the momentum of a bigger undertaking.

Composition of Eskom Customer Base: Energy Sold - 2003

Distributors, 37.0%

Residential, 9.3%

Industrial, 24.0%

Mining, 15.9%

Agricultural, 4.0%

Traction, 1.9% International, 3.2%

Commercial, 4.5%

Figure 4 From the outset of the electrification, the effect of capital cost on the success of the South African programme had been well recognized and a high degree of ingenuity was exercised in employing the most appropriate technology. The results of effort in this regard (Gaunt, 2003) are summarized in table 3.

Average Cost per Connection

Year 1995 2001

Urban R 2,170 R 2,674

Rural R 3,568 R 2,622

Table 3: Capital Cost of Electrification Being the subject of discussions at many conferences and debates, not much more engineering can be applied in order to significantly reduce the connections cost whereby the feasibility of the electrification programme can be fundamentally influenced. The old homelands were located in deep rural, sparsely populated areas, initially resulting in a high per unit cost but as new bulk supply infrastructure became available, the cost reduced. The recent close cost ratio between the cities and rural areas is because of the difference in network power transfer capacities. The rural areas are generally economically deprived with a lower average demand for electricity (2.5 A per house) whilst the city households require a bigger supply (> 20 A per house). Because the national electrification programme was mandated at a political level, the execution also had to maximize political acceptability. The manner in which it was done was by prioritizing the electrification of townships through a process of community involvement. Starting at the top of the list, the towns were then fully electrified one after the other. This is then the so-called blanket approach that was applied to more or less 90% of the South African programme. Blanket electrification thus resulted in a situation whereby respective towns were electrified one after the

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other, leaving the other towns in the dark for the foreseeable future. On a technical level, the rationale for this approach was that the once-off site establishment and the greater ease of administrative control over a project during construction helped reducing the cost per connection. Another most prominent feature of the South African electrification effort was the major change from the conventional ferromagnetic meters to electronic pre-paid metering of the new residential customers (McGibbon, 2002). It was in itself a major step, putting South Africa today among the world leaders in this field but is also an aspect of which the success still has to be substantiated (Brand, 2004). Due to the fragmented nature and relative independence of supply authorities there were a few cases, during the same period, where a different method of electrification was opted. One such an example was for the previous homeland of KaNgwane, located on the north-eastern border of South Africa. It comprised three different areas, totalling ± 3000 km², scattered in a radius of 75 km around the town of Nelspruit. In 1990 Eskom became involved in the area on a 50:50 partnership with the local community and for the particular period under review (TED Year Reports 1994-1997) it was named the Transitional Electricity Distributor (TED), operating as a private company.

Category of Customers (Energy Delivered): TED - 1997

Large supply users 24%

Business Users 9%

Agriculture 5%

Domestic (Conventional)

46%

Domestic (Pre-paid)16%

Figure 5

At the end of that period it had a staff complement of 161, serving 63 500 customers. The composition of its market for energy delivered in 1997 is illustrated in figure 5 and was on a base of 240 GWh. The major difference in the way this company executed its electrification programme, as opposed to the national blanket approach, was that it opted to do selective marketing for new residential customers. This entails the marginal extension of the electrical network to groups of customers that were willing / capable of contributing a bit more to the real value of the service. The connection fee in the case of a blanket connection was about 2 % of the capital cost whereas the corresponding price (for a conventional metered supply) in the TED area was 5% and the ‘ready boards’ were not included in the fee. This in itself tested the resolve of the customer to make use of the service. During the latter part of its undertaking it had to accommodate the pressure that arose from the national electrification and had to provide connection opportunities for the lower end of the market. Whilst the premium supply was still provided with the conventional electromagnetic Ferraris meters, customers were given a choice of conventional or pre-paid meters with an option of a higher connection fee

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for a lower tariff. Despite the high connection fee and the fact that customers were free to choose, there was still a considerable growth in the conventional market (Figure 6, TED Year Reports).

TED - Extent of Capital Programme

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No of Domestic (Conventional) No of Domestic (Pre-paid) Cost per Connection

Figure 6 Whilst the type of technology and design parameters were more or less in line with the national practice, the cost per connection in figure 6 (TED Year Reports) was quite competitive in relation to the national average. The explanation for this can be found in the way the engineering was done (Davies, 2002) whereby the network was extended to connect the highest number of new customers in the most viable way. This prioritization of extensions was carried out under the direction of an experienced team of consulting engineers, contracting them on a long term basis to a specific area in order to obtain to necessary operational knowledge as well as setting specific performance targets for them. Ultimately, when the South African endeavour to give the population access to electricity is reviewed, the considerable size of the rest of the electricity industry in comparison to the domestic sector has to be kept in mind. The programme was until recently financed from within the electricity sector (DME, 2004a), the principle sponsors being the industrial and mining customers and this cross subsidization was sanctioned at a political level.

3. Assessment of the South African Electrification Programme In their re-appraisal of the National Electrification Programme 1994-1999, the DME (2001) was remarkably critical on the performance of the new domestic energy market up to that point in time. The key factors that were identified were the following:

There was not much economic development at township level brought about due to the provision of electricity,

Pre-paid metering hasn’t solved the problems of non-payment and its reliability is questionable,

The programme doesn’t seem to be viable or sustainable in the long run and Basic information on the level and scope of operations and maintenance is

lacking

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It is specifically the last two aspects, highlighted in this report, that are conspicuously absent in the debate on the merits of electrification and it can be confirmed by the lack of authoritative documentation or actual figures on the subject. The issue is, however, mentioned from time to time and when presented, the indications on the future of the industry are not very positive. On the recent PIESA conference the Ethekwini City’s Electricity Department (Finch, 20004) indicated that for a number of 205 000 new electrification connections, the average income is ± R72 compared to an estimated operating expenditure of R80. This situation can also be exacerbated if the correct type of control is not exercised. The renowned Alexandra Township in northern Johannesburg (Setshedi, 2004) serves as an example of what can typically be found in the South African environment. There are 16,000 connected houses registered on the utility's records for this town but according to estimates, more than 80,000 houses are connected the electrical system. This state of affairs is also acknowledged by the Eskom 2002 Year report where it states that sales to pre-paid customers “remain significantly lower than the amount required to cover the operating cost and depreciation of capital expenditure”. A factor that has since changed (Eskom Year Report 2003) is that the capital cost for electrification is now being made available directly from central government as a grant but supply authorities remain responsible for the operating expenditure incurred from such connections. Whilst this is changing the way electrification projects are being evaluated internally by supply authorities, policy makers have to take into account that cross-subsidization between services is found to be counter productive and somehow there is a bill that has to be paid. It also has to be noted that this is the (persistent) position of sponsors (World Bank, 2004) that sustainability of development initiatives are directly tied to sound pricing policies and transparency of costs. Due to the lack of relevant references on the operating expenditure in the South African domestic market, a basic calculation can be done using the financial and statistical figures contained in the respective Eskom Year Reports. In this manner, an indication on the status and trend of this aspect in the South African electrification programme can be deduced. The indicator that is proposed compares the turnover per customer with the operating expenditure per customer. Although this is a crude presumption, it does give an idea of the level of “cash” what the average customer is generating for the business. Noting the possibility that economic models can cause more of a stir about its assumptions than beckoning answers on problems presented, the values in the subsequent figures have to be viewed with the approach as to why it is necessary for the South African electricity industry to start quantifying operating expenditure. The first step in this endeavor is to allocate the particular financial years’ operating expenditure (which is the value that includes all direct production costs plus depreciation but excluding finance charge) in direct proportion to the sales per category of customers and normalize it by the number of customers in that category. The result of this calculation for the Eskom residential market is presented in figure 7. This is the total of conventional customers (the more affluent category that is presented in figure 2) as well as the pre-paid metered customers (those who are part of

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the poorer constituency and is the target group of the government’s electrification drive).

Eskom Residential Market - Normalized

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Figure 7

What is also important to illustrate is the reduction of ± 75 % in the recent average energy consumption per customer compared to the average of 1990, which is indicating the buying power of the newly electrified customers. The “cash flow”, which can be defined as the difference between the relative turnover compared to the average operating expenditure, is still positive mainly because of the conventional (higher income) customers of which there were ± 388 000 in 2003. By removing these customers out of this calculation, the result turns the spotlight onto the crucial role that operating expenditure is playing in terms of the sustainability of the electrification programme.

Eskom Pre-Paid Residential Market - Normalized

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Figure 8

Comparing the average turnover per electrification customer directly with the average residential operating expenditure, will give a skewed result because of the lower average consumption of that group. By splitting the operating expenditure between a variable portion (based on the average per unit cost of energy for the total operating expenditure) and then taking the balance between that value and the apportioned operating expenditure as a fixed component, the estimated “cash flow” for the pre-

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paid market is depicted in figure 8. This marginal situation can be judged, either as a situation whereby these customers are either buying too little energy, or the operating expenditure is too high. By normalizing the “cash flow” to the turnover (figure 9), the status of the total residential market compared to that of the pre-paid electrification market may be compared with each other. Apart from the fact that it is still possible to cross subsidize the residential market to maintain a positive outcome, the “negative return” in the pre-paid market, as well as the overall trend, emphasizes the importance for operating expenditure to be managed quite aggressively.

Eskom Residential Market - Liquidity

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Figure 9 This exercise is a harsh deduction in terms of projected cost of electrification and even if the key indicator of Rand per customer is a bit biased, it illustrates the necessity for the ring fencing of costs. Taking the above estimate on market liquidity as a reference point, for the need of determining the costs of operations in the domestic electricity market, it will lead to cost-reflective prices that are essential to ensure sustainability. Discussions on this subject is not new and it is extensively deliberated in the latest Integrated Electricity Plan (DME, 2004a) wherein it stated that the initial model for electrification anticipated an average consumption of ± 350 kWh per month per customer. If that consumption had occurred, then this issue of operational cost would be obsolete, but the present state of affairs highlights the need for quantifying the magnitude of operational expenditure. When considering the option of higher sales, in order to obtain sustainability, the case of TED presents some interesting propositions on the subject. One of the most prominent attributes of the TED operation was the relatively high per unit sales (figure 10) and the main reason for this it to be found in its marketing strategy. Whilst its manner of electrification was not completely in line with the national methodology, it did however test the customer’s need for electricity on a fair market value principle. This aspect can, in a particular example, be demonstrated by noting the difference in consumption between conventional and pre-paid connections in its customer base. The TED conventional metered customers consumed nearly three times the national average, and fairly close to what the first economic models

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for electrification anticipated, whilst the TED pre-paid customers were more in line with the current consumption levels in the South African pre-paid market.

TED - Level of Domestic Energy Demand

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Domestic - Average [kWh/month]

Figure 10 Taking the same approach, as in the case of the Eskom market, for determining the influence of operating expenditure on the TED operations (figure 11), delivers a fair situation in terms of “liquidity”.

TED - Liquidity (Normalized)

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"Cash Flow" : Turn-Over

Figure 11

It may be noted that the per customer values were calculated on the total turnover of the undertaking but by virtue of it being, in major part, a domestic supply authority (figure 5) the figures give a reasonable indication on that business’ state of affairs. In this case operating expenditure was well below customer turnover (in contrast with the national average) Another indicator that can exemplify the danger of making access to electricity too cheap is summarized in table 4. It shows movements in the Eskom residential customer base for 2002 and 2003. Despite the fact the company was making a substantial amount of new connections, there was still an effective “loss” of 40% to 46% of new connections.

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Year 2002 2003

"New" No of Residential Customers (Year on Year Movement) 123,858 92,987

No of Electrification Connections (per Programme) 209,056 173,094

Variance (disconnected customers and homes that no longer exist as a result of floods and other reasons)

-85,198 -80,107

Table 4: Reconciliation of Residential Customer Base The explanation for this situation can most likely be found in the fact that a lifeline electricity supply in South Africa is for free, making it easier for the customer to wander off to a (presumably) better location or they are getting a service that they simply cannot afford. In the end, it can be concluded that opportunity for execution of the South African Electrification programme can be found in the excess generating capacity that was commissioned during the 1980’s and the power stations being paid for in the mean time along with cheap South African coal (Eberhard, 2001). This, together with the fact that cross-subsidization of electricity from industry to the residential market is a long standing feature of the national scene, invites a provoking question as to what the level alternative energy supplies would have been if domestic consumers were paying the real price of electricity?

4. Future of the South African Electricity Distribution Industry The foremost item on the electricity industry’s agenda is the formation of the RED’s whereby the Eskom Distribution business is to be integrated with that of the municipalities to form six independent operating entities (refer to figure 12). This will entail an exercise in itself but the critical factor for their success, judging by the preceding analysis, will be in the balancing of operating expenditure with sales in the domestic market.

Area Map of Anticipated RED’s

Figure 12

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Furthermore, the Minister of Energy is on record regarding government’s intention to provide all households with access to electricity within the next ten years, but the Integrated Electricity Plan (DME, 2004a) also recognizes the fact that cross subsidies can come at a premium of a 3% to 6% increase in electricity tariffs (plus a local tax to compensate municipalities). One factor that supply authorities have to keep in mind is that higher electricity prices may encourage affluent consumers and businesses to switch to alternative energies, a potential self reinforcing market change. This possibility will put pressure on the RED’s for transparent ring-fencing of costs with the aim of reducing cross subsidies to the minimum, but at the same time it will have to cater for a tax levy towards municipalities which have to cater for their loss of sales. All these facts point towards turbulent times ahead and industry observers are generally aware of the scale of structural adjustments that will be required in terms of business systems and customers expectations. Another issue that is being put onto the agenda by the National Energy Regulator is the question of Quality of Supply. To this end, a conference on the subject was convened in November 2003 (NER, 2003) and after their discussions they have come to the conclusion that the South African electrification programme has caused a loss of focus (and serious lack of investment) in the maintenance of existing electrical networks. The situation will thus require increased intention in the next few years. In addition to this, the NER had commissioned a risk analysis study, which was due in the second quarter of 2004 (Phasiwe, 2004). The supposition can therefore be made that the blanket approach for electrification, although a political powerful instrument, has put the electricity distribution industry under some sort of structural pressure which, if not carefully managed in the next few years can lead to a trap of ever increasing debts. It will therefore be crucially important to manage cost structures aggressively.

5. Electrification Expectations for Africa The sheer scope of the South African electrification programme, during the last decade, makes it a relevant reference point for the challenge of energizing the African continent. An evaluation of the South African experience can therefore provide a valuable input on how to address the needs of Africa. Summarizing the status of the electricity industry (WEC, 2003b) on the African continent illustrates the dominant position of South Africa (table 5). By consuming 46% of the electricity by 9.2% of the total population, the domestic consumption per capita for South Africa, exceeds the total electricity consumption per capita of the continent.

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Situation Analysis - 2004 South Africa AfricaNo of Population [ 'm] 45 785Total Electricity Consumption [TWh] 162 351Domestic Electricity Consumption [TWh] 32Total Electricity per Capita [kWh/year] 3634 447Domestic Electricity per Capita [kWh/year] 727Hydro Power - Produced 1999 [TWh] 73.2Hydro Power - Potential [TWh/Year] 1888Hydro Power Produced : Electricity Consumed 21%Electricity Consumed : Potential Hydro Power 19%

Table 5: Comparative Electricity Markets

Taking this parameter as a reference point, an estimate can be made for the prospects of electrification in Africa. This is done by incorporating hydropower in the discussion, which emphasizes the opportunities for renewable energy. The assumptions and results are demonstrated in table 6.

Scenario 1 - Africa @ SA Total Electricity IntensityPotential Electricity Consumption [TWh] 2852Electricity Required : Potential Hydro Power 151%

Scenario 2 - Africa @ SA Domestic Electricity IntensityPotential Electricity Consumption [TWh] 570Electricity Required : Potential Hydro Power 30%

Scenario 3 - Africa @ 50 kWh per Month per HouseholdPotential Electricity Consumption [TWh] 8Electricity Required : Potential Hydro Power 0.42%

Table 6: Alternative Development Scenarios

The first scenario is to equal future electricity consumption per capita for Africa compared to that of the present South African market. If all of this power could be obtained from the hydro potential of the continent (this assumption is made to illustrate the scale of the market) demand will exceed supply by 51%. However, the growth rate implied is 4.3% p.a. over a 50 year period, a value which is an enormous challenge. Making it a bit more practical by assuming a situation where energy consumption per capita for Africa will develop to equal that of the South African domestic market, will require a growth rate of 5% p.a. over 10 years. There is ample hydropower to do this but it will be very challenging in terms of developing the market infrastructure as well as the consumers’ buying power. It is however the plight of the poor that can be decisively illustrated by this type of exercise. Taking the South African government’s policy of a lifeline support of 50 kWh per month per household (the number of households is calculated in table 7), the total energy required for Africa is ± eight TWh/year - a speck of what the continent’s rivers can provide and it is in this regard that the obligations and responsibilities of politicians and industry leaders can be found. Hence it can be concluded that, while there is a definite need for energy, there is also an ample supply thereof. The challenge lies in the mechanism that will be applied to develop that market.

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The New Partnership for Africa’s Development (NEPAD) is political initiative that is making a commitment to change the fortunes of the continent. From the various initiatives, electrification is one of the foremost priorities. To this effect, the power utilities of the continent committed themselves to increasing access to affordable electrical power from the current 10 percent to 35 percent on the continent within the next 20 years (Phasiwe, K. 2000) Making a calculation from the WEC document, The Potential for Regionally Integrated Energy Development in Africa: a Discussion Document (2003b), a scenario for Africa, based on the South African experience is is presented in table 7.

Present - 2004 SA Africa AfricaNo of Population 44,500,000 785,000,000 785,000,000 Electricity Consumption [TWh]No of Households 10,700,000 157,000,000 157,000,000 No of Households with Electricity 7,118,415 15,700,000 15,700,000 Ratio of Households with Electricity 66.5% 10.0% 10.0%People per Household 4.16 5.0 5.0

Forecast SA Africa AfricaLevel of Electrification 100% 35% 100%By Year 2014 2024 2050Total of Households to be Connected 3,581,585 39,250,000 141,300,000 Total of Households to be Connected per Year 358,159 1,962,500 3,071,739 Composite Growth Rate 4.2% 6.5% 5.1%Total Capital Required ['b] R 9.0 R 98.1 R 353.3Total Capital Required ['b] $1.3 $14.7 $53.0

Table 7: Alternative Development Forecast A 35% level of electrification in Africa over a 20-year period will need an annual growth rate of 6.5% p.a. This seems achievable compared to the 10% p.a. growth of the recent South African electrification programme. What has to be kept in mind is the close relationship between the level of consumption and operating expenditure to ensure sustainability. An interesting note is that it will take 50 years of electrification at a moderate growth rate of ±5% p.a. to connect the present number of households in Africa. The capital that will be required is also not that prohibitive if compared to the sums of money spent on wars. The major difference is that wars usually come to an end, but power networks go into perpetuity, thereby providing an inherent requirement of the balancing of revenues with that of operating expenditures. According to the Strategic Plan of the African Development Bank (AfDB, 2001), AfDB will focus its resources mainly on agriculture and rural development, leaving institutions like the World Bank as the most likely financier of electricity infrastructure development. A consistent position in their philosophy is transparency of operating expenditure so as to ensure sustainability. This aspect has to be taken into account from the very start of each electrification programme.

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6. Facts to keep in mind for the energizing of Africa Therefore, when considering the electrification of Africa, it is imperative to first formulate a policy as to how electrification can best be implemented. In the case that was presented, attention was drawn to the pitfalls if the provision of an electrical network is perceived as the end of a problem. It may just be the start of a bigger one. The likelihood whereby the developed world brings alternative modes of energy into commercial operation provides Africa with other opportunities to energize the continent in alternative ways. A typical technological breakthrough recently achieved in South Africa is in the case of solar panels (Salie, 2004) making it possible to put cheap energy within reach of isolated and poor communities. The breakthrough was achieved after 10 years of research and the indications are that the solar panels could be manufactured at a quarter of the present cost. These panels are approximately five microns thick compared to the 350 microns of present silicon panels and current development is focused on obtaining efficiency of 20%, deposited on flexible lightweight substrates (Alberts, 2004). The case of solar energy has shown how experience curves can be used to set cost targets that can be achieved through targeted research (IEA, 2000) up till the point when technology will reach maturity for commercial deployment. At such a stage the skills and infrastructure will have to be in place. However, to capitalize on such a possibility is an aspect that policymakers have to attend to. Another opportunity that Africa needs to promote is the de-location of energy intensive industries, for example aluminum smelters, (WEC, 2003a) to the hydropower sources of the continent. It has to be remembered that the success of the South African experiment is to be found in the fact that it was these types of industries that were the actual motive force behind its electrification programme and without this ingredient a vast electrification programme on the continent might suffer structural constraints in developing an energy market. It is also important to continuously evaluate the relationship between technology and business processes. To this end, the case of pre-paid meters can serve as a typical example but the success of it must not be taken for granted. There is a pitfall of operational issues (Brand, 2004) and with an expected, but not proven, lifetime of 10 years they have quite a high life cycle cost compared to the old Ferraris type meters. If the latter type of meter is employed, the operational methodology has to take into account the options that modern day hand held computers present in terms of accounting procedures. Therefore, the regulating regime of electricity distribution has to focus on the transparency of operational costs to ensure that best practice management prevails. However, if there is one issue that the attention of Africa can be called unto, it is to democratize energy. An example of what is meant by this is, instead of rolling out reticulation networks over barren country sides, requiring substantial capital resources that is the domain of large corporations, rather train energy agents that will set up a small solar power station and, by selling a service of charging batteries within its local community, it will incrementally create the first elements of a modern energy market. The proposal might be debatable but it is the idea that should be pondered. Lovins (1975) equated the utilization of energy to virtual slaves, effectively increasing the

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planet population and consequently the environmental impact. To subsidize the use of fossil energy is negating our responsibility towards the earth; therefore opportunities to act differently have to be fully explored. By employing alternatives, other reference cases can be created to evaluate the feasibility of the South African electrification programme in terms of long-term sustainability.

7. References

African Development Bank (AFDB), 2001: AFRICAN DEVELOPMENT REPORT

2001 Available from: http://www.afdb.org/knowledge/publications/pdf/afr_dev_rep2001_summary.pdf

Alberts, V., Photovoltaic research Available from: http://general.rau.ac.za/physics/eng/index.htm

Alford, R., Researchers combining mining and milling wastes to create fuel Associated Press ENN. 15 August 2002

Brand, W., OPERATIONAL MANAGEMENT of PREPAYMENT METERS Available from: http://www.South Africarpa.co.za/documents/document_list4.asp?id=171 – Accessed 27/4/2004

Department of Mineral & Energy Affairs (DME), 2001, National Electrification Programme – Evaluation Report Available from http://www.dme.gov.za/

Department of Mineral & Energy Affairs (DME), 2004a, Integrated National Electrification Plan Available from http://www.dme.gov.za/home.asp?menu=main

Department of Mineral & Energy Affairs (DME), 2004b, Restructuring of the electricity distribution industry Available from http://www.dme.gov.za/home.asp?menu=main

Davies, I., 2002 Transitional Electricity Distributor (TED) - Mpumalanga South Africa: Summary Report E-mail received from: cdpfms@mweb.co.za

Eberhard, A., 2001 Competition and Regulation in the Electricity Supply Industry in South Africa Trade &Industry Policy and Strategies – Annual Forum Mulderdrift 10-12 September 2001

EBERHARD, A., RESTRUCTURING OF THE ELECTRICITY SUPPLY INDUSTRY IN SOUTH AFRICA: BUILDING ON INTERNATIONAL EXPERIENCE, 18th Congress, Buenos Aires, October 2001 Available from: http://www.worldenergy.org

Eskom, 1990, Statistical Yearbook, Johannesburg Eskom, 1999-2003: Year Reports Available from: http://www.eskom.co.za FINCH B., 2004, EXPERIENCES IN PROVIDING ELECTRICITY SUPPLIES TO

PREVIOUSLY DISADVANTAGED COMMUNITIES Power Institute of East and Southern Africa - Regional Workshop, Midrand, South Africa - 31 September - 1 October 2003

Gaunt, C., 2003, MEETING ELECTRIFICATION’S SOCIAL OBJECTIVES IN SOUTH AFRICA Power Institute of East and Southern Africa - Regional Workshop, Midrand, South Africa - 31 September - 1 October 2003

Gqulu, K., Chief Director Communication, E-mail: kefilwe@mepta.pwv.gov.za Department of Minerals & Energy Press Release – 4/3/2004

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International Energy Agency, 2000, Experience Curves for Energy Technology Policy Available from: http://www.iea.org

Lovins, A.B., 1975: World Energy Strategies. New York: Friends of the Earth McGibbon, H., 2002, PREPAID ELECTRICTY VENDING - UPDEA CONFERENCE

JUNE 2002 Available from: http://www.eskom.co.za/education/randdcenter/publications/Prepaid%20Electricity%20Vending%20Synopsis%20UPDEA%202002.doc

National Electricity Regulator, 2001, ELECTRICITY SUPPLY STATISTICS for SOUTH AFRICA 2001 Available from: http://www.ner.org.za/

National Electricity Regulator, 2001, ELECTRICITY Distribution Industry Maintenance Summit - 18 November 2001 Available from: http://www.ner.org.za/

Phasiwe, K. African power utilities set target Business Day: 23 January 2004

Phasiwe, K., Sparks to fly in regulator's parting shot Business Day: 26 January 2004 Salie, I., Solar panels promise power to the people Sunday Argus. 14 March 2004 Setshedi, L. 2004, City Power Johannesburg... [About Us] Available from:

http://www.citypower.co.za/about_us/article2.html - 25/4/04 Transitional Electricity Distributor (TED) Pty (Ltd), 1994-97, Year Reports, Nelspruit World Bank, 2004, WB - 177 - Rural Electrification Lessons Learned Available from:

http://www.worldbank.org/afr/findings/english/find177.htm World Energy Congress (WEC), 2003a: Drivers of the Energy Scene Available from:

http://www.worldenergy.org/wec-geis/ World Energy Congress (WEC), 2003b: The Potential for Regionally Integrated

Energy Development in Africa: a Discussion Document Available from: http://www.worldenergy.org/wec-geis/