What is the future for electricity utilities?

September 3rd, 2018, Published in Articles: Energize

Power utilities all over the world are facing profound changes. These changes, Dr Andrew Eriksson, an energy consultant from Zurich, told an enthusiastic audience recently, will result in the utilities of the future taking on very different roles with new financial models in order to survive the sweeping changes which technological developments will bring to the electricity industry.

The audience, which had packed the Franklin Auditorium at Eskom’s Megawatt Park for the recent “Electricity utility of the future” debate, which was jointly hosted by SAIEE and EE Publishers, heard from a panel of speakers that electricity will be traded between users in future, using utility-provided infrastructure. These users will produce electricity for their own use and sell the excess to neighbours or the utility.

Rising primary energy, capital and operating costs, and associated increasing grid electricity prices, are occurring at the same time as the costs of distributed utility-scale and “behind-the-meter” renewable energy and energy storage solutions continue to fall. Simultaneously, the demand for environmental sustainability, with “cleaner” electricity, lower pollution, reduced water use and lower CO2 emissions to mitigate climate change, is accelerating.

Utilities are facing declining sales volumes while their costs continue to rise. Increasing tariffs are not the solution, as this action tends to drive greater interest in alternative sources of electricity and more efficient equipment. The decision to increase tariffs ultimately leads to the so-called “utility death spiral”, in which the power utility’s revenues fall below its costs making the entity uneconomic.

Under the chairmanship of Maanda Ramutumbu, an SAIEE councillor and senior manager at Accenture, three experts presented their views and answered questions from the audience.

The three panellists were:

  • Dr Andrew Eriksson is an independent consultant who previously held various executive positions at ABB with global responsibilities for specific product businesses in the broad T & D sector.
  • Prof Anton Eberhard is a professor at the University of Cape Town where he directs Managing Infrastructure Investment Reform Regulation In Africa (MIRA) at the Graduate School of Business.
  • Piet van Staden has more than 30 years’ experience in South Africa’s energy industry and is currently chair of the Energy Intensive Users Group.

Dr Andrew Eriksson

Andrew Eriksson

Dr Andrew Eriksson said the “old normal” is gone. Renewable energy sources are here to stay – and grow. Complex technologies vastly complicate the issue, making earlier success factors no longer valid, he said. The future of the energy sector will be driven by the users of electricity. Therefore, we need to allow a bottom-up “revolution” to determine the future of the electricity market. According to Eriksson, electrical energy has to be a low-priced commodity if the economy is to grow. New technologies can be primary enablers as long as the regulatory environment is not allowed to become an inhibitor.

Eriksson expects a future electricity industry to operate in an integrated, multi-dimensioned market with aggregators as key players, allowing for a wide scope of ancillary service providers. These forms of utility will not need nor want a heavy asset base. Rather, platform providers will shape and drive the market.

Therefore, a new power sector techno-economic paradigm is needed. Energy markets will need to be liberated, where electricity is sold as a commodity – dynamically priced according to the principles of supply and demand. End users will demand and ultimately enjoy flexibility and the ability to choose from a number of suppliers. In the same way, end users will be free to choose to install their own independent RES (as prosumers) should they so wish, he said.

Once distributed energy generation becomes wide-spread, the grid infrastructure will need to be upgraded to support bidirectional current flows between users and the utility. Economics mainly, plus technology, will drive grid balancing and provide business opportunities. Utilities will focus on the distribution, rather than the generation, of electricity, meaning that the most agile utilities will compete and win supply opportunities without having their own production facilities. This will result in a socio-politically driven environment, where economic power is increasingly with the end-consumer/prosumer. Traditional generation, being at the far end of the chain, will no longer be in control.

For this vision to succeed, Eskom must be willing to abandon its legacy beliefs, acknowledge that it needs to adapt or it will die. This means accepting the enablers of profound change in the way things are done; to accept the power of aggregation – which is multidimensional; to understand the power of digitalisation; and accept the independence of prosumers and the importance of their values and needs.

Prof Anton Eberhard

Prof Anton Eberhard

Prof Anton Eberhard said that Eskom needs to restructure before it is too late. Eskom’s troubles are in no small measure, related to its current structure and business model. The power utility cannot trade its way out its current debt crisis because electricity sale volumes are lower than a decade ago and tariff increases merely depress demand and encourage defection from grid (utility death spiral).

Eberhard says the South African power market is on the cusp of a revolution with new gas, renewable energy and storage technologies becoming more cost effective. As such, they are better suited to the needs of future generations of electricity users who will trade with one another and the utility across a wired infrastructure. As power flows both ways, advanced metering and payment systems need to reflect time differentiation in energy costs as well as peak-coincidental capacity charges for networks and flexible resources. The heart of the power system (the grid and the transmission system) needs to be protected and placed in a separate entity.

Eskom’s conflict of interest as both a generator and single-buyer of power from IPPs needs to be removed. The industry needs to restructure South Africa’s power market and Eskom needs a new business model. The unbundling of Eskom’s generation and transmission networks, already part of the Energy Policy White Paper, must be implemented, said Eberhard.

Piet van Staden

Piet van Staden

Piet van Staden said new technology breakthroughs in renewables (grid-based, distributed and embedded), gas and storage as back-up, smart grid solutions, sector coupling with EVs present the industry with great advantages. The idea of large base-load generation has become less viable. However, energy transition presents severe risks (and some opportunities) to industrial power users, and by implication to the electricity industry and the country as a whole, he said.

A well-managed, seamless transition is preferable to a disruptive shock leading to de-industrialisation and defaults. According to Van Staden, this transition will need strong and visionary leadership to unite all social partners behind a common vision of a decarbonised, low-cost and job-rich future. Political will and tenacity to make unpopular decisions will be required if we are to put the country on the right pathway towards sustainable economic growth.


South Africa’s electricity system needs an overhaul. The single, state-owned, vertically integrated behemoth is no longer sustainable. The optimal end state of the South African electricity supply industry is clear, given the sustainable competitive advantages the country enjoys from ample wind and solar resources, plus available space to harvest these resources. The country must find a way to transition to a low carbon economy and do it within a time frame that can potentially enhance the competitiveness of the economy.

Send your comments to energize@ee.co.za


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