The challenges of electrification
The range of activities covered by SIP 6 and 7, from clearing the rural backlog and operation and maintenance of rural infrastructure, to the formalisation of the metros and development of corridors of new development and growth, highlight the massive range of infrastructure projects inside the National Infrastructure Plan, says KPMG director — Infrastructure and Major Projects Jeff Shaw.
Household electrification is similarly a challenge that needs attention, especially rural electrification. According to the results of census 2011, approximately 85% of households were found to have had access to electricity for lighting purposes, of which more than 90% were reported to have not been metered.
Given the various challenges in the electricity sector, such as the raising costs of electricity, universal access is proving difficult to achieve, this is despite the new approach taken by the Department of Energy (DoE) to resolve the issues of electrification.
In an effort to address some of these issues the DoE is reported to have had an electrification Indaba that brought together relevant stakeholders and sector departments, to craft a new electricity roadmap and implementation plan, which culminated in a new household electrification strategy.
The strategy sets the universal access date to 2025. If universal access is defined as 97% access, a serious question is raised as to whether full electrification is possible with the growth and delays that are seen in the process of formalising informal settlements. Such an endeavour to increase efficiency in planning and the delivery process will require a master plan that is focused on ensuring more connections and aligned with PICC SIP programmes.
According to KPMG, the main challenges to electrification of households and business are a combination of both the demand and supply side challenges that have led to the current crisis in the power sector. If universal access is to be reached by 2025, the state will need to consider increasing the number of Independent Power Producers (IPPs), as opposed to having a state utility dominating electricity provision.
We have previously seen numerous challenges to making the electricity market more competitive by introducing more IPPs. The state’s key challenge in attracting more IPPs has been the low return on assets that is achieved on electricity production as a result of electricity tariffs that are not fully cost-reflective.
In allowing for a more efficient and competitive electricity market, it is important that the role of buying and selling generated electricity be separated from Eskom. The vertical integration of these roles allows Eskom to be both a participant as well as the regulator in the electricity generation market. This raises significant concerns that can see Eskom continuing the monopoly power it currently has in the generation market.
Despite the challenges experienced, the state’s work in implementing their plan to introduce IPPs to supplement the generation capacity of Eskom is commendable. Notwithstanding difficulties with systems downtime, issues with the grid plan, demand and supply concerns, it is apparent from all angles that delivery of electrification services is a challenging role for most municipalities. If Eskom is to succeed in its mandate, municipalities also need to be empowered to improve the delivery and management of projects.
Jeff Shaw is a partner at KPMG’s infrastructure and major projects team.
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