Business model at a crossroads: Which way do African utilities turn? – ESI Africa

A number of opportunities, including but not limited to data monetisation, electric vehicles, peer-to-peer energy trade, and grid modernisation, are set to revamp the utility business model across the world and Africa cannot afford to be left behind.

By Mbae Ariel Mutegi, PE, CEM – County Business Manager (Nairobi West) at Kenya Power

This article first appeared in ESI Africa Issue 2-2020.
Read the full digimag here or subscribe to receive a print copy here.

Partial and complete grid defection is growing in leaps and bounds across the world. A number of large industrial heavy consumers have cut their power demand by an average of 30-50% as they invest in own-consumption renewable energy sources.

Given that power grid operational costs remain fairly constant, grid defection stimulates utilities to raise energy prices for the remaining customers in an attempt to maintain the revenues, thus inevitably leading to a downward spiral as the overall impact forces more customers to defect.

Low per capita energy consumption in Africa vis-Ă -vis the almost fixed grid maintenance and other operational costs implies efficiency and growth of new revenue streams will be critical going forward. On average, the per capita energy consumption in Africa is 400kWh per year.

The transport sector accounts for at least 30% of the global energy consumption. Full electrification of the entire transport sector from trains, buses, long-distance trucks and personal cars will grow utility business tremendously if well harnessed.

Opportunities for power utilities and trailblazers

Full deployment of smart grid technology benefits will far outweigh the rollout costs for energy utilities. The benefits of technologies such as smart sensors, internet of things (IoT) and smart meters include but are not limited to reduced carbon footprint, increased system reliability, improved customer service and reduced operational costs. Energy industry and other regulators such as environmental bodies need to be looped in so as to identify and reward companies that invest in optimised and integrated smart grid.

IoT encompasses the use of sensors, wireless networks and big data analytics to measure and optimise processes. It has the potential to significantly reduce unscheduled and costly downtime by identifying problems for predictive maintenance thereby improving reliability and reducing operational costs for power infrastructure by cutting on inspection and patrol costs. The applications are focused on the highest value assets in generation plants, and in the transmission and distribution grid.

Transformation to second generation utilities 2.0 that can accommodate and thrive alongside distributed renewables, energy storage, and advanced energy management will be critical for business growth and sustainability of existing utilities. This will enable the creation of a market place for utility and non-utility participants to provide their services as energy democracy takes root.

American utilities such as Arizona public service have started plans to install solar panels on customer houses and pay them a fixed monthly fee for roof space.

This innovative capacity building can be managed as aggregated generation in form of a virtual power plant resulting in deferral of expensive capacity upgrade projects. Europe had virtual power plant capacity of 10GW in 2017, a five times increase from 2014. This has helped in avoiding or deferral of capital intensive generation and system upgrades.

Trust power in New Zealand has pursued an integrated business plan by offering energy, natural gas, telephone, and data services to its customers. Many utilities in Africa use fibre for control of the transmission network thus there is a huge opportunity in selling the excess in the form of broadband. Progressive tariff systems such as time-of-use rates should encourage planning and investment in intermittent renewables that more closely match grid requirements, as well as driving customer behavioural change.

The energy sector sits on large amounts of data collected on a continuous basis through sensors, telemetering, thermostats, grid equipment, wireless transmission, network communication, cloud computing and lately from drones. Data analytics refers to the use of an array of techniques such as mathematical modelling, statistical analysis, predictive modelling, predictive analysis, and machine-learning to find meaningful and useful patterns from large data sets collected from various quarters.

Data is only valuable if it is used and so the challenge has been how African power utilities can use this enormous vault of information in an efficient and enterprising manner so as to improve operational efficiencies while driving down costs and improving their bottom line in the face of disrupted business models. Data enterprise analytics presents an avenue for growing alternative revenue streams, pushing down operational costs and increasing the overall customer satisfaction. This is an area that most utilities in developing countries are yet to exploit fully.

Through big data analytics, energy utilities can optimise power generation, distribution planning and economic load dispatch using accurate forecast models. This should result in an improvement in the energy production efficiency and lowering of the production, transmission and distribution costs. Data analytics is also critical in peak demand management, demand-side management programmes and energy audit programmes as it identifies energy leaks and wastage.

Using aggregators and advanced energy management software, renewable energy power generation forecasting will be more accurate and efficient in planning for the intermittent nature of the same during grid integration. The energy utility industry is an asset intensive industry that faces many asset management challenges. These include resource sharing, asset retirement, asset monitoring, operation and maintenance management, procurement monitoring and inventory management. The efficiency of asset management, predictive maintenance and collaborative operation can be improved based on energy big data analysis and modelling.

The rapidly falling prices of battery storage has also served to push utilities to change their business model. Green mountain power in Vermont is installing battery storage in its customers’ homes. Customers lease or buy the system at a discounted price as long as they allow the battery pack to be used by the utility as a virtual power plant for grid support.

Currently, the challenge is to understand the storage technology, business models and other determinants such as infrastructure investment deferral, peak system load management, frequency regulation, energy price arbitrage, customer demand-charge management, backup power, cost-benefit analysis and many others.

The road ahead for a smart transition

To help utilities and storage developers navigate the new obligations, utilities and governments need to create the necessary laws, policies, incentives, energy storage roadmaps and targets. Good examples of a progressive policy is defining battery storage as a generation asset and paying storage for ancillary services. African utilities and governments cannot afford to be left behind in tapping the benefits of this emerging frontier of business opportunities.

Closer co-operation at regional level by way of the regional power pools will go a long way in speeding up serious cost-effective projects for the benefit of the general population. The European Commission provides a good example in this regard. It has a working goal of harmonising European power markets with the aim of creating a pan-European market with closer connection of power markets to improve efficient use of energy across national borders.

Under the model, the EU has set up common rules to bring on efficient use of cross-border capacity and harmonisation of European wholesale power market arrangements. Main features of the model are day-ahead market coupling and continuous intra-day trading to allow cross-border trading of electricity closer to real time. Revamping of our regional power pools to increase economies of scale and harmonisation of wholesale power markets will go a long way as well. As an example, cheap Congo hydropower can be exported to Kenya, and huge solar potential in the horn of Africa can benefit the region as a whole. The Nordic and EU power pools are excellent examples in this regard. United we stand, divided we fall.

Other progressive technologies such as the blockchain technology presents endless opportunities for power utilities. One way is to turn the power grid into a peer-to-peer network for prosumers to trade energy with one another via smart contracts and the internet of energy (energy democracy). This will allow for transaction data to be validated quickly, cheaply and in a transparent manner for all market participants, resulting in more efficient trading based on real-time market signals.

Power utilities can sign up prosumers with third-party aggregators to pool their resources and offer the grid the services of a virtual power plant to help enhance the overall power system stability (due to the intermittent nature of renewables) as well as helping in the deferral of expensive system upgrades. This has also been extended to virtual transmission lines that use blockchain to store excess wind and solar power so as to eliminate the need for new power lines. Blockchain could reduce process costs for power utilities by automated billing based on flexible retail and collection of customer payments on the blockchain platform.

The possibilities are endless; however, there is a need to develop an innovative regulatory framework that enables complex business models that provide incentives for cost-efficiency, reliability, grid resilience, carbon emission, customer-centricity, and performance as opposed to capital expenditure alone. Cost-of-service regulatory frameworks need to be replaced with systems that allow utilities to earn incentives for exceeding expectations, along with penalties for not meeting them. ESI

Source: https://www.esi-africa.com/smart-grids/business-model-at-a-crossroads-which-way-do-african-utilities-turn/

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