- Ricardo plc has worked closely with GIZ, SEA, local and national stakeholders in South Africa to develop and continuously update a standardised approach and excel-based tool to determine the cost of service of supplying customers with electricity and calculate cost-reflective rates.
Ricardo is a British firm that provides automotive parts and engineering, environmental and strategic consultancy services. Founded by Harry Ricardo, the company is based at Shoreham-by-Sea, West Sussex. It is listed on the London Stock Exchange.
“The model, now used by numerous utilities across South Africa, places municipalities in a more financially resilient position whilst carefully considering affordability constraints and the emergence of distributed energy across the board. It also helps utilities to identify where the key efficiency bottlenecks lie and thereby improve their technical and financial position over time,” said Thomas Amram, Business Manager at Ricardo on a LinkedIn post.
“During this time, there has been an increasing number of (typically industrial) customers seeking to stabilise their costs of electricity supply by securing financial contracts directly with suppliers – what many other jurisdictions would refer to as “virtual” or “corporate” PPAs and is commonly referred to as “virtual wheeling” in South Africa. Similarly, and at least until the upcoming operationalisation of market trading platforms, developers see in such instrument an opportunity to diversify revenue streams and thereby reduce their overall risk exposure,” adds Amram.
Key differences between the COS tool modes of operation
Customers can secure financial contracts with suppliers either located within the same network area, or anywhere across the country explains Amram. “In the latter case, bulk supply purchases of local suppliers from Eskom should be adjusted to reflect the effect of financial contracts in place. In both cases, municipalities should only charge customers with financial contracts for network use of system charges on the portion of their consumption procured through such contracts, rather than full electricity rates. Such charges should be calculated in such a way that they recover costs associated with the construction, operation and maintenance of networks, and losses,” said Amram.t
Considering the complex accounting of physical and financial flows for power utilities, the new standardised cost of service model should be a huge help. During a workshop presented NECOM (National Energy Crisis Committee) of South Africa, Amram presented a relatively simple step-by-step approach to fully reconcile cost of supply & tariff setting with virtual wheeling, whilst making sure that all procurement costs are correctly accounted for. “The model also seamlessly calculates network use of system charges in a manner that is compliant with the latest wheeling rules issued by NERSA,” said Amram.
Link to the full document HERE: A simplified cost of supply and electricity tariff design approach for municipal electricity distributors in South Africa
Author: Bryan Groenendaal
