Economically viable Smart Grids within Western Cape municipalities

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1 Economically viable Smart Grids within Western Cape municipalities Summary report Report Prepared for: Department of Economic Development and Tourism Western Cape Government Prepared by: Smart Grid project team GreenCape Sector Development Agency Contact Person: Peter Atkins 44A Bloem St. 2 nd Floor 28 February, 2014 Tel: peter@green-cape.co.za

2 EXECUTIVE SUMMARY Background to the project The motivation for the Smart Grids Project was to determine the feasibility of implementing smart grid technologies within Western Cape municipalities, identify barriers to implementation, and facilitate the uptake of these technologies. The underlying aims were economic development, through increased electricity network efficiencies, increased local content and job creation. The project was funded jointly by the Department of Economic Development and Tourism (1 April March 2014) and the British High Commission through the Prosperity Fund (1 May May 2014). The project had the following deliverables: Smart grid business cases within three Western Cape municipalities. These case studies will determine the expected requirements and aspirations for each of the municipalities in terms of their electricity business, identify potential smart grid interventions, explore the business case for a smart grid implementation, and make recommendations on the benefits and challenges for smart grid implementation in municipalities in the Western Cape. Indication of the nature and scale of likely investment in smart grids and potential manufacturing activity related to smart grid technology and smart grid enabled energy equipment. Building industry relationships and extending sector support activities along the value chain for smart grid technology. Developing three smart grid technology business cases A structured process was used to select three municipalities from the available set of 24 Western Cape municipalities and the metro of City of Cape Town (which was not considered for a case study at their own request), based on the following core tenets: that the municipalities selected should be of varying sizes and customer bases, should require a variety of possible smart grid technology solutions, should be likely to implement the proposed projects, and be successful in such endeavours. Smart Grids Project Summary Report for DEDAT Page 2

3 The three business cases followed a generic 5-step process where a tailored smart grids long-term roadmap was firstly developed for each municipality, after which a specific project within this roadmap was developed into a business case. The Business Case for Drakenstein Municipality The selected business case project is a smart metering project to implement a time-of-use tariff for domestic customers, covering the first three areas of the roadmap s initial development, namely: communications platform, smart metering pilot and the extension of the smart metering pilot. The financial cost benefit modelling of the project for Drakenstein showed that is it possible for smart metering to pay itself off over its lifespan when all the benefits are taken into account. Preliminary results show a payback period of 8 years, with a net present value of R65 million. The Business Case for Saldanha Bay Municipality The suggested business case project for the Saldanha Bay municipality is a substation metering project followed by a fault detection project. The project covers the first three areas of the roadmap s initial development, namely: communications platform, substation metering project and mini-substation fault detection. The scenario for the first part of the project, substation metering to enable energy balancing, assumes a full roll-out of meters on all 859 substations, mini-substations and pole mounted transformers in the municipality. This case shows a payback period for the municipality of < 15 years, with a net present value (NPV) of -R The scenario for the second part of the project, fault detection to decrease outage times, again assumes a full roll-out of fault detection on all 859 substations, mini-substations and pole mounted transformers in the municipality. If only the municipal savings from the project are considered, the case again shows a payback period of < 15 years, with a NPV of -R However, if only the customer savings from implementing this project is considered, the results look much better: a payback period of 4.5 years and a NPV of R For both parts of the project the original scenarios assumed that all substations will receive meters and fault detection devices. The sensitivity analysis explored scenarios where more targeted roll-outs of these devices were implemented, to areas where their benefit will be highest. As expected these analyses indicated much improved financial viability. Refer to the actual case study for details of all the scenarios simulated. Smart Grids Project Summary Report for DEDAT Page 3

4 The Roadmap and Business case for Witzenberg Municipality At the time of writing this business case is not yet completed, but is the current focus of the team, for completion in March 2014 (completion work willl be funded under the BHC Prosperity Funding). Two user needs in particular were highlighted by the municipality: Significant increase in photo-voltaic embedded generation systems connecting onto their network (Several ~5kWp residential systems, and two commercial systems of 500kWp and 1000kWp), with associated concerns regarding revenue loss and safety and power quality concerns. Metering, which include transformer metering and integration of existing metering into the municipality s financial systems. As such, the business case project is likely to focus on the integration of embedded generation into the municipality s processes, which will include metering integration, tariff design, putting application and safety procedures in place, etc. Benefits & Challenges of Smart Grid Implementation in the Western Cape The process of development of the three business case helped identify benefits that motivate the implementation of smart grid technologies, and also challenges to this same effort. For details refer to the relevant section of the main report, but in essence the benefits are grouped into: Distribution monitoring, control & automation, Outage management, Demand response, Customer enablement, and Asset management. Challenges that the project identified to the implementation of smart grids in Western Cape municipalities include: Shortage of technical skills and understanding of smart grids to drive implementation at the municipal level Lack of availability of non-proprietary solutions Lack of national smart grid standards Negative perceptions of the value and risks of smart grid technologies, specifically related to smart metering Smart Grids Project Summary Report for DEDAT Page 4

5 Onerous municipal procurement processes and lack of understanding of these processes, especially amongst smart grid service providers. Insights gained in terms of smart grid business case development A number of insights were gained / lessons learned through the development of the three smart grid business cases. Only when a smart grid related project forms part of a long-term smart grid vision / roadmap can real leveraging of its benefits be realised. A smart-grid roadmap should be user needs driven, not driven by the latest technology or blindly mandated by central policy. The economic viability of a smart grid project to all parties including the customer is usually a critical indicator of ultimate success. A formalised process of developing smart grid business cases in municipalities is valuable. Nature and scale of likely investment & potential manufacturing activity In order to obtain information about the nature and scale of likely smart grid investment & potential manufacturing activity, a survey was done focussed on companies operating in South Africa that provides smart grid related services. Twelve companies were identified as having some relevance to the smart grid industry in South Africa. Where detailed information could not be obtained directly from these companies, more general information was obtained from Internet searches, supplemented by discussions with colleagues and input from other smart metering and smart grid vendors. In answer to the central question of this deliverable: What is the likely nature and scale of investment in, and manufacturing potential for smart grid related technology and equipment? : Currently, the likelihood of investment in smart grid related technology and equipment is low, with the nature of the investment most likely forming part of upgrading / replacement of existing infrastructure Currently, the potential for local manufacturing of smart grid technology is small Recommendations were derived from the results of the survey, and can be summarised as: Increase funding availability for smart grid projects Increase customer knowledge of smart grids, especially with regards to its benefits and costs Smart Grids Project Summary Report for DEDAT Page 5

6 Grow the availability of people with the required skills for smart grid planning, procurement, implementation and running of smart grid systems Smart grids should be considered as part of an integrated energy management plan, not piece-meal. Grow an understanding among municipal decision makers as to the value of planning in terms of shared services, rather than a silo-type approach. Reduce the complexity and constraints of the current municipal procurement and supply chain management processes. In order to aid this process a separate guidelines document was generated, D6 Understanding Municipal Procurement Processes. Building industry relationships and extending sector support The development of the three municipal business cases and the smart grids survey provided excellent opportunities and content for changing perceptions about smart grid technologies and their benefits / challenges, and extending sector support. A large amount of engagement with a variety of stakeholders took place during the course of the project, covering all spheres of government and the smart grids industry. The engagement started within the three case-study municipalities and the project steering group, but also extended wider through engagement with bodies like the Municipal Managers Forum, Association of Municipal Electricity Utilities (AMEU), South African Local Government Association (SALGA), etc. Way forward The smart grid and metering projects completed during 2013/2014 provides a solid foundation for further work, in terms of content, guidelines and relationships developed and understandings gained. It is proposed to take the current activities further in 2014/2015 through developing case studies within three municipalities (not necessarily the same ones as in 2013/2014) that will accurately inform a set of smart grid and embedded generation barrier-removing / enabling interventions. Depending on the municipal context, these interventions might include embedded generation tariff-design guidelines, guidelines for customer engagement with regards to smart metering roll-outs, roadmaps for municipalities on putting processes in place to create an enabling environment for embedded generation, identifying funding sources for smart grid projects, etc. Smart Grids Project Summary Report for DEDAT Page 6

7 The participation in and acceleration of the national processes for the setting of standards is also valuable and should continue in 2014/2015. Activities like those described above will strongly contribute towards smart grids and embedded generation integrated into such smart grids improving the efficiency and sustainability of electricity service provision within municipalities, and stimulating job creation through the manufacturing, installation and maintenance of these technologies. Smart Grids Project Summary Report for DEDAT Page 7