Climate change is one of the biggest challenges the human race has faced. Its effects are visible throughout the world, and it is already disproportionally affecting poorer countries. However, richer nations are not the only contributors and are not solely responsible for solving it. With South Africa’s grid emissions being some of the highest in the world due to our dependence on fossil fuel-based power generation, it is clear our path to supporting our insatiable need for energy is not sustainable. Furthermore, research has shown that a stable and abundant supply of energy is the foundation for a flourishing economy.
Yet South Africa is experiencing unprecedented levels of load-shedding in already challenging post-Covid economic conditions. In the past four years, Vodacom South Africa spent R4.5bn on backup power solutions and R300m on diesel for generators — a staggering 11% of Vodacom’s total capital expenditure over the period. This highlights just how large a burden has been placed on South Africans and especially small and medium-sized enterprises, which need to maintain operations and remain competitive in their pricing.
Despite accelerated digitisation after the pandemic, South Africa has been slow in using the transformative power of technology to address perhaps our biggest hurdle — the power crisis. For some time, electricity wheeling has been available. However, in its traditional form it excluded the majority of the private sector from participating due to structural and administrative limitations. Legacy limitations prevented Eskom from opening wheeling to companies other than large industrial and mining customers. Access to this solution was also limited to Eskom’s customers and those in specific areas, since only a few select municipalities had wheeling frameworks in place.
Traditional electricity wheeling, with a few exceptions, typically involves a single buyer (that is, a private company), partnering with an independent power Producer (IPP) to indirectly supply a single site with power, usually generated from renewable sources. This legacy approach requires the buyer to be indirectly connected to the IPP’s location through existing electrical infrastructure (the grid). This has several challenges, especially for businesses with complex operating environments. In Vodacom’s case, our desire to participate in wheeling has been hindered by the complexity of our operating environment which includes more than 15,000 distributed low-voltage sites located within 168 municipalities.
What Vodacom spent on backup power solutions in the past four years.
— IN NUMBERS: R4.5bn
However, there may be light at the end of the tunnel with the introduction of a new technologically-enabled solution to the market. By reimagining the problem, for just over a year, we worked to challenge the status quo, co-create, test and iron out the finer details and mechanisms to deliver a solution for which Vodacom finally entered into an official agreement with Eskom, called “virtual wheeling”.
The agreement opens opportunities within the private sector, giving all businesses a chance to save on costs and achieve their decarbonisation goals. This solution enables the private sector to participate in solving the crisis by indirectly funding the development of renewable power, which is added to the national grid, without affecting Eskom’s weak balance sheet. This is a technological innovation that every business in the country should be exploring which, if scaled properly, could reduce or even eliminate load-shedding in the next few years.
Virtual wheeling
Unlike traditional wheeling, which (apart from a few exceptions) entailed a one-to-one relationship where a single IPP generates power into the grid and wheels the power to a single site (buyer), virtual wheeling enables multiple IPPs to generate power into the grid and wheel to multiple sites for a single buyer. The platform enables a buyer to aggregate all its consumption into time-of-use periods as a single account which is then matched, in time of use, with the aggregated generation by one or more IPPs.
We will partner with renewable IPPs who will feed the generated power into the grid. The IPP and our sites will be metered, and the metered data will feed into the virtual wheeling platform, built using our subsidiary Mezzanine. The Vodacom Energy Management System collects various consumption data points across a period, feeding this information to the Virtual Wheeling Platform. As long as the generation is lower or equal to the aggregated consumption, Vodacom will receive a refund from Eskom.
Importantly, implementing this solution did not require any amendments to existing electricity supply agreements and does not affect municipalities.
As a purpose-led company, we believe it is important to make a positive effect in the societies and environments we operate in. There is, however, one remaining, unaddressed challenge for virtual wheeling. Eskom only refunds the buyer in virtual wheeling for consumption in municipalities that are in good standing. A mechanism is, therefore, required to “ring fence” the electricity income in a municipality to provide security for Eskom.
We have estimated that this approach will initially move 30% of our consumption to renewable sources, a huge step towards our goal of 100% renewables electricity sourcing by 2025
For Vodacom, virtual wheeling is a key step towards achieving our own decarbonisation goals. For the country, it’s one of many steps towards resolving the energy crisis and enabling the migration to sustainable and renewable energy generation plants. We have estimated that this approach will initially move 30% of our consumption to renewable sources, a huge step towards our goal of 100% renewables electricity sourcing by 2025. Beyond consumer interest, other sectors have come forward with potential complementary solutions which will help to mitigate the existing risks associated with this model.
Among these concerns is how Eskom tariff increases over the term of a power purchase agreement will affect the margin between the rate of the refund (which is based on the Wholesale Electricity Pricing System tariff structure) and the cost of energy from the IPPs. Hopefully, further testing and investment will sufficiently address any concerns over the commercial sustainability of this approach.
Beyond load-shedding
While opportunities are created with additional renewable power, interim solutions are still required to address the high usage of diesel for power generation. A whole economy for green hydrogen can be created with renewable power, and hydrogen as a replacement for diesel combustion is ideal. This means that purpose-led companies such as Vodacom are on the continuous lookout for renewable power and alternative fuels, but most of the solutions have limitations, which make the application in our industry limited and less attractive. Innovative thinking and contextualised solutions to address these challenges could disrupt the industry, revitalise South Africa’s economy and create a more inclusive future for us all.
• Kastelic is Vodacom Group chief technology officer
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