Improved risk management processes for South African industrial ESCos

Abstract

In the past, South African energy service companies (ESCos) primarily implemented demand side management (DSM) projects, which were supported by Eskom Integrated Demand Management (IDM) funding models. With the introduction of new Eskom IDM performance-based funding models, more risk involved with implementing and sustaining DSM projects is moved to the ESCos. Established and new ESCos need to adapt to manage the risk involved with the new funding models. Alternatively, ESCos can directly pursue DSM projects with funding from clients. Funding can be realised by using performance-based funding models, which are used successfully by ESCos in other countries. In both cases, South African ESCos (especially new ESCos) have limited experience with the processes required to implement and sustain DSM projects under a performance-based funding model. In this study, a business model was developed for ESCos aspiring to implement DSM projects. The business model encapsulates improved processes that ESCos require to implement and sustain DSM projects, while managing the risk involved. To evaluate improvements made to risk management processes, a risk evaluation tool was also developed as part of the study. As a case study, a South African ESCo was involved with the implementation and evaluation of the improved processes. This ESCo has implemented 129 projects over the past 12 years and has maintained a constant overperformance of 14% on promised savings. The ESCo has also implemented DSM projects on average 18% faster than their contracted deadlines. Where involved to revive and maintain neglected DSM projects, an average of 280% improvement in achieved cost savings was recorded. By utilising risk management processes, the ESCo managed the increasing risk involved with DSM projects and maintained constant and successful performance. Senior project managers from the ESCo were asked to evaluate the improved processes using the newly developed risk evaluation tool. The interviewees perceived a 69% improvement in the risk management capabilities of the improved processes.