Real time pricing as a demand side management option for Eskom

Abstract

REAL TIME PRICING AS A DEMAND SIDE MANAGEMENT OPTION FOR ESKOM In the early 80s the South African economy grew at a fairly steady rate, which was echoed by similar growth in the electricity industry. Eskom responded by building more low running cost, coal-fired power stations. Early action needed to be taken because of the lead-time in building a coal-fired power station. The economy, however, slowed down by the early 90s, and Eskom feared a situation of over capacity regarding the supply of electricity. At the same time, the political situation in South Africa changed dramatically, and Eskom embarked on a massive electrification programme for under-developed households. The inevitable result was a poor national load factor, causing high overall generation cost. This new problem called for either a different mix of generation plant or Demand Side Management (generally called DSM). This means that Eskom needed either to build expensive additional peaking-plant or to influence the way and time of the day customers consume electricity. Domestic consumption, which is the culprit regarding the poor load factor, is difficult to influence, and a way needed to be found to influence industry to consume electricity in a way that will create an inverse profile to that of the domestic consumer. "Time of Use" tariffs were introduced; based on long-term needs of the utility, which are expressed through three time differentiated energy rates. These tariffs are static for at least a few years at a time and thus could not address the short-term needs of the utility. To date these tariffs have failed to influence substantially industrial usage patterns, and an alternative needed to be found. Real Time Pricing (generally referred to as RTP) is an hourly tariff, based on the short-term cost of providing electricity, and was identified as a possible way to influence industrial load patterns on a daily basis. However, to date, no one could indicate what the real effect on Eskom's system and costs would be if RTP managed to alter substantially the current industrial load profile. The dissertation that follows endeavors to answer this question and, in doing so, gives an indication of whether RTP can be used as a DSM tool to prevent Eskom from having to build additional peaking power stations. It shows that, though RTP is based on Eskom's short-term needs, it also manages to address the longer-term needs of the utility. It indicates that cost savings are relatively small during the period Eskom is experiencing over-capacity, but savings quickly become noticeable as the longer-term needs come into play. The dissertation concludes with a recommendation that, though DSM through RTP seems to be worth more in 4 to 5 years, cognisance needs be taken of the lead time anticipated in developing RTP to its full potential. In conclusion, it recommends immediate implementation of RTP to ensure the product be fully established by the time the need for DSM becomes critical. This will allow Eskom time to refine and perfect the product as well as to study industry's reaction to dynamic pricing.