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28/11/2013

Blackouts and electricity theft: levers for deploying Smart Grids in developing countries?

Starting with a handicap and winning the race! This paradox might be suitable for the energy sector of some emerging countries struggling with electricity theft and recurring blackouts. Instead of considering these handicaps as money pits, one can see them as financing levers for Smart Grids in developing countries.

 

When it comes to the improvement of the socio-economic situation in developing countries, the role of electricity cannot be overlooked. Its contribution is indeed twofold. On the one hand, it brings a social benefit by facilitating access to information, healthcare and some communication means such as phones and computers. On the other hand, economic benefits can be derived from it since it improves the productivity and profitability of existing infrastructures and processes.

In these countries, numerous arguments seem to support the viability of Smart Grids. Recurring blackouts and electricity theft indeed induce a considerable loss of income for actors on the electricity market as well as for the rest of the economy. Hence, many investors might develop a genuine interest for technologies able to tackle these issues and allow savings on these amounts.

Blackouts and electricity theft: widespread issues

Blackouts are commonplaces in countries where the lack of production capacity prevails, namely in Africa, Latin America and Southern Asia. Since supply is unable to meet demand, grid operators have no choice but to drop part of their customers in order to ensure balance. For instance, according to the World Bank, blackouts occur about 10 times per month in Sub-Saharan Africa and last 6 hours on average, with large discrepancies observed between countries, cities and even districts of the same urban area. Consequently, wealthier individuals and a growing number of industrials turn to small-scale generators while the poorer have no alternative but to endure the absence of electricity. These selective power cuts are sometimes organized. For example, Nepal's capital city Kathmandu is divided into 7 zones for which the daily 10-hour power cuts are scheduled and published in the local newspaper.

Although not on a regular basis, general blackouts also occur in countries with sufficient production capacity such a Brazil and India. On November 2009, one Brazilian household out of four faced a 7-hour blackout and on July 2012, half of India's population waited for more than 15 hours before recovering access to electricity. Both are striking illustrations of the weak resiliency of these networks.

Developing countries' second handicap lies in the large non-technical losses linked to electricity theft. These can arise from errors in meter reading and invoicing but also from illegal connection, meter tampering or agents' corruption. Despite few information released by energy suppliers, electricity theft would frequently amount to 10% of injected electricity according to the World Bank. They would even climb to 20% or even 30% in India, Bangladesh and Pakistan, with local statistics skyrocketing to 50% in some regions. These figures would reach no less than 80% in a few Brazilian favelas. In comparison, non-technical losses are estimated to less than 1% in Western countries.

In order to tackle this phenomenon, most of the emerging economies first reacted with a severe legislative framework. This was the case in South Africa where the Electricity Regulation Act voted in 2006 led to penal sanctions in case of fraud. In practice, these laws proved to be partially ineffective due to the difficulty in identifying the authors. Nowadays, Smart Grids, and smart meters in particular, are considered as the most suitable mean to drastically reduce non-technical losses.

Illegal connections in suburbs of Karachi, Pakistan (credits: Shariq Bartas)

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Smart Grid technology in order to reduce blackouts and electricity theft

Following the precursory example of ENEL in Italy, the technological progresses that have been achieved in the Smart Grids sector can contribute to a large extent to solving the issues of blackouts and electricity theft.

For instance, the roll-out of smart meters in dangerous districts (such as Brazilian favelas) could allow stopping fraud without having agents risking an attack. In Rio de Janeiro, where 150,000 of them have been installed, smart meters allow to remotely interrupt the supply of bad payers. On top of being difficult to tamper, they are located in hardly reachable spots.

Smart meters also create a psychological effect among consumers who have the impression of being watched. Cases in Honduras and Dominican Republic show that consumers stop defrauding if they risk social sentence. Nevertheless, this effect is far from being specific to small consumers. In India, NDPL -a company that supplies electricity to 5 million inhabitants of Delhi- reduced its non-technical losses from 53% to 15% between 2002 and 2009. 90% of these savings were linked to the installation of 30,000 smart meters allowing the supplier to remotely read and monitor the consumption of its largest customers.

These meters also enable a larger access to electricity. Hence, in Khayelitsha's shanty town (South Africa), EDF and the South-African utility Eskom installed pre-pay meters as early as 1994. Non-technical losses dropped to 10%, one of the lowest rates of the country. Since then, the city of Johannesburg decided to equip all its inhabitants with such devices by 2015. In the coming years, demand management applications will provide incentives to decrease consumption during peak hours through a price signal and even to optimize the management of selective power cuts by temporarily limiting the load of all the households instead of completely excluding some of them.

Investments financed by the expected savings

Following Italy's example, some emerging countries already leverage fraud in order to make the roll-out of smart meters profitable. At first, the emphasis is put on large consumers, with payback periods ranging from a few weeks to a few months in Latin America and Southern Asia, according to the World Bank. The small consumers segment is surrounded by more uncertainty. For instance, Colombian customers supplied by CODENSA have halved their consumption since fraud was made impossible. This type of change will ease up production capacity problems in many developing economies and, consequently, allow to considerably decrease the number of selective power cuts.

Similarly, blackouts induce economic losses both to the suppliers and to the global economic activity of the country. For Malawi and South Africa, these amount to 6% of the GDP. They lead to large inequalities between companies, depending on the possibility to rely on a small-scale generator. New grid technologies would at least allow to reduce these losses by foreseeing and scheduling the power cuts. These are all levers to be investigated in order to finance Smart Grids.

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