VIEWS, COMMENT AND OPINION
NuRa - a success story for rural energy
service delivery
by FR Niemand and Dr. DI Banks, RAPS Technologies
The South African government initiative, conceived in 1999, to provide alternate energy in the form of solar home systems to over 300 000
rural households was viewed by many as a unique approach to solving rural energy needs.
Others saw this as a pipe dream that would
never realise its potential. Since then the
programme has had many ups and downs.
Here we look at the programme as a
whole but more specifically at NuRa, one
of the appointed concession companies,
and how it has slowly gone about turning
government’s dream of universal access to
clean energy into a reality. Conclusions are
drawn and suggestions on the way forward
are proposed.
on the strength of commitments received
from government commenced operations
in 2001 – with support from the Dutch
government.
The original programme was conceived
due to the rising costs of continued grid
electrification. By 1999, the grid electrification
programme had reached a stage where
costs per connection were starting to
escalate. By the end of 1999, 67% of all
households were connected to the grid
but a further 1,5- to 2,5-million households
remained in darkness [1]. It was recognised
that the most cost effective manner in
which to address a large proportion of these
households was through individual solar
home systems (SHS).
NuRa currently supplies 11 500 rural households
with solar electricity. The approved business
plan submitted to NER at the commencement
of the project in 2001 was based on a target
of 25 000 installations at the end of 2005. It
should be noted that this business model was
used to determine the initial tariff. Clearly,
we are way behind these targets. The graph
below shows the monthly installations since
January 2003 (Fig. 1).
Where are we now?
“Show us a solar project that is still running
after five years!” This remark is often made by
the sceptics. Well let us look at where NuRa
is now, almost five years after the first solar
home systems were installed.
•
The private sector was to be involved in
the form of a PPP approach.
•
A fee-for-service model would be used
whereby customers would pay a low
application fee and would then be
required to pay a monthly service (or
rental) fee. In exchange the SHS would
be maintained by the utility company.
There was a major dip in installations from April
2004 until October 2004 when the subsidies
were not in place. The short-term dip in early
2005 was related to panel shortages. As can
be seen a new dip started in April 2006, again
due to no capital subsidies being available.
These delays obviously have a negative effect
on staff, contractors and company financials.
Consumer confidence is also effected (NuRa
currently has 1 000 installations outstanding
which cannot be undertaken until a new
contract is in place).
After a call for proposals, selection of private
sector partners and numerous lengthy delays
the final contracts were awarded in early
2002. NuRa, one of the preferred bidders,
The installed customers are spread over a
geographic area greater than 10 000 km2
– installation and maintenance is a daunting
task to say the least.
The following key decisions were made:
Customer satisfaction
Several studies have been done in order to
ascertain customer satisfaction levels with
solar. These mostly involve doing customer
surveys to ascertain their happiness. An
independent survey carried out in the
NuRa region during 2003 found that 90% of
respondents were happy with their SHS [2].
Another way to look at the level of customer
satisfaction would be to study payment levels.
NuRa currently has a payment level of 76%,
clearly indicating that a large percentage
of the customers are willing to pay for the
service they receive.
Free basic energy (FBE).
As with grid customers, solar customers
are also entitled to a monthly FBE grant.
The recommended amount is R48,00
per customer per month [3]. This was
subsequently changed to R40 per month.
The implementation of the FBE has been
problematic. Initially central government,
through the Department of Minerals and
Energy, undertook to pay the subsidies.
The effective tariff was decreased from
R58 to R18 on 1 March 2003. Unfortunately
this funding was stopped after 8 months
(it was deemed the responsibility of local
government to pay these subsidies) and
tariffs were increased back to R58 on
1 November 2003. The net result was a
huge increase in non-payment as many
customers could either no longer afford the
system or were angry at what they deemed
an excessive tariff increase.
After much negotiation with the local
municipalities, two of the five municipalities
where NuRa currently has installations, finally
starting paying FBE subsidies towards the end
of 2005, one paying the recomended R40
per month and the other R30 per month. At
present only 57% of the customers benefit
from an FBE subsidy. It is obviously difficult for
all parties to have consumers paying different
tariffs, depending on which municipality they
reside in.
Infrastructure
In order to provide an effective service to
the customers, energy stores have been
Fig. 1
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VIEWS, COMMENT AND OPINION
established at local towns throughout the
region. Energy stores house a point of sale
for selling solar credit (customers operate on
a prepaid meter) as well as maintenance
technicians who perform the routine and
breakdown maintenance on the SHSs. The
company currently operates eight of these
energy stores.
The head office, based in Mkuze, provides
a home for the management team and a
central store.
Due to the vast geographic area covered and
the location of energy stores customers often
have to travel long distances to purchase
solar credit. NuRa has identified this as a
major consumer cost and inconvenience
and is currently licensing local agents to
sell credit on their behalf. Agents are paid
a commission on credit sold. It is envisaged
that there should be a local agent for every
500 customers. The first of these agents is
operational with several to follow shortly.
Staff and other beneficiaries
It has been claimed that renewable
energy projects provide more employment
opportunities than their grid equivalent [6].
NuRa currently employs 70 permanent staff
members (one for every 164 customers) as
indicated in Table 1:
Position
Number of Staff
PDI
% PDI
Senior
management
2
2
100%
Middle
management
11
10
91%
Technicians
24
24
100%
Clerks
18
18
100%
Drivers
3
3
100%
Labourers
12
12
100%
70
69
99%
Total
Table 1
As a comparison, Abaqulusi electricity
department operating out of Vryheid employs
51 staff serving 13 000 customers (one staff
member per 255 customers).
During the installation phases, employment
is provided to up to 10 local contractors
depending on the targets to be met and
budgets provided. Each contractor employs
between 6 and 10 staff members thereby
providing employment for an additional
60 to 100 people. A great advantage here
is that solar installations do not require a
high level of competence to install thereby
allowing local entrepreneurs to readily enter
the marketplace.
Shareholding
Whilst these employment figures show a
clear commitment to black empowerment
at grassroots level, it is unfortunate that
this is often ignored at the expense of
shareholding. Achieving black shareholding
in a company such as NuRa has not been
easy. With a business model which requires
major capital investment, a predicted return
on investment after only 12 years and the
lack of commitment from Government
in terms of the long term future of the
programme, enticing black investors is pretty
near impossible. NuRa have however gone
a long way to addressing this matter. RAPS,
the South African joint venture partner, is in
the process of selling its 20% stake in the
company to an employee trust fund. The
beneficiaries of this trust fund will be the staff
of NuRa and the executors will be made up
of representatives from the staff, Nuon (the
major shareholder), and a private person.
This initiative effectively sees the staff take
a 20% equity stake in the company which
can only been seen as true grassroots black
empowerment. The final share transaction will
take place in June 2006.
Grid versus solar
Everyone wants to compare grid to solar.
We don’t! The first part of any induction
course at NuRa or any presentation to a
local municipality or community is to steer
away from drawing these comparisons.
NuRa openly accepts that solar can never
provide what grid can. It is unfortunately
politically expedient to use grid electricity as
a carrot to “buy” votes and the communities
being manipulated are often ignorant to the
possibilities of these promises being met. Solar
is often portrayed as the “poor” alternative
making communities reluctant to accept
it as a viable option - they are under the
impression that if they do they will not get
grid electricity.
In many situations we regard solar as an
intermediate solution – and it is probable that
households will ultimately gain access to the
grid. However, in some parts of the concession
area, household settlement patterns are such
that grid electrification would cost 3 or more
times the cost of solar electrification – and
in this case it is probable that solar will be a
(very) long term electrification option. In the
NuRa area of supply certain communities
are being prevented from receiving solar as
they have been zoned for grid electrification
– in 2015!
However, since this major obsession of
comparing grid and solar exists, let us look at
trying to draw some form of comparison.
Capital costs
The cost for one solar installation is typically
between R3 000 and R4 000 depending on
the cost of the solar modules. Worldwide
demand for solar modules has resulted in a
shortage of silicon which has pushed prices
up substantially in the past few years.
The cost for a grid connection in the
areas where NuRa operates is between
R5 000 and R20 000 per installation
depending on household density and design
ADMD - this excludes MV network extensions,
generation and transmission costs [4].
Ta b l e 2 a s s u m e s a n a v e r a g e g r i d
connection cost of R10 000 per customer in
a rural environment similar to that in which
NuRa operates.
From Table 2 it can be seen that rural
electrification undertaken using grid requires
a monthly loan repayment of approximately
12 times more than using solar if the current
capital subsidies from government are
maintained. Note that Eskom receive a
100% subsidy so if a connection costs
R10 000 then Government pays the entire
amount. It should be further noted that
the solar installation includes the wiring
of the customer ’s house with lights and
light switches at a cost of approximately
R500 per installation.
Profitability
After considering all of the operational
and maintenance costs associated with
the running of a solar utility and the loan
repayments, an estimated gross profit of
about R5 per customer per month can be
Solar
Grid
Capital cost per household
R4 000
R10 000
Subsidy per household
R3 500
R4 000
R500
R6 000
20
20
Utility cost per household
Utility financial costs
Loan period (years)
Interest (prime less 2%)
8,5%
8,5%
Loan repayment per household (monthly)
R4,34
R52,07
Table 2
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VIEWS, COMMENT AND OPINION
Item
Unit
Unit cost
Filling
kg
R9,80
9 kg cylinder
Each
R85,00
19 kg cylinder
Each
R180,00
48 kg cylinder
Each
R450,00
5kg shesha cylinder
Each
R42,50
with these it soon
becomes clear
that electricity
R9,80
R0,76
as a thermal
R9,44
R0,73
energy source
is out of reach
R9,47
R0,73
for most rural
R9,38
R0,73
communities. A
R8,50
R0,66
50 W peak SHS
can cater for
both lighting and
communication
n e e d s. A g r i d
customer using less than the 50 kWh FBE
allocation per month is not using his electricity
for much more. He is, at most, using a
kettle, iron or hot plate infrequently during
the month. It should be noted that 56% of
ESKOM prepaid customers use less than 50
kWh per month [3]. If one considers this as the
major benefit of grid electricity compared to
solar (the ability to infrequently use a thermal
appliance) it becomes increasingly difficult to
justify the huge additional capital expenditure
for grid.
Cost per kg
Table 3
realized. This is less than 10% of the customer’s
monthly service fee of R61 per month.
So now let’s look at the grid equivalent.
Assume a utility sells electricity at the ESKOM
national tariff, 42,75c excluding VAT. Now,
let’s assume an approximate operational
cost of R25 per customer per month. If the
cost per kWh is 10c and network losses are
assumed negligible then in order to recover
the operating costs and the financial charges
a customer would have to use 235 kWh per
month, yet ESKOM’s average consumption
for all residential customers in 2005 was
approximately 243 kWh [5]. This average takes
into account all residential customers most of
whom live in far more affluent areas than the
rural areas in question. It is thus quite obvious
that rural electrification through grid cannot
be achieved without substantial subsidies
from larger customers. NuRa is not in a
position to make this sort of subsidisation.
At present (May 2006), NuRa is however
pleased to report that the company is
covering its operational costs based on
revenue received. The company is thus
(without access to a wealthy customer base
to cross-subsidize) gradually climbing the
profitability ladder!
What are we really trying to achieve?
It is difficult to assess the priority for energy
needs. What is more important, lighting,
communication (television, radio, cellphones),
cooking, heating? They are all important, but
when one considers the costs associated
Item
Cost per kWh
(12.9 kWh/kg LPG)
Energy costs
A SHS customer pays R61 per month inclusive
of VAT. Whilst this provides enough energy
to run four compact fluorescent lights, a
radio/television for four hours per day as well
as cell phone charging, it is noted that the
cost per kWh is approximately R10. When
one compares this with grid of R0,49/kWh. it is
immediately assumed that solar is vastly more
costly. This is unfortunately not the case as the
above paragraph on capital costs clearly
showes that the finance charge alone for the
grid installation amounts to R52 per month,
thus showing that rural customers paying
42,75c per kWh and using less than 235 kWh
per month are actually being subsidised. In
essence, a utility with an operating cost of
R25 per customer would have to charge
a tariff of R0,99 per kWh in order to cover
the financial costs alone (no profit) for a
customer using 100 kWh per month. The
customer’s actual bill would now be R99,18
Unit
Nov
Dec
Jan
Feb
Mar
Apr
9 kg cylinders
each
561
538
674
984
1227
1344
19 kg cylinders
each
496
595
784
1085
1301
1188
48 kg cylinders
each
26
50
49
43
54
47
Shesha - 5 kg
each
930
687
848
974
1030
1018
LGP - pumped
kgs
10337
7177
9548
10132
11491
11581
Total - kgs
kgs
30708
29159
37102
46537
54995
53595
MWh
396
376
479
600
709
691
Total - energy
Table 4: NuRa - LPG sales
energize - July 2006 - Page 15
per month, considerably higher than that of
a SHS customer.
It is also critical to remember that energy
costs alone are not the key driver of value for
money. It is more important to look at the cost
of the energy service delivered (light hours,
hours of watching TV, cell phone charging).
Solar systems tend to use far more efficient
appliances than grid customers, so the cost
per service comparison is more favourable
than a cost per kWh delivered comparison.
Time to rollout and geographic flexibility
SHS installations can be rolled out far quicker
than grid electrification. They can also be
rolled out almost anywhere within a several
thousand square kilometre region. In many
areas the delay in grid electrification is
attributed to network upgrade requirements
and the extensive planning associated with
this. SHS are far quicker and easier. There is
no need for extensive planning, installations
can be undertaken by local community
contractors (all that is required is a bakkie).
There is no need for skilled artisans. The most
onerous factor placed on the utility is one
of cash flow which is essentially controlled
by Government. NuRa can quite easily
reach installation targets of 3 000 to 4 000
installations per month provided it had the
right climate under which to operate.
It should be noted that the authors do not
believe that the South African Government
initiative to provide grid electricity to the entire
population is wrong. Quite the contrary, it is
supported whole heartedly. The message
is more that the goal to provide universal
access to clean energy by 2012 can be
attained far more quickly by increasing the
portion of budget allocated to solar projects
for the next few years.
Thermal needs
A major criticism of solar electrical projects
is that they fail to address the thermal needs
of the customer. As pointed out above, it is
also rather questionable as to whether grid
achieves this. NuRa have however identified
a need to provide those customers who
can afford it with access to efficient thermal
energy sources. Whilst the company sells
paraffin and ethanol gel, the major fuel sold
is LPG (Liquid Petroleum Gas). All energy stores
sell LPG as an additional product.
So what makes NuRa any different from
other suppliers of LPG in these areas? NuRa
were not the first company to sell LPG in
Maputoland. Ultimately is comes down
to price. Due to the existing infrastructure
created by the solar concession LPG sold by
NuRa can carry a small mark up because
the additional operatin costs are quite small.
LPG is currently marked up by less than
VIEWS, COMMENT AND OPINION
of government’s vision to provide universal access to
these energy services. It is now time to seriously look
at the original idea and formalize the relationship into
a long term, 20 year concession with commitments
from government in terms of subsidy allocations. Under
this environment, the company will continue to grow
and will ultimately be a showcase to the world on how
rural electrification can be achieved in a sustainable
manner.
Conclustion
The learning curve has been steep. NuRa has made
mistakes in the past five years but in the process has
learnt many lessons and is now pushing forward to
become a thriving rural energy delivery company.
Table 5
10% for cylinder swapping and slightly higher than 10% for cylinder
filling due to higher losses encountered here – less than R1,00 per kg
and less than the VAT levied by Government itself.
In conclusion, the following is noted:
•
Fee-for-service delivery model: The fee-for-service model is working.
It is common place around the world to find solar projects which
are 5 years old in a state of disarray due to lack of maintenance
and support infrastructure. This is not the case at NuRa. Our payment
levels are currently 77% and climbing.
•
Staff employed: The solar utility employs more people than an
equivalent grid project. This is encouraging in South Africa where
the need to create employment, specifically in rural areas, is
paramount.
•
Black economic empowerment: BEE objectives can be attained
through innovative thinking.
•
Solar versus grid: The grid versus solar debate should be put to rest.
It is acknowledged that grid can provide far more energy needs to
the household than solar. Grid electrification should be done in a
planned and co-ordinated way wherever possible. However, there
are some areas of the country that would be extremely expensive to
electrify, or that would take several years to be connected. In both
cases solar provides a readily implementable alternative and can
be expanded with relative ease.
•
Thermal needs: Solar electrification alone does not meet thermal
needs. Even grid electricity is generally not used extensively for
thermal applications in rural areas – people still rely heavily on wood
fuel. Thermal needs can be catered by using LPG. The current selling
price of LPG at NuRa equates to a cost per kWh of 66c (for the
Shesha option). This is only 17,27c more than a grossly subsidized grid
electricity cost. The challenge to increase the distribution of LPG to
more remote areas can be met. More innovative pricing structures
can be achieved by Government through regulation and possibly
abolishing VAT on LPG used for domestic consumption.
•
Increase budgets for solar and provide medium term security:
Increasing the budget allocations for solar projects will help the
Government reach energy rollout objectives. Medium term budget
provisions would considerably assist planning for implementation
and appropriate capacity development.
As can be seen from Tables 4 and 5 there has been a substantial
growth in LPG sales over the past four months.
A major challenge facing NuRa is to improve the access to LPG in
more remote rural areas. This will be accomplished with the licensing
of agents as mentioned above.
Where to from here?
NuRa is poised to take the utility approach to solar electrification
to a new level. The company has gone through the learning curve
of doing business in remote rural areas. It is addressing the issue of
black economic empowerment at grassroots level. It has shown that
the idea of a public/private partnership to deliver energy services
to rural communities can be achieved and it is a glowing example
References
[1]
DI Banks, J Willemse and M Willemse: “Rural Energy Services Sustainable
Public-Private Partnership Based Delivery?” Proc. Domestic Use of
Electrical Energy Conference, Cape Technikon, 2003
[2]
E Gothard: “NuRa Household Survey Report”, for NuRa, 2003.
[3]
DME: “Electricity Basic Services Support Tariff (Free Basic Electricity)
Policy”, for Republic of South Africa, June 2003
[4]
Clinton Carter-Brown: ESKOM: Discussion, May 2006
[5]
ESKOM: “Eskom Holdings Annual Report 2005”
[6]
AGAMA Energy (Pty) Ltd: “Employment Potential of Renewable Energy”,
for SECCP, November 2003
Contact FR Niemand, RAPS Technologies, Tel (012) 998-3375,
rolf@raps.co.za 
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