Energy can be used to provide light and heat and even activate machines from cars and handheld gadgets to giants earth moving equipment and space rockets that characterize the aura of technological modernity.
It is not uncommon however to come across the terms energy, power and electricity being used interchangeably. The fact is that the power of electricity must be produced or generated from sources of primary energy. An economy on the move requires reliable and efficient electricity to power the transformation of its vision into reality.
Renewable Energy and non renewable energy
Renewable energy, regarded as cleaner, safer and more cost effective in the long-run, is derived from natural sources or processes that are self replenishing. Examples are the sun from which we derive solar power, wind, biomass, geothermal reservoirs, waterfalls in our rivers and the waves and tides of our seas and oceans. Sources of non renewable energy such as fossil fuels, coal and uranium. Malawi has an abundance of both sources.
Studies have shown that in Malawi Solar power ranges from 1200 watts per square meter in the warm months to 900 watts per square meter in the cold months while mean wind speed are above five meters per second in many areas of our country. Geothermal reservoirs have been said to exist in Malawi. Then we have the vast swathe of fresh blue waters in Lake Malawi that, though the Shire river outlet and its falls, gently flows to the Zambezi. Feasibility studies have shown that we have more hydroelectric potential. Perhaps the most significant ones in terms of power output are Mpatamanga along Shire river, with potential of capacity of 200 to 350 megawatts while Kholombidzo and Lower Fufu hold potential capacities of 140 to 280 megawatts and 90 to 180 megawatts respectively.
An interesting geographical features in the Northern part of our country is the towering of the picturesque Nyika Plateu over Lake Malawi at an elevation of approximately 475 metres while the North West escarpment rises about a kilometre above south Rukulu. Colossal potential for pumped water storage if dams and requisite infrastructure can be constructed on the upper which harnesses power as water is recycled between two water bodies at different levels.
Waste which has been part of biomass has been used to generate electricity in other countries notably the environment conscious Scandinavian countries. Electricity generation fro waste has also found its way to Ethiopia and South Africa. Incineration of 2200 tons of waste can produce approximately 1200 megawatts of electrical energy. The pernicious waste pollution the atmosphere and rivers of our cities and townships might one day be scrambled to be sold to an electricity generation company.
It has been estimated that there are 80 million to one billion tons of local reserves in Malawi. At one time, it was said that there were 63 000 tons of uranium reserves at Kayerekera in Karonga. There is another deposit at Illomba in Chitipa. A nuclear station generating electricity in Malawi may not be a far-fetched dream.
Opportunities
The options for the independent power producers(IPPs) to enter our power sectors are many. At about 11 percent, Malawi is one of the least electrified countries. The installed capacity for electricity generation is about 365 megawatts while demand has been estimated at 440 megawatts, resulting in a supply deficit. But we avoid passive acceptance of any offer that may come our way. Government and the Malawi Energy Regulatory Authority (Mera) must be wary of projects whose social cost to the economy in the long-term may far outweigh economic benefits. Perhaps we should come up with deliberate policies and incentives to make venturing in the exploiting our renewable energy sources more attractive.
Reform of Electricity industry in Malawi
Traditionally, the electricity industry has been structured as State-owned monopoly with three integrated components of generation, transmission and distribution. In other countries, distribution is undertaken by other institution such as municipalities. The vertical integration of the electricity industry evolved more as a result of necessity than a deliberate design.
Electricity has unique characteristics. It cannot be stored in the conventional sense. It is the consummate real time products with its production and consumption occurring at essentially the same time. As a result, electricity requires judicious system and wide coordination to achieve real-time balancing of supply and demand and to meet specific physical parameters such as frequency, voltage and stability. These and other factors limit the scope of market mechanisms and make a compelling case for a vertically integrated monopoly. But developments in the industrialized countries and the developing world conspired to challenge this paradigm.
The Power Sector Reform (PSR) programme in Malawi began in earnest with the incorporation of the Escom in 1998. A regulatory body, the precursor of the Mera, was constituted. Unbundling was next on the reform menu. This exercise had to be undertaken cautiously. The integrated business components became Strategic Business Units (SBU) with semi autonomous management teams headed by the executive directors who were now defacto chief executive officer. Each USB prepared it own set of management and financial statements and was accountable for its performance. This encouraged initiative and friendly competition in management practice and cost saving initiatives. It was a promising start.
The liberalized energy sector
It is generally commendable that we embarked on liberalizing our power market. One of the major accusations leveled at the electricity industry was that it was a monopoly and that good services to customers was not a priority. Lack of demand price-elasticity led to frequent upwards adjustments of electricity tariffs. Unbundling and privatization were the most tauted prescriptions. Introduction a semblance of competition even if all the players were State-owned would address some of the concerns. But any competition must be an a level playing field.
The previous administration had the Secretary to the President and Cabinet as board chairperson for the selected companies in the energy sector. I had my reservations. The Secretary is head of the public service which includes almost all of the incorporation State-owned energy sector companies and their regulator. The companies with the Secretary to the President and Cabinet as their chairperson may be perceive as having an unfair advantage rightly or wrongly. But perceptions sometimes matter much more than reality.
The new Tonse Alliance administration has, on several occasions, surprised in correction past wrongs. Therein I believe, must lie our abiding hope that this apparent anomaly will be electrified.
Before 1998, Escom loomed large as the lone giant in the power sector. No more. Mera, Electricity Generation Company (Egenco) and other players now share the limelight. I have a word or two for each one of them.
Mera regulatory challenges
Regulatory challenges are unavoidable in a liberalized power energy sector. What Mera must appreciate from the outset is that because of its non-storabilty and short term capacity constraints, electricity supply in Malawi is very in-elastic. But so is demand. When demand for electricity is above what generators can supply and demand is price in-elastic, a phenomenon known as market power arises which allows generation companies to quietly but unfairly maximize revenue by withdrawing capacity and disproportionately increasing unit prices to more than compensate for the withdrawn volume. Withdrawing capacity becomes a lucrative exercise. Exercise of market power can also happen when a horizontally intergrated generation company is able to sell low marginal cost electricity from, say, hydro-generation at prices agreed for much higher marginal cost of electricity from, say, diesel generation. The losses of a distribution company may only be a function of the profits of a horizontally integrated generation company with opportunities to exercise market power. That is why confiding regulations to only downstream companies that interfere with end customers is being simplistic if not naive.
If we have opted for a regulated power market, Mera must cast its net overall players in the power sector who must specify how their prices will be set over a realistic time period say of four to five years and how they will be revised. Take and pay clauses in power purchase agreements and operational cost structure of all players must carefully be revised to ensure synchronization with regulated prices for wholesalers and retailers. We should avoid unbundling or privatizing generation before implementing full mechanisms for sustainable cost reflective pricing for the downstream elements.
Determination of the final electricity price must start with the wholesale price charged by generators. This will be adjusted by what is called transmission Use of System (TOS), Transmission charges, Distribution Use of System (DOS), distribution charges and amount needed to cover costs of supply such as billing and meter reading.
When determining electricity prices, what should be avoided is regulating prices without means of hedging against fluctuation of uncontrollable elements. Escom once developed what was called an Automatic Price adjustment Formula(Ataf) that automatically adjusted base electricity tarrifs to movements, beyond set threshold, in economic fundamentals such as inflation and exchange rate weighted according to the utility’s cost structure and exposure.
Egenco and horizontal integration
Any transition from vertical integration results in price risks which previously cancelled out and loss of mutual operational complementarities, including economies of scale and share of technical services. Egenco is the precursor of Escom’s GBU which was created out of the Generation Directorate of Utility. Sales and Purchase among the Strategic Business Units (SBU) were at shadow prices for items not offered on the open market. This is necessary at the SBUs are transiting to full stand alone independent companies. The shadow price should be used by as the basis for determining the final electricity price after appropriate adjustments. This avoids the problem of the standalone generation company determining its market price while the distribution company has to sell at capped prices. Was care taken to avoid this problem or did Egenco and Aggreko escape regulatory scrutiny in coming up with their wholesale prices?
Source: The Nation_Energy and Mining Pullout_November 24 2020_Kandi Padambo-Former CEO of Escom