Virtual power wheeling seen as South Africa’s solution to grid instability

By Elena Kachkova in Johannesburg February 16, 2024

When global telecommunications giant Vodacom signed a virtual wheeling agreement with South Africa’s state-run power utility Eskom in August 2023, it was the first of its kind for the continent’s most industrialised economy. More are certain to follow.

Virtual wheeling is seen by Vodacom as South Africa’s solution to grid instability and a catalyst in achieving the country’s decarbonisation goals, Blue Chip Digital, a Cape Town-based financial planning platform, reported on February 8.

This pioneering concept allows Vodacom to buy electricity from independent power producers (IPPs) and use the existing grid to transport it to its business operations or sell it to other customers. It also helps Vodacom to reduce its reliance on Eskom, lower its electricity costs and increase its renewable energy share.

Virtual wheeling allows Vodacom to contribute to solving the country's energy crisis while helping South Africa in navigating climate imperatives and economic realities. Vodacom group chief technology officer Dejan Kastelic explained the novelty concept to Blue Chip.

Energy crisis

South Africa finds itself grappling with an ongoing energy crisis of unprecedented proportions, exacerbating the already challenging post-Covid economic landscape. Relentless power outages, locally called load shedding, implemented by Eskom in an attempt to stabilise the national grid, have wreaked havoc on the continent’s most advanced economy.

In South Africa, where greenhouse gas (GHG) emissions rank among the highest globally owing to the country’s heavy reliance on fossil fuels for power generation, the imperative for sustainable energy solutions is apparent. Moreover, as research underscores, a stable energy supply is indispensable for economic prosperity.

According to Kastelic, in the past four years alone, Vodacom South Africa spent ZAR4.5bn ($236mn) on backup power solutions and ZAR300mn ($15.7mn) on diesel for generators. This constitutes 11% of the telecom giant’s total capital expenditure over the period and highlights the immense burden placed on businesses, particularly SMEs striving to maintain operations amidst volatile energy supply and fierce market competition.

It is universally recognised that climate change poses an unparalleled challenge to humanity, its effects being experienced across the globe with a particularly harsh impact on developing nations. While wealthier countries have historically been the major contributors to GHG emissions, the responsibility for addressing climate change is a collective one, says Kastelic.

He points out that South Africa’s adoption of transformative technologies to tackle its energy woes has been sluggish. While mechanisms like electricity wheeling have existed, structural barriers have restricted private sector participation, leaving many enterprises on the sidelines. Legacy constraints, compounded by administrative hurdles, have stymied progress, limiting the potential benefits of renewable energy integration.

Traditional electricity wheeling, with a few exceptions, involves a single buyer (a private company), partnering with an independent power producer (IPP) to indirectly supply a single site with power, usually generated from renewable sources, Kastelic explains. This legacy approach requires the buyer to be indirectly connected to the IPP’s location through existing electrical infrastructure (the grid).

“This has several challenges, especially for businesses with complex operating environments,” he says. “In Vodacom’s case, our desire to participate in wheeling has been hindered by the complexity of our South African operating environment that includes over 15,000 distributed low-voltage sites located across the country within 168 municipalities.”

Yet, there is a glimmer of hope brought to the market with a new “technologically-enabled” solution. According to Kastelic, Vodacom, in partnership with Eskom, has paved the way for broader private sector involvement in renewable energy initiatives. The collaborative effort has resulted in a novel concept of “virtual wheeling.” This breakthrough not only promises cost savings for businesses but also represents a significant step towards decarbonisation goals.

“This solution enables the private sector to actively participate in solving the energy crisis by indirectly funding the development of renewable power, which is added to the national grid, all without impacting Eskom’s weak balance sheet,” says Kastelic. “This is a technological innovation that every business in the country should be actively exploring which, if scaled properly, could significantly reduce or even eliminate loadshedding in South Africa in the next few years.”

Virtual Wheeling

Kastelic believes that Vodacom-Eskom innovation is set to revolutionise energy management in South Africa. Unlike traditional wheeling, virtual wheeling enables multiple IPPs to generate power into the grid and wheel to multiple sites for a single buyer. The platform that was developed enables a buyer to aggregate all of its consumption into time-of-use periods as a single account which is then matched, in time-of-use, with the aggregated generation by one or more IPPs.

“In our case, we will partner with renewable IPPs, who will feed the generated power into the grid. The IPP and our sites will be metered and the metered data will feed into the virtual wheeling platform which we have built using our subsidiary Mezzanine. The Vodacom Energy Management System collects various consumption data points across a period, feeding this information to the Virtual Wheeling Platform. As long as the generation is lower or equal to the aggregated consumption, Vodacom will receive a refund from Eskom,” he explains.

Crucially, Kastelic points out, implementing this solution did not require any amendments to existing electricity supply agreements and it does not impact the municipalities in any way.

While the benefits of virtual wheeling are manifold, challenges persist, notably regarding Eskom’s refund mechanisms. The requirement for municipalities to be in good standing poses a logistical hurdle, necessitating measures to safeguard electricity income and ensure stability.

Virtual wheeling represents a key step towards achieving own decarbonisation targets for Vodacom. By transitioning 30% of consumption to renewable sources initially, the company aims for 100% renewable electricity sourcing by 2025, aligning with broader national objectives.

However, concerns remain regarding the commercial viability of virtual wheeling, particularly amidst potential Eskom tariff fluctuations. Yet, ongoing testing and investment aims to address these uncertainties, ensuring the sustainability of this innovative approach.

Way forward

Beyond addressing immediate energy crises such as load shedding, virtual wheeling catalyses a broader shift towards renewable energy adoption. As the nation grapples with diesel dependency, the potential for green hydrogen as a sustainable alternative emerges, says Kastelic. Purpose-driven entities like Vodacom actively explore renewable power and alternative fuels, poised to navigate industry disruptions and foster economic inclusivity.

In conclusion, virtual wheeling epitomises the fusion of technological innovation and environmental stewardship, heralding a new era in energy management. As South Africa navigates its energy transition, collaborative endeavours and innovative solutions pave the path towards a greener, more resilient future for all stakeholders.

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