Energy

The energy sector has become a source of significant policy and regulatory focus in countries across Africa. Energy security and reliability – and in some cases failed energy reform – represent important challenges for economic growth and development. This includes South Africa where the energy crisis has required careful policy review to determine the optimal long-term market structure across diverse sources of energy, as well as short-term remedies to resolve more immediate challenges.

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Expertise Areas

Sector strategy and regulatory frameworks

We provide a range of regulatory advisory services to the sector. These include assessing the basis for policy and regulatory action, developing suitable policy and regulations within the socio-economic context, and designing and assessing specific economic regulatory tools and processes such as price regulation, pro-competitive behavioural remedies, and enabling regulations. 

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Licensing advisory and support

Our services include advice and support to firms in submitting or assessing licensing applications across the energy sector (piped gas, petroleum pipelines and electricity) including construction and operating licences for facilities. 

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Tariff design and determination

We provide expert advice in assessing, and assisting to develop, tariff proposals by regulated firms using our in-house financial and regulatory accounting expertise. Our regulatory accounting services include the innovative design of appropriate regulated price remedies, the design of regulatory accounting reporting requirements to support those remedies and the determination of regulated prices themselves. We also have extensive expertise in assessing and calculating the cost of capital, a key element in any regulated tariff. 

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Project appraisal

We appraise the financial and economic viability of projects in order to provide our clients with a basis for data-driven decision-making. Financial appraisal entails an assessment of the financial cash flows of a project by estimating the project-related revenues and costs. Financial appraisal only accounts for part of the impact of a project. The appraisal of public and social projects is expanded to include impacts that have a broader impact than financial viability. We therefore extend our analysis to include the socio-economic costs and benefits associated with project implementation.

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Projects

Genesis develops five-year plan to electrify rural Lesotho

Project name:
Restructuring of the Rural Electrification Unit in Lesotho

Service:
Regulatory economics and accounting
Project appraisal

Sector:
Energy
Infrastructure

Area of Expertise:
Sector strategy and regulatory frameworks
Design of decision-making tools
Financial modelling

Client:
Government of Lesotho

Date:
2016 - 2017

Country:
Lesotho


The Lesotho Government has prioritised rural electrification (RE) to facilitate economic development and alleviate poverty in rural areas, where only 5% of rural households have access to electricity. The high cost of electricity provision is a key challenge, which is driven by low population density and demand by rural users. 

This is exacerbated by the fact that Lesotho is an impoverished country that relies heavily on donor funding. The government set up a Rural Electrification Unit (REU) tasked with advancing RE in the past, but its operational structure did not support effective service delivery and electricity rollout to rural areas. 

It is against this background that the government engaged Genesis to propose a restructured REU.This project is a core decision point in Lesotho’s energy sector reform, which addresses the following key elements:

• The ideal institutional structure and functions best suited to champion RE.

• Outlining the costs for such an institution and the electrification projects.  This is closely linked with a “bankability” assessment – the sources of funding available to the institution and relevant financing arrangements.

• How electrification projects can be structured to recover affordable tariffs from rural consumers and allow project implementers to cover their costs, such that projects are viable.  

Addressing these elements led to the development of a five-year business plan that highlighted opportunities for the transformed REU, and laid out clear detailed steps on the unit’s form, function and management, its proposed project pipeline and financial viability. Additionally, tariff models and methodologies were developed for an array of off-grid renewable plants, balancing the need for adequate cost recovery and affordability.

Genesis conducted a review of other established REUs across Africa, and applied critical thought and creativity in applying lessons learnt from other countries to the context of Lesotho’s political, institutional, economic and legislative environment. 

This analysis was combined with detailed stakeholder engagement which placed the team strongly within the decision-making context in the sector. Tariff modelling and methodologies were informed by best practice tariff methodologies, and Lesotho’s current rural tariff methodology. Various tariff structures for renewable off-grid technologies were modelled, and the level of subsidisation required for such projects were quantified. The models and tariff framework were developed as a dynamic tool to enable the REU to effectively plan its future projects. Further, since the tariff models are based on sound credible regulatory principles, it is expected to attract greater donor funding for such projects moving forward. 

Identifying the ‘locks’ preventing accelerated RE enabled Genesis to craft a new approach to how the REU could overcome the challenges prohibiting it from realising its mandate. 

Genesis analysed the decision-making process and political nuances in the energy sector to map out proposed changes to the institutional arrangements and functions of the REU that could electrify 9,000 rural households over the next five years. Furthermore, donors such as the EU, the World Bank and UNDP have indicated their intention to provide additional funding of €35 million, $30 million, and $3.5 million, if the energy sector is reformed, where the restructuring of the REU is a vital component. Finally, it is important to note the potential environmental benefits which accrue from the analysis. 

The development of renewable energy sources implies that electrification can occur with a smaller environmental impact compared to a scenario where electrification occurs through conventional non-renewable technologies.

Pricing models for liquid-fuel price regulation in Zimbabwe

Project name:
Pricing models for liquid-fuel price regulation in Zimbabwe

Service:
Regulatory economics and accounting

Sector:
Energy
Public and social

Area of Expertise:
Tariff design and determination

Client:
Zimbabwe Energy Regulatory Authority

Date:
2015-16

Country:
Zimbabwe


Genesis assisted the Zimbabwe Energy Regulatory Authority to develop pricing models for the regulation of liquid fuels in Zimbabwe. 

The liquid fuels include petrol and blended petrol, diesel, aviation fuel, biofuel (ethanol) and LPG. To this end Genesis conducted electronic surveys and provided expert advice to ensure the price regulation framework is both practical enforceable.

We used our expertise in liquid-fuel regulation in other jurisdictions to develop appropriate approaches to ensure reasonable returns to oil companies and fuel retailers. 

Despite data challenges, the team developed evidence-based fuel-price building blocks that would greatly enhance the viability of the liquid-fuel industry in Zimbabwe as well as enhance transparency in the price-setting process.

Genesis study of Zimbabwe fuel price

Genesis benchmarks Kenya's tariffs for price application

Project name:
Benchmarking retail base electricity tariffs to monitor Kenya’s tariffs against comparator countries

Service:
Regulatory economics and accounting

Sector:
Energy

Area of Expertise:
Tariff design and determination

Client:
African electricity company

Date:
2016

Country:
Kenya


Genesis was retained by an African energy company to compare the retail base electricity tariffs in Kenya to those of other selected countries in the context of a price application to the Energy Regulator.

The retail base tariff consists of generation costs (including fuel), transmission and distribution costs. This tariff is averaged across customer groups for a given year. 

Putting the benchmarking of Kenya’s retail base tariffs relative to other countries into context, Genesis explored some of the factors which may account for differences in the retail base tariff such as access to electricity; generation mix; fuel costs; quality of supply; and subsidies. 

The benchmarking results provided a sound indication of how Kenya’s retail base tariffs compare to the sample comparators. Based on the cross-country benchmarking study, we demonstrated that the increases in overall prices were reasonable.

Our analysis further led the utility to approach the building blocks of the overall price in a component-specific manner, which clearly linked the price movements to cost drivers. As a result, the company intends to request the regulator to develop a transparent price methodology, so as to enhance regulatory certainty and reduce the time involved in application processes.

Genesis measures impact of solar energy on municipalities

Project name:
Municipal renewable energy tariff design tool

Service:
Regulatory economics and accounting

Sector:
Energy

Area of Expertise:
Tariff design and determination

Client:
GIZ (German Donor Agency) and SALGA (South African Local Government Association)

Date:
2016

Country:
South Africa


In light of the growing interest of residential and commercial electricity users to install solar energy for their own consumption and to sell back to the grid, Genesis was commissioned to develop a tool to assess the impact of small-scale renewable generation, primarily solar PV, on local municipalities in South Africa. 

The tool was designed to reduce local government reluctance to allow renewable energy to be supplied to the grid, providing a menu of options to design net-metering tariffs that would be revenue neutral for the municipality whilst reducing its carbon footprint. 

The tool was designed for the South African Local Government Association and is currently being rolled out in various municipalities. 

This project is suitable for application in different countries and jurisdictions and can contribute to clean energy technology adoption in various countries. 

Facilitating LPG shipments to the Western Cape

Project name:
Avedia LPG storage facility licence application and related advice

Service:
Regulatory economics and accounting

Sector:
Energy
Infrastructure

Client:
Avedia Energy SA LTD

Date:
2014 – 2016

Country:
South Africa


Genesis was retained by Avedia Energy, a firm involved in a wide range of LPG handling, trading and bottling activities, to assist in its contested application to the National Energy Regulator of South Africa (NERSA) for a licence to construct and operate an LPG storage facility in Saldanha in the Western Cape. Central to the success of Avedia’s storage facility was to the ability to interconnect with the off-loading facility of a company in the area that was already licensed by NERSA, Sunrise Energy. 

Sunrise Energy objected to Avedia's application, arguing that it had an exclusive right to both off-loading and storage in the port, and that Avedia should be compelled to use its facilities as otherwise Sunrise's project would not be viable.

Drawing on our knowledge of the relevant legislation and regulations, our deep understanding of LPG markets, and evidence-based approach to our analysis, we provided expert economic analysis and testimony on this matter before NERSA.  The Genesis team found that access to, and interconnection with, the Sunrise Energy off-loading facility should be guaranteed to Avedia and other third parties, and that there was no basis for exclusivity in storage services with competition in storage being important for the growth of the industry and the viability of the off-loading facility.

Our analysis and independent testimony were key inputs into the regulatory process of NERSA and its ultimate decision was to grant a licence to Avedia and enforce the requirement for Sunrise Energy to provide interconnection.

Genesis has since provided ongoing assistance to Avedia Energy, including representations to NERSA regarding Sunrise’s tariff application, as well as in developing Avedia’s own tariff application in 2016.

Critical analysis of Eskom’s multi-year price determinations

Project name:
Critical review and analysis of Eskom’s multi-year price determinations (MYPD 1, 2 and 3)

Service:
Regulatory economics and accounting

Sector:
Energy

Area of Expertise:
Tariff design and determination

Client:
Electricity Intensive Users Group

Date:
2010 – 2015

Country:
South Africa


Eskom’s tariff increases as part of the MYPD (Multi-Year Tariff Determination) process has had a critical and far reaching impact on the South African economy. The Genesis team has played an important role in ensuring that these tariff increases are governed by sound regulatory principles, being deeply involved in critically assessing all the MYPD tariff applications of Eskom since 2009. 

This involvement has included providing technical assistance and expert advice to the National Energy Regulator of South Africa (NERSA). This input comprised comprehensive responses to the tariff increases proposed by Eskom during its MYPD2 and MYPD3 applications, and its MYPD3 reopener application.

The price regulation of energy utilities raises intricate questions that require one to protect the interests of consumers while still preserving the operational sustainability of the utility and the impetus for investment needed to ensure energy security for the country.

This balancing act was particularly complex in these MYPD applications, given the need for Eskom to dramatically expand its generation capacity and to raise the necessary capital for such expansion.

Against this backdrop, we provided expert input on the appropriate tariff increases, drawing on our extensive regulatory accounting expertise, rigorous economic analysis and deep sector knowledge. In each instance the submissions from the Genesis team played an important role in shaping the final decision made by NERSA:

  • In 2009 we assisted Business Unity South Africa (BUSA) in assessing Eskom’s MYPD2 tariff application, which covered electricity tariff proposals for the three years ended 31 March 2013. Eskom initially proposed a tariff increase of 45% per annum.  In our report we provided a comprehensive independent expert assessment of Eskom’s operating and capital cost assumptions using best regulatory accounting practices. We also undertook an assessment of the impact that the proposed price increases would have on the economy. Our assessment found that a tariff increase of 25% per annum was justified. NERSA’s MYPD2 tariff determination was consistent with this recommendation from the Genesis team.   
  • In 2012 we assisted BUSA in assessing Eskom’s MYPD3 tariff application, which covered electricity tariff proposals for the five years ending 31 March 2018. Eskom proposed tariff increases of 16% per annum. Our technical assessment, once more drawing heavily on our regulatory accounting expertise, found that Eskom’s proposed increases were based on unsubstantiated cost escalations significantly in excess of inflation, with limited assumed efficiency gains. We identified about R138-billion worth of cost savings in addition to the savings identified by Eskom. We ultimately found that tariff increases of 10.8% per annum were justified, and our recommendations played a significant role in shaping the basis of NERSA’s MYPD3 tariff determination which was set at 8%.
  • In 2015 we assisted the Electricity Intensive Users Group (EIUG) and NERSA in their review of Eskom’s application to have its approved five-year price path reopened. Eskom applied for a further R62-billion of revenue allowance for the remainder of the MYPD3 period. In line with our recommendation, NERSA rejected the 'selective' reopener outright, indicating that there was rather an ex-post option to apply for the Regulatory Clearing Account settlement. 

Chevron objects to liquid-fuel import terminal

Project name:
Chevron objection to Burgan liquid fuel import terminal licence

Service:
Regulatory economics and accounting

Sector:
Energy
Infrastructure

Area of Expertise:
Licensing advisory and support
Sector strategy and regulatory frameworks

Client:
Chevron South Africa

Date:
2014

Country:
South Africa


Genesis was retained by Chevron SA to provide expert economic analysis and testimony to the National Energy Regulator of South Africa (NERSA) in terms of a licence application by Burgan Cape Terminals to build a liquid-fuel off-loading and storage facility in the port of Cape Town.

We used our specialist knowledge of petroleum pipelines regulation, the policy directives of government, as well as our keen understanding of the Western Cape market dynamics in submitting an assessment of the impact and appropriateness of granting the requested licence to Burgan Cape Terminals. Our analysis submitted to the regulator included strong policy and evidence-based arguments to differentiate between storage and off-loading services and to demonstrate the impact the granting of the licence would have on the sustainability of local refining capacity.

The licence was ultimately granted with conditions by the regulator, with the analysis of the Genesis team being an important input into the process and the decision by NERSA.

Meet the Team

Areas of Service Expertise

  • Sector strategy and regulatory frameworks
  • Licensing advisory and support
  • Tariff design and determination
  • Project appraisal

Related Sectors

Projects

Project

Genesis develops five-year plan to electrify rural Lesotho

Genesis Analytics has developed a five-year plan to restructure Lesotho’s regulatory arrangements in order to extend electrification to rural areas in Lesotho.

View Project
Project

Pricing models for liquid-fuel price regulation in Zimbabwe

Genesis assisted the Zimbabwe Energy Regulatory Authority to develop pricing models for the regulation of liquid fuels in Zimbabwe. 

The liquid fuels include petrol and blended petrol, diesel, aviation fuel, biofuel (ethanol) and LPG.

View Project

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Leading the team

Anthony Felet

Partner (Competition and Regulatory Economics)

Anthony Felet
Partner (Competition and Regulatory Economics)
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Paul Anderson

Partner (Competition and Regulatory Economics)

Paul Anderson
Partner (Competition and Regulatory Economics)
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