Bright municipalities will diversify their energy supply
Those that include renewables as a source, along with investing in battery storage, can save a lot of money for themselves and their residents. By
Access to electricity is critical for supporting economic growth and development, because almost all economic activity requires reliable and affordable electricity. Load shedding, though most visible, is not South Africa’s only serious electricity system problem.
Although reducing the frequency and intensity of rolling blackouts will give the economy significant relief, it will not automatically mean enough electricity to support a substantial economic expansion.
To rapidly increase development and create large numbers of new jobs, South Africa needs to increase its electricity generation capacity by between 35% and 50%. This means that even if our coal fleet produced at optimum levels, it would still not produce enough electricity – and at a low enough cost – to permanently shift the economy to a higher development path.
The quickest way to increase (cheaper) electricity supply is through the rapid deployment of renewables. Municipalities can both increase the supply of electricity, which will end rolling blackouts and support socioeconomic development, and reduce the cost of that supply.
They can increase their total electricity purchases to match actual – and potential – demand by purchasing additional electricity from non-eskom sources, and they can reduce their overall cost of supply by purchasing that power from renewable electricity generators and investing in battery storage technology.
South Africa has failed to take advantage of the global renewable power opportunity, notably in solar photovoltaics (PV). Utility-scale solar PV is the fastest and cheapest way to significantly increase the country’s electricity supply.
The government intends to build a nuclear power plant to address supply constraints. However, the average time between starting construction and grid connection for seven reactors that were connected across the world in 2022 was nine years.
The comparative time period for a solar PV farm is one year.
Nuclear build programmes are also notorious for being behind schedule: over the three years from 2020 to 2022, only two of 18 units connected to the grid in seven countries started up on time.
Economic growth and social development not only require sufficient and reliable electricity, which we do not have, but also that it is affordable. While the supply of electricity has been declining, electricity tariffs have increased significantly over the past 20 years, way above the increase in inflation or average wage increases.
The rise in municipal electricity tariffs has been driven by: ⬤ Substantial growth in the tariff increases allocated to Eskom by energy regulator Nersa, which has resulted in rapidly increasing bulk charges that municipalities must pay. Using Eskom data, we have calculated the average Eskom wholesale electricity price (WEP) applicable to a typical metro demand profile. The average WEP was 63.52 cents per kilowatt-hour in the 2018/19 year, which increased by 81% to 114.99 cents/kwh by 2023. We forecast that the average WEP tariff for metros will increase to R2.16/kwh by 2030; and
⬤ Eskom’s time-of-use tariffs (which impose a substantial surcharge on electricity supplied to municipalities during peak demand times, i.e. morning and evening) have been particularly onerous for municipalities as they are significantly higher than the average tariff and higher than
almost any tariff that a municipality could charge its customers. The high-demand peak tariff Eskom charges municipalities for the 2023/24 year is R4.79/kwh. By 2030, we estimate that the high-demand peak tariff could be close to R9/kwh. While the cost of the electricity supplied by the Eskom coal fleet rises, the cost of electricity generated by utility-scale solar PV is rapidly declining. Figure 1 (above) compares the Eskom average WEP tariff for a metro municipality, compared with the levelised cost of energy (LCOE) for wind and solar PV. It shows actual costs to 2024 and estimated costs to 2030.
In 2023, electricity produced by solar PV was 35% cheaper than that produced by Eskom. In 2024, the difference was 43%. It is estimated that by 2030 the cost of electricity supplied by solar PV will be less than one-third of the cost of that supplied by Eskom.
In addition, if municipalities include battery storage as part of their renewables diversification, they can provide part of peak demand from that storage, making significant additional savings by not paying the full peak demand rate charged by Eskom for that portion of supply. This will further reduce the municipal cost of supply.
Figure 2 (above) maps the average peak tariffs that Eskom charges municipalities against the cost of one example of a potential battery energy storage system (BESS).
The LCOE of nuclear is heavily influenced by the cost of building the plant. The less
efficiently the capital project is managed, the longer the construction takes and the larger the cost overruns, the more likely that the eventual tariff that needs to be charged to cover these costs will be significantly higher than the cost of electricity from solar PV.
At discount rates above 5.4%, nuclear power is always more expensive than renewables. At a 10% discount rate, nuclear is about four times more expensive than renewables. The discount rate commonly applied to South African electricity projects is 8.2%, indicating that nuclear will never be the cheapest option.
Instead, a combination of Eskom’s already expensive coal fleet and new expensive nuclear will almost certainly guarantee future electricity prices that are unaffordable for the majority of households, which will present a significant barrier to development and employment growth.
What South Africa urgently needs are additional sources of electricity that are as low-cost as possible, not more expensive.
The cost benefits for both consumers and municipalities of having a share of the supply provided by renewables are significant: households and businesses would have access to cheaper electricity, and municipalities would see a significant reduction in their bulk purchase costs.
Our research indicates that at a 22% to 24% share of renewables, combined with battery storage, the eight metros would have saved a combined R5-billion per annum on bulk purchases – including the cost of battery storage – in the current financial year and largely eradicated blackouts.
Given that the cost from Eskom is projected to increase and that of renewables to decrease, the quantum of this saving will increase in each future year.
Much greater benefits would accrue – to the wider economy as well as the municipality – because of the end of rolling blackouts and an increase in electricity supply.
A combination of Eskom’s already expensive coal fleet and new expensive
nuclear will almost certainly guarantee future
electricity prices that are unaffordable for the majority of households