How to switch on and escape from Eskom’s national power grid
Wind and sunshine will not get any more expensive and operating costs will remain well below those for thermal power stations
THE TIME has come for a radical change in our thinking on electricity.
We have been wedded to the Eskom big coal, big grid model in which municipalities were actively discouraged from generating their own electricity for so long that they no longer think it’s viable. They are wrong, and failure to realise this will create huge financial problems for them in future.
At present they are buying electricity from Eskom at an average price of 65.51c/kilowatt-hour, while the new wind farms will soon be producing electricity for as little as 66c a unit.
That’s not quite grid parity, but later this year Eskom’s average selling price will rise to 70.75c a unit, then it goes to 76.41c next year, and when you add in the two further increases, which have already been approved, we get to an average selling price of 89c a unit in 2017.
That will make Eskom’s wholesale electricity more expensive than the electricity from the new batch of solar farms that will supply the grid with power at an average of 88c a unit. The need for the kind of subsidies used to kick-start the renewable industry will fall away.
Of course, one must add transmission costs, but if a municipality built a solar farm in its own backyard and fed the power into its existing distribution system, the operation would just about break even.
But it gets better: Eskom prices will continue to go up each year along with the price of coal, transport and the wages of their very well-paid staff.
And another huge cost increase is waiting in the wings. The power from the new coal giants, Medupe and Kusile, is going to cost a lot more than R1 a unit, probably about R1.15. This means that if a municipality built a solar farm now, in five years’ time it could make its own electricity for less than it will cost to buy it from Eskom.
If it throws wind into the mix at 66c a unit, its own-generated electricity will be even cheaper. A city like Cape Town, which has its own pump storage scheme at Steenbras, already has some back-up for those cloudy or windless days.
That leaves just one important point to make. Wind and sunshine will not get any more expensive and operating costs will remain well below those for thermal power stations.
Even in the US, where energy prices have been dropping since the advent of shale gas, the renewable industry is going from strength to strength. In 2012, for instance, 46 percent of the new generating capacity came from wind and solar farms. And there are now predictions that fossil fuels could be obsolete by 2030.
Now let’s look at the other side of the picture. If municipalities are not able to produce cheaper power, they will start losing customers – the customers who pay the high tariffs and who effectively subsidise the free and low-cost electricity that goes to the poor.
This is not fanciful conjecture. It is already happening for we have dozens of major solar projects on the go in the Western Cape that will soon be providing their owners with electricity at prices below Cape Town or Eskom retail tariffs.
These own-generation schemes have great appeal because they give companies control over their future power costs.
Rooftop solar systems work well on commercial buildings where the demand for electricity for air conditioning is highest on hot days when the solar panels are most productive.
The second blow to municipalities will be the loss of the domestic customers who pay the high retail tariffs – like R1.74 a unit in my case.
The solar industry is already producing package systems, mainly for the rural areas, but when they have got the product and price right they will come to town in a big way.
At present, municipal domestic electricity tariffs are structured to make power more expensive for those who use a lot. It is a strategy that defies commercial sense – in the real world there are discounts and things usually get cheaper when you buy a lot.
The municipalities will yet find out that these artificially high prices have created a succulent opportunity for companies that will soon be selling or leasing rooftop solar systems to the council’s best clients.
Generally there is an awareness that people will use less electricity as it gets more expensive (except in the Department of Energy, whose IRP 2010 completely ignored this obvious truth), so municipalities have prepared for a drop in consumption.
But they are in no position to stop those who spend anything up to R4 000 a month on electricity, from turning to gas and solar power and using just enough municipal electricity to qualify for the low lifeline tariffs.
And it will happen. Municipalities have done very well out of electricity sales over the years.
The monthly income (in some cases nearly half their revenue) underpinned their cash flow while all sorts of administrative costs and overheads have been moved to the electricity department.
Unless you fall into the “lifeline” bracket, it’s a fair bet that most of the money you cough up for electricity each month goes, not to Eskom, but to City Hall.
Rooftop solar systems are now a fact of life and they will get cheaper and more efficient. Science marches on. The age of big coal, big grid and expensive Eskom and municipal electricity is over.
We will still need the grid, of course, but mainly because it is there and it can continue to be used to supply the mines, heavy industry and near-sighted cities.
The fact to grasp is that grid electricity, from coal, nuclear power stations and, to a lesser extent, gas, will get progressively more expensive every year. It’s as certain a death and taxes. Solar power will get cheaper and then prices will stabilise as the technology matures.
Banks will be happy to finance solar systems because they make commercial sense and they are a lot less risky than, for instance, car loans. Consumers will go for their own solar power because it will fix their monthly electricity costs for two or three decades.
The electricity monopoly will end. In effect, the electricity industry will be decentralised and it will probably create many opportunities for small business and jobs around the country.
That is the future and it is not about Eskom, which faces a future of rising costs and declining sales.
Making your own electricity will become even more viable and that will put further pressure on Eskom.
Municipalities can still adapt to the changing situation. Their best chance is to understand what is happening and rethink their whole approach to electricity. They should build their own solar and wind farms with back-up gas power stations.
They should market rooftop solar systems they can lease to those customers who pay the high tariffs. They should go back into the business of supplying gas to homes and factories.
The problem they will then face is competition from the private sector. But competition is good.
Haylett is chairman of the Cape Chamber of Commerce’s Industrial Focus Portfolio Committee.