When consumers produce
What would happen if electricity consumers were to be offered a guaranteed 20-year tariff for supplying solar photovoltaic (PV) energy to the national grid? The answer, says the Council for Scientific & Industrial Research (CSIR) Energy Centre, is that the electricity they sell would be at the lowest possible cost; the current power crisis could be solved quickly; thousands of jobs would be created through large-scale solar PV installation; and many billions of rand of efficiently-spent private capital would be unlocked.
That’s the aim of a far-reaching proposal developed by the CSIR centre to turn consumers into producers — or “prosumers” — of electricity. The feasibility of piloting the concept is now being discussed with government decision makers.
The CSIR centre’s proposal on what is known as embedded generation is designed to overcome a key obstacle to a practice that is commonplace in countries such as Germany, where homeowners with rooftop solar PV systems sell significant amounts of their surplus energy to the national grid.
The obstacle to this in SA has been municipalities’ reluctance to permit private solar energy generation because this will deprive them of much needed revenue from their own sales of electricity.
Municipalities mark up the price of electricity they buy from Eskom and sell to consumers, and often use profits to crosssubsidise the costs of delivering other services. In recent times, however, a few municipalities have permitted a small number of solar generators to sell limited amounts of electricity to their grids.
Prefacing its case for municipal acceptance of embedded generation, the CSIR centre points out that solar PV is now a costcompetitive supplement to the main electricity supply for many electricity customers. The reason for this is that the costs of PV systems have declined by up to 80% over recent years while electricity tariffs have risen up to 150% in the past five years.
The total lifetime costs of a residential PV system today are between R0,80/kWh and R0,90/kWh. Residential electricity tariffs range from R1,10 to R1,40/kWh and alternative new-build options will deliver electricity at between R0,80 and R1/kWh.
In addition to its cost-competitiveness, solar PV is quick to install and can ease the current electricity supply crisis without the need for more expensive, long-term generating options. Solar PV’s cost-competitiveness also provides an increasing incentive for electricity customers to supply their own power which will, in turn, lead to a decrease in municipal sales.
Municipalities could pay a high price if they don’t embrace private solar PV generation, says the CSIR centre’s head Tobias Bischof-Niemz. “This would lead to an uncontrollable under-the-radar market for embedded PV, with potentially unsafe practices,” he says.
“It could furthermore lead to increased financial stress for many electricity distributors, due to lost sales and margins because of self-consumed PV energy, and SA would forgo an immense opportunity for quick, inexpensive ramp-up of significant amounts of energy-supply sources.”
As a means of overcoming the obstacle, the centre has proposed the establishment of a Central Power Purchasing Agency (CPPA) as the nation-wide sole buyer of energy fed into the grid by solar PV generators. The CPPA would:
Set a guaranteed net feed-in tariff for excess energy fed into the grid.
Buy the energy from PV generators at a guaranteed tariff over 20 years, starting at R0,70/kWh with a predefined tariff path.
Aggregate and sell energy bought from solar PV generators to Eskom, which then supplies it to the grid.
Compensate electricity distributors — municipalities or Eskom — for lost surpluses from electricity sales caused by the amount of PV energy that is consumed by customers “behind the meter”: that is, before it leaves the customer’s premises.
The CSIR estimates the CPPA will require annual net funding of about R300m/year for every 500 MW of embedded PV and believes installation of between 2 000 MW and 3 000 MW is possible by 2020.
The most cost-effective way to fund the CPPA would be through a small increase in the Eskom tariff.
“The average tariff would increase by less than R0,02/kWh to fund a fleet of 3 000 MW of PV under worst-case assumptions,” says Bischof-Niemz. “Any alternative new-build option would increase the tariff by at least the same magnitude.
“The R300m equates to a modest US$30m and I would not be surprised to see international donors contributing grant funding in whole or in part to that, in which case there would be no or little need to increase the tariff. I suspect that the Global Climate Fund is on the look-out to fund national aggregators of green energy of this kind.”
Bischof-Niemz tells the Financial Mail Green Report that the proposal has been presented to government departments, and that the feasibility of piloting the concept is being investigated. If a pilot project is undertaken, it would need the support of selected municipalities to introduce the concept on a limited scale among electricity customers who would be prepared to install systems on the basis that they will receive a guaranteed 20-year tariff.
An international development agency has indicated willingness to contribute towards the funding of the pilot. Bischof-Niemz says the CSIR hopes the pilot project will be ready for implementation early next year.
The SA PV industry is geared up to start implementing quickly, with the capacity to install between 500 MW and 1 000 MW annually, he adds. “Embedded PV is behind customers’ electricity meters, so it is installed where the grid is and there are no constraints in delivering power to the grid.
“Because the costs of PV are now so low, it is a no-regret move for SA to implement a standard offer for embedded PV.”
Municipalities that are considering permitting embedded generation or have allowed it on a limited scale include the City of Cape Town, Ekurhuleni and Nelson Mandela Bay.
Cape Town is arguably at the forefront after agreeing recently to buy electricity from a solar PV system installed on the rooftops of the Black River Park office complex. The 1,2 MW installation is Africa’s largest commercial rooftop system and one of the biggest in the world.