Navigating the solar revolution

Installing solar PV on residential and business rooftops allows users to generate power for themselves and to feed excess power into the national electricity grid, and is heralding a quiet solar revolution that could change the way South Africa’s energy sector works. But what are the implications and how should we best manage this new reality?

Solar photovoltaic (PV) technology is more affordable than ever, and the case for rooftop energy generation for residential, industrial and commercial uses has never been more appealing for end users.

The idea of energy positive buildings – buildings that in effect become captive power plants and feed energy back into the grid – is taking the energy sector into a new realm where the control structures and revenue models of the old system have to change.

Until now, there has been little or no municipal regulatory framework to allow for solar PV systems to feed power back into the grid – users have connected their panels within a closed system at home, and the costs of panels and infrastructure meant there was little incentive to shift energy concerns from the individual to the community.

Yet the potential for Small Scale Embedded Generators (SSEGs) to help redefine how we use our ailing grid and contribute to improved energy security is growing by the day. The South African Photovoltaic Industry Association (SAPVIA) estimates that there is already 20–30MW of total peak capacity among private rooftop PV systems, and the Council for Scientific and Industrial Research (CSIR) estimates with the right incentives, it could reach 500MW within a year.

The National Energy Regulator of South Africa (NERSA) in March tabled a consultation paper on regulatory rules for SSEGs to explore tariff options and registration procedures to promote and incentivise installations that are connected to the grid. Nersa indicated that it planned to publish a new regulatory framework by the end of May.

The National Treasury is likewise examining options to incentivise end users to install PV systems.  The City of Cape Town, and several other municipalities, have also already set up embedded generation tariffs and produced guidelines in the absence of a national structure

“Municipalities have to accept that SSEG, in particular PV, is becoming a reality within their electricity distribution networks,” says Andrew Janisch, principle professional officer at the Energy and Climate Change Unit at the City of Cape Town.

Given that SSEGs cannot legally connect to the network without permission being granted by the relevant distributor (be that the municipality or Eskom), he says it’s not a question of incentivisation, but rather safety and grid stability that is driving municipalities at present.

“All the technology is in place,” says Davin Chown, SAPVIA chairperson. “All the technical standards that need to be developed are close to finalisation. So the technology is there, people are trained and there are more than enough installers across the country that are ready to go. If government were to get on board, it would stimulate the market eight fold.”

What is holding us back

Electricity prices fluctuate throughout the day – the higher the demand, the more expensive it is to purchase electricity from Eskom. Municipalities sell electricity at a flat rate, which means they make less money on electricity in peak times. Solar PVs, because they generate energy during sunshine hours, stand to have a disproportionate impact on municipal finances.

“Solar panels only produce energy during sunshine hours,” says Kevin Kotzen, Smart Grids researcher at GreenCape. “So when you install a solar PV system that produces say 20% of your energy, it may be saving you 20% on your electricity bill, but may not reduce municipal expenses by 20%. As a result municipal surplus will potentially decrease disproportionately. If solar produced electricity during one of the lower earning times, such as at peak time, then it wouldn’t be such a problem.”

During peak times, according to NERSA, solar users could also put more load onto the grid as they move from solar to the utility – although research by Tobias Bischof-Niemz, chief energy engineer at the CSIR, shows there is a steeper ramp up in the mornings than in the evenings, and that solar power could be stepped up to the point that the evening ramp becomes as steep as the morning.

There is also the argument that when Eskom sorts out its capacity issues, there will be a point where residential scale solar power is not really needed. “You can put in residential subsidies and tariffs now while Eskom needs daytime power, but those subsidies may need to be dropped when Eskom no longer needs that power (and is no longer willing to pay a premium rate for it). This will affect the business case of PV,” says Kotzen.

Chown says the solution is simple. “If Eskom gets its 15% increase per annum – and they are now asking for 25% –  then any solar user will pay back their installation because the costs of own use will be much lower than using Eskom or municipal power,” he says.

Municipalities say that the customers who are most likely to install solar PVs on their rooftops are those who pay the most for electricity (electricity pricing is based on an inclining block – customers who use more pay more per unit). These customers account for a large proportion of surplus earned from electricity sales– which means that SSEGs are a threat to municipal finances. This surplus is key to subsidising municipal finances and services to the poor.

However, Chown says installing solar PVs has more to do with consumption than wealth status: “There are many people in poorer areas who have previously been the ones to adopt solar water heating much quicker. And the main market for solar PV is not the rich but rather the poorer rural communities.”

Kotzen says saving on solar PV is something enjoyed by the more high end user, precisely because of consumption. “High consumption customers pay more for electricity and hence can see more savings,” he says.

Some financial models

Money has to come into the system from somewhere. NERSA is currently considering a model put forward by the CSIR’s Bischof-Niemz that will stimulate rooftop solar while preserving municipalities’ finances through a net feed-in tariff that will compensate both end users and municipalities through a central purchasing authority, a national body that would pay for solar power and bolster municipal losses.

The money for this would come from the solar energy sold to Eskom, and from state money raised through taxes and carbon-related levies. Metering is also important – energy produced, consumed and exported needs to be measured.

“This would be a win-win solution,” says Kotzen. The customer provides energy to the grid and receives an income, the municipality is compensated for any financial loss and the government is shown to be encouraging green energy. “Solar companies are installing solar panels, and the metering companies are producing meters– you end up creating an industry, meeting green energy targets and having happy customers.”

“In the future, should embedded generation become a component of the Integrated Resource Plan (which is likely), then national money will be allocated to ensure that targets are met,” says Janisch. “If the proposed finance model for this (called the NETFIT) is implemented, then some of this money will go to municipalities to compensate them for loss of electricity sales.”

But installing rooftop solar PV is still an expensive investment. Despite falling costs and rolling blackouts, users still need to be convinced to fork out the initial sums. Chown suggests a rebate system. “There should be some form of rebate, a capital subsidy on the equipment, from Eskom,” he says. “The second rebate should be a tax incentive, which would work well for households and Small to Medium Enterprises (SMEs), in the same way you get a rebate for your medical aid costs – it’s another way of keeping the lights on and keeping people employed. The third rebate could come at a municipal level – but we understand there are complexities to this.”

One complexity is the question of how to make this system work for the poor. Jason Schaeffler, technical coordinator at REEEP Southern Africa, says there are a number of ideas on the table. “One idea is to make the low income user the generator,” he says.

Another proposal is to use the money from Treasury to increase social grants to the low income sector by increasing the amount of electricity provided.

“We want municipalities to be sustainable service providing entities. Someone still needs to help the poor and so we need to allow new technologies to help us do that.”

Fixed tariff systems

In March, NERSA proposed a two-phase approach for the introduction of feed-in tariffs (FITs) for SSEGs – in the first phase, a consultation will focus on the regulatory rules for a modified net metering scheme with different tariffs for exporting and importing energy, which will be implemented in the short term. The second phase will look at compensation schemes for municipalities, subsidies, levies and taxes.

Setting FITs in the current complex environment is a careful balancing act that needs to take cognisance of all the factors that influence the energy purchasing and provision environment. “You can’t have too high feed-in prices,” says Kotzen.

Feed-in tariffs should ideally reflect the needs of the municipality, and be harmonised nationally. “FITs should work to stimulate the market and provide security of supply or security of the transaction,” says Chown. “You have to meet all the parties’ needs through a market reflective mechanism.”

Such a mechanism would ideally incentivise users to purchase household batteries to store energy and release it into the grid at set times, alleviating the problem of solar being out of sync with power needs. Each user could then decide on his or her primary objectives for energy output and set their system accordingly. “Whatever mechanisms there are, their design and function needs to be simple,” says Chown. “The objective with a fixed tariff system is to provide predictability for the market participants.”

Schaeffler suggests there could also be a bidding approach to tariff pricing. “The municipality asks the end user for a price, and the lowest bidder wins.”

He adds that standards should be in place to include sign off from a registered electrician and not a professional engineer. A finance model to ensure that electricity targets are met, NETFIT, should also be in place to protect municipal revenue.

Fundamental changes

Whatever the model, discussions around SSEGs and feed-in tariffs have thrown up the need for fundamental shifts in mindset when it comes to energy: end users must change focus from the individual to the neighbourhood and broader community. Core changes must also happen at all levels of government and infrastructure.

“There is a need for changed infrastructure, new ICT systems and the manner of communication with users needs to change,” says Schaeffler. “You need deeper interaction with customers that are generating power. You need to account for power flowing in both directions. You need to put staff in place, and more adjuncts onto the system in an already constrained municipal environment.

SAPVIA envisages a services based approach, similar to the way in which councils have outsourced waste services, where there are several SSEG providers from which a user could then choose a suitable system for their home and/or business. What is needed for this to happen, however, is a strong regulatory framework to which both service providers and end users are held accountable.

A fundamental shift must occur at national level, where a mindset of energy management must replace a mindset of energy control. When SSEGs are springing up around the country, the national provider faces a clear challenge: the need to move from a passive management system to a much more active management system. “What we would like is an environment where we are free to share our information and share our capital,” says Schaeffler. The question is: what will government’s response be?

By Karen Jayes

The full feature appears in the June/July 2015 issue of earthworks magazine.