How to stimulate the
rooftop PV market in RSA
without putting munics’
profits at risk
Presentation to SAPVIA networking event
10 December 2013, Johannesburg
Dr Tobias Bischof-Niemz
Specialist PV: Renewables Unit, Eskom
Chief Engineer: Energy Planning & Market Development, Eskom
Email: [email protected]
Cell: +27 83 403 1108
Back-up
Disclaimer
This presentation does not reflect an official Eskom opinion, but rather summarises the thoughts
of the author with respect to stimulating the embedded PV market in the Republic of South Africa
This presentation was not presented to Eskom Executive Committee yet and has therefore
neither received approval nor dis-approval so far from executive management level
All numbers used in this presentation are either market data to the best of the author’s
knowledge (e.g. cost and performance of PV) or they are indicative for demonstration purposes
only (e.g. the level of the proposed Net FIT)
The business case mentioned in the presentation is a typical business case based on high-level
assumptions. It does not recommend any investment into PV and should not be used as a basis
for any decisions with respect to investments into PV or other renewables in South Africa
Eskom is not a decision-making entity when it comes to Net Metering or Net Feed-in Tariff and
can merely make proposals. Any decision with respect to these concepts has to be taken by the
relevant authorities (NERSA, Department of Energy, National Treasury, municipalities, etc.)
2
Agenda
Status of Embedded PV Installations in South Africa
Business Case for a Residential Embedded PV Installation
Potential Regulatory Approach for Embedded PV Installations
Effects of the Proposed Regulatory Approach
Summary
3
Integrated Resource Plan 2010 (IRP 2010)
plans generation mix until 2030 – 8.4 GW PV
Installed capacity
Energy mix
Electricity supplied
in TWh per year
Total installed
Capacity in GW
90
86
80
8.4
PV
CSP
70
Wind
Hydro
60
42
40
Wind
350
Hydro
300
250
Gas
200
Coal
20
Gas
50
0
0
2015
2020
2025
Coal
100
10
2010
Carbon
free
TWh's
in 2030
(34%)
Peaking
150
30
Renewable
TWh's in
2030
(14%)
Nuclear
255
Peaking
PV
CSP
400
Nuclear
50
436
450
2010
2030
Share renewables
5%
2015
2020
2025
2030
14%
2
The draft of the IRPCO
2010
Update was published a few
intensity
weeks ago – PV capacity increases to 9.8 GW by 2030
Source: Integrated Resource Plan 2010, as promulgated in 2011; Eskom EPMD analysis
4
Two PV markets in South Africa
1: DoE competitive tender space (REIPPPP)
2: Self-generation, embedded generators
Focus of this presentation
IRP 2010 assumed a significant share of all 8.4 GW PV
capacity to come from embedded generators
Source: Eskom EPMD analysis
5
In principle, there are three types of
connections for embedded generators
Eskom Grid
Municipality Grid
Off-grid
 4 million end customers served
by Eskom
 8 metropolitan, 44 district, and
226 local municipalities
 Generally, electrification in
South Africa high at ~85%
 Tariffs published in Eskom‘s
tariff book
 Buy electricity in bulk from
Eskom and put mark-up on
tariff (few complement with own generation)
 Some industrial electricity
consumers however operate
island grids (e.g. mines)
 High-tariff electricity revenues
cross-subsidise lower tariffs
 Small number of villages /
farmers not connected to the
grid yet
 Cost-plus business, i.e. high
incentive to help customers
save energy
 40% of South Africans live in
the eight metropolitan munics
Source: Eskom EPMD analysis
6
Already today, significant number of selfconsumption PV exists – trend increasing
Project
Location
Province
Kriel Mine
Med
BMS
BT
WTP
Mitchells Plain Hospital
Solar Irrigation System
GreenPeace Africa Vodacom
Dube Trade Port
Pick n Pay distribution centre Vrede en Lust Wine Farm
Novo Packhouse
Leeupan Solar PV project
Pick n Pay Distribution Centre
Villera Winefarms Stellenbosch
Standard Bank PV Installation Pick n Pay Store
BP Offices
Cavalli Wine & Stud Farm
Oldenburg Vineyards
Coca Cola water bottling plant
Glaxo Smith Kline
Impahla Clothing
Khayelitsha District Hospital
Stellakaya Wine Farm
Lelifontein wine cellar and Gropnfontein admin offices
Eskom Megawatt Park Rooftop PV
Eskom Megawatt Park carport PV
Eskom Kendal PV (ground‐mounted, fixed)
Eskom Lethabo PV (ground‐mounted, 1‐axis tracking)
Eskom Megawatt Park CPV
Cronimet Chrome Mining SA (Pty) Ltd
Black River Park
Bosco Factory PV Plant
Ceres Koelkamers
Rooibos Storage Facilities
TOTAL
Kriel
Woodmead
Woodmead
Woodmead
Witbank
Mitchells Plain
Montagu
Johannesburg
Century City, Cape Town
Durban
Philippe, Cape Town
Franschoek
Paarl
OR Tambo Precinct, Wattville,
Longsmeadow, Johannesburg
Cape Town
Kingsmead, Durban
Hurlingham, Johannesburg
V&A Waterfront, Cape Town
Stelllenbosch
Stellenbosch
Heidelberg
Cape Town
Maitland
Cape Town
Stellenbosch
Stellenbosch
Sunninghill, Johannesburg
Sunninghill, Johannesburg
Eskom’s Kendal coal‐fired power station
Eskom’s Lethabo coal‐fired power station
Sunninghill, Johannesburg
Thabazimbi
Cape Town
Edenvale
Ceres
Clanwilliam
Mpumulanga
Gauteng
Gauteng
Gauteng
Mpumulanga
Western Cape
Western Cape
Gauteng
Western Cape
Kwazulu Natal
Western Cape
Western Cape
Western Cape
Gauteng
Gauteng
Western Cape
Kwazulu Natal
Gauteng
Western Cape
Western Cape
Western Cape
Western Cape
Western Cape
Western Cape
Western Cape
Gauteng
Gauteng
Mpumalanga
Free State
Gauteng
Limpopo
Western Cape
Gauteng
Western Cape
Western Cape
Installed capacity (kWp)
When completed
240
31
36
36
30
64
24
10
500
220
300
218
200
200
150
132
105
100
67
51
45
30
30
30
25
10
88
358
398
620
575
26
1,000 (PV)
700
304
505
511
7 MWp
Aug.13
Jul.13
Jul.13
Jul.13
2013
2013
2013
2013
2012
2011
2013
2013
2012
2011
2011
Unknown 2010
2011
2013
2013
Unknown
Unknown
Unknown
2011
Unknown
2013
2013
November 2011
November 2011
November 2011
November 2011
November 2012
2013
2013
2013
2014
But: feeding into the grid currently not allowed in most
areas or only at unattractive rates – limits the market
Source: Internet search (ARUP); Eskom EPMD analysis
7
Agenda
Status of Embedded PV Installations in South Africa
Business Case for a Residential Embedded PV Installation
Potential Regulatory Approach for Embedded PV Installations
Effects of the Proposed Regulatory Approach
Summary
8
70% cost reduction in just 5 years makes PV
now competitive with retail electricity tariffs
PV is already today competitive with residential & commercial electricity tariffs …
… due to dramatic PV system price
decreases in the last five years
Residential PV installation
LCOE in R/kWh
Commercial PV installation
5
- 70%
4
3
2
•
Five years ago, a residential PV
system of 5 kWp cost R 500,000
•
Today, the same system can be
installed for R 125,000 or less
•
Five years ago, a commercial PV
system of 200 kWp cost R 15 million
•
Today, the same system can be
installed for R 3.6 million or less
•
This cost reduction directly leads to
reduction of levelised costs of
energy (LCOE) in R/kWh
1
0
Jan/08
Jan/09
Jan/10
Jan/11
Jan/12
Jan/13
Jan/14
Time
Source: Bundesnetzagentur (German Federal Grid Agency), assumptions: German residential/commercial turnkey prices, translated via historical exchange rate into
ZAR-based turnkey prices, assuming 20% CAPEX-premium compared to Germany, VAT added for residential, translated into LCOE, real WACC of 4% for
residential & 6% real WACC after tax for commercial customers; tax effects (accelerated 3-year depreciation) considered for commercial; Eskom EPMD analysis
Higher CAPEX of residential or commercial PV
installations can be over-compensated by
lower cost of capital
CAPEX in R/Wp
35
30
25
Utility-scale
20
LCOE = 1.2 R/kWh
15
LCOE = 1.0 R/kWh
10
LCOE = 0.8 R/kWh
LCOE = 0.6 R/kWh
5
Residential
Commercial
0
WACC (nominal)
4%
6%
8%
10%
12%
14%
16%
18%
Assumptions: 20 years lifetime, 1,700 kWh/kWp/yr specific energy yield in year 1, 0.8% annual degradation, 200 R/kWp/yr OPEX, 6% inflation
Source: Eskom EPMD
10
Residential load profile has peaks in the
morning and in the evening (example winter)
One-family residential house
• 15,000 kWh annual demand
Load
kW
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
Sunday
Example based on residential case, but similar logic
applies for large commercial rooftop PV installations
Source: Eskom EPMD analysis
11
Residential load profile generally does not
match PV – excess PV to be fed back into grid
kW
One-family residential house
• 15,000 kWh annual demand
• 6 kWp PV installation
Excess PV power fed into the grid
Load supplied by the grid
5.0
Load supplied directly by PV
4.5
Keep in mind: Battery storage not yet an economical option!
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Monday
+
Tuesday
Wednesday
Thursday
Household: ~30-50%
= Self-consumption rate
How much of my PV energy can
I consume directly on site?  PV business case
Friday
+
Saturday
Sunday
Household: ~20-30%
= Self-sufficiency degree
How much does PV contribute to my
overall electricity demand?  PV relevance
If self-consumption rate is low & excess energy is not
financially compensated, it kills the business case
Source: Eskom EPMD analysis
12
Grid connection and annual load of a typical
residential household
Grid
Residential
load
15,000 kWh/yr
Consumption
meter
15,000 kWh/yr
@ 1.2 R/kWh
Owned by electricity customer
Owned by Municipality or Eskom Distribution
Source: Eskom EPMD analysis
13
Levelised cost of energy for a typical
residential PV installation (without subsidies)
CAPEX
PV system (6 kWp @ 20 R/Wp)
R 120,000
OPEX
O&M, insurance (200 R/kWp/yr)
R 1,200/yr
PV system
(6 kWp)
–
10,000 kWh/yr
Energy yield
~1,700 kWh/kWp/yr (-0.8%/yr)
10,000 kWh/yr
Cost of capital
WACC of a private individual
7%
Inflation
Average inflation over lifetime
6%
~
Levelised cost of energy (LCOE) = 0.8 R/kWh
 annual cost of PV system ~ 8,000 R/yr
Source: Eskom EPMD analysis
14
Low self-consumption rate of residential customers (typically) kills the PV business case
Owned by PV owner (in many cases the
same entity as the electricity customer)
PV system
(6 kWp)
Curtailment
6,000 kWh/yr
–
10,000 kWh/yr
~
40%
Self
consumption
Grid
4,000 kWh/yr
Residential
load
15,000 kWh/yr
Consumption
meter
11,000 kWh/yr
@ 1.2 R/kWh
Owned by Municipality or Eskom Distribution
Net loss of 3,200 R/yr
Source: Eskom EPMD analysis
Owned by electricity customer
Annual Income Statement
Revenues
… from curtailed PV energy
… from avoided energy charges
Expenses
Annual costs of PV system
Profit/(loss)
R0
R 4,800
(R 8,000)
(R 3,200)
15
Agenda
Status of Embedded PV Installations in South Africa
Business Case for a Residential Embedded PV Installation
Potential Regulatory Approach for Embedded PV Installations
Effects of the Proposed Regulatory Approach
Summary
16
How to deal with this situation?
The business case logic is true for commercial and residential rooftop PV likewise
Null Option: doing nothing or trying to avoid embedded generators
• Commercial and residential customers will most likely install PV anyways
– Highest-value customers with high consumption & highest tariffs will do it first
– They will therefore opt out of the cross-subsidisation mechanism
–  Increasing electricity tariffs for poorer customers!
• No control over magnitude of the development
• Even worse: No knowledge about the magnitude of the development
Some conservative numbers about the potential of rooftop PV:
• 1 million households with 5 kWp each  5 GWp!
• 10,000 commercial properties with 200 kWp each  another 2 GWp!
 Better embrace the development!
Source: Eskom EPMD analysis
17
How to overcome the hurdles for residential
customers? Proposal: Net Feed-in Tariff
Approach 1: Net Metering
(potential “first step”)
Approach 2: Net Feed-in Tariff with
central off-taker (end state?)
Bi-directional: importing and exporting of
energy allowed
Bi-directional: importing and exporting of
energy allowed
Tariff
Structure
Tariff for import and export can be different
(e.g., export tariff lower than import tariff)
Tariff for import and export can be different
(e.g., export tariff lower than import tariff)
Energy
Balance
Must be a net energy consumer over an
energy-balancing cycle (typically one year)
Net energy consumer or producer over an
energy-balancing cycle (typically one year)
Financial
Balance
Must be a net payer over a billing cycle (i.e.
no cash payments back to the customer)
Can be a net receiver of payments over a
billing cycle (i.e. cash payments to the
customer  PV as a business)
Off-taker
Local authority (i.e. municipality or Eskom
Distribution)
Nationwide central off-taker
Power Flows
Proposal in this presentation
Source: M.P.E. GmbH proposal on net metering; Eskom Pricing proposal on net metering; Net FIT proposal by Eskom EPMD
18
Proposal: Net Feed-in Tariff with nationwide
central off-taker (“CPPA”) & compensation for
munics to make them profit-neutral
Create a “Central Power Purchasing Agency” (CPPA), which would be the nation-wide sole offtaker for all energy spilled into the grid from embedded generators
• CPPA compensates the embedded generator with a Feed-in Tariff on the net energy spilled into
the grid (generation minus self-consumption) for 20 years at a predefined tariff path  Net FIT
• CPPA compensates the municipality for lost gross margins due to self-consumed PV energy and
makes it therefore profit-neutral to embedded PV  that essentially pays for all fixed costs
Dramatically reduced PV system costs make financial implications of Net FIT very manageable
• A Net FIT of ~0.7 R/kWh paid by CPPA is sufficient to stimulate the embedded PV market
• Gross-margin compensation from CPPA to munics would be ~0.6 R/kWh for all lost kWh sales
• The weighted average of payments triggered by CPPA are therefore between 0.6-0.7 R/kWh
• From a system perspective, the effective tariff (weighted average of Net FIT and avoided energy
tariff due to self-consumption) would be in the order of 0.9 R/kWh (below comparable IPP tariffs)
• The funding for Net FIT & gross-margin compensation could come from a mark-up on all kWh
(or only “premium” kWh > 200 kWh/month per supply point)  500 MWp of PV incur 0.2 ct/kWh
Reminder: renewables do still increase the average tariff (slightly). IRP 2010 Update plans for 9.8
GW of PV by 2030; the question is therefore not if, but rather how to get these 9.8 GW cheapest
Note: It is assumed that the Net FIT is inflated with 3% p.a. (fixed) and not with CPI, whereas the gross-margin compensation is inflated with CPI or it is linked to the
19
average electricity tariff increase Source: Eskom EPMD analysis
How would the business case for a residential
customer look like with Net FIT?
Owned by PV owner (in many cases the
same entity as the electricity customer)
Owned by CPPA
PV panels
(6 kWp)
Net FIT
meter
6,000 kWh/yr
@ 0.7 R/kWh
–
10,000 kWh/yr
~
Self
consumption
Grid
4,000 kWh/yr
40%
Consumption
meter
11,000 kWh/yr
@ 1.2 R/kWh
Owned by Municipality or Eskom Distribution
Net profit of 1,000 R/yr
Source: Eskom EPMD analysis
Residential
load
15,000 kWh/yr
Owned by electricity customer
Annual Income Statement for PV System
Revenues
… from Net FIT
R 4,200
… from avoided energy charges
R 4,800
Expenses
Annual costs of PV system
Profit/(loss)
(R 8,000)
R 1,000
20
Similar logic applies for commercial customers
– with typically higher self consumption rate
Owned by PV owner (in commercial cases
can be a “micro-utility” with PPA to load)
Owned by CPPA
PV panels
(200 kWp)
Net FIT
meter
150,000 kWh/yr
@ 0.7 R/kWh
–
350,000 kWh/yr
~
Self
consumption
Grid
200,000
kWh/yr
57%
Consumption
meter
300,000 kWh/yr
@ 1.0 R/kWh
Owned by Municipality or Eskom Distribution
Net profit of 25,000 R/yr
Source: Eskom EPMD analysis
Commercial
load
500,000 kWh/yr
Owned by electricity customer
Annual Income Statement for PV System
Revenues
… from Net FIT
R 105,000
… from avoided energy charges R 200,000
Expenses
Annual costs of PV system
Profit/(loss)
(R 280,000)
R 25,000
21
Municipalities would be made profit-neutral by
CPPA via a gross-margin compensation for all
self-consumed PV energy in the supply area
Mark-up could be put on
only those kWh that are in
excess of e.g. 200
kWh/month per supply point
Mark-up on every kWh
sold in South Africa
(500 MWp  +0.2 ct/kWh)
CPPA
Municipality
Gross-margin compensation @ 0.6 R/kWh for self-consumption
Municipality
supply area
Gross-margin compensation essentially pays for fixed admin and grid costs. It is defined as:
= Self-consumption part of the energy from embedded generators * 0.6 R/kWh
= [Sum of all energy generated from embedded generators registered under the Net FIT scheme (estimate or inverter-based readings)
– sum of all energy compensated via the Net FIT scheme] * 0.6 R/kWh
Source: Eskom EPMD analysis
22
Once Net FIT mechanism is in place, it can be
utilised to control size of embedded PV market
Targets and level of Net FIT
could also be defined on
provincial level in order to steer
the spatial distribution of PV
Target
Set by DoE; for example:
500 MWp of new rooftop PV
installations per year
Compare
target &
actuals
Adjustment of Net FIT for new
installations only! Existing
installations are guaranteed the
Net FIT that was valid at the time
of commissioning for 20 years.
Adjust
Net FIT
quarterly
Actuals
New installations in the
South African rooftop PV
market in MWp per year
Measure
via NetFIT registry
Feedback loop
Source: Eskom EPMD analysis
23
Agenda
Status of Embedded PV Installations in South Africa
Business Case for a Residential Embedded PV Installation
Potential Regulatory Approach for Embedded PV Installations
Effects of the Proposed Regulatory Approach
Summary
24
Gross margin of a fictitious munic, which is
needed to cover all fixed costs, stays constant
Status Quo
Embedded PV
without Net FIT and
gross-margin
compensation
Embedded PV
with Net FIT and grossmargin compensation
Customer base
100,000 customers with
15,000 kWh/yr each = 1.5
TWh/yr @ 1.2 R/kWh
50,000 customers with
11,000 & 50,000 with
15,000 kWh/yr = 1.3
TWh/yr @ 1.2 R/kWh
100,000 customers with
11,000 kWh/yr each = 1.1
TWh/yr @ 1.2 R/kWh
Revenues from
electricity sales
R 1.8 billion per year
R 1.56 billion per year
R 1.32 billion per year
(bulk electricity purchase
from Eskom)
1.5 TWh/yr @ 0.6 R/kWh
= (R 0.9 billion per year)
1.3 TWh/yr @ 0.6 R/kWh
= (R 0.78 billion per year)
1.1 TWh/yr @ 0.6 R/kWh
= (R 0.66 billion per year)
Gross Margin
R 0.9 billion per year
R 0.78 billion per year
R 0.66 billion per year
Gross Margin
Compensation
N/A
N/A
0.4 TWh/yr @ 0.6 R/kWh
from CPPA
= R 0.24 billion per year
Gross Margin after
compensation
R 0.9 billion per year
R 0.78 billion per year
R 0.9 billion per year
COGS
25
Further advantages of a Net FIT-based
incentive scheme for residential PV
+
Transparency & Safety
• All embedded PV generators would be centrally registered: because no registration  no Net FIT money
• Distribution grid operators are fully aware of all embedded PV generators, which increases maintenance safety
+
Job creation & local content
• Potential for rural enterprises to run a “micro-utility business” with small-scale PV generators  wherever
there is a grid, there is a PV business opportunity!
• Huge potential for SMMEs in PV design, installation & verification for residential & commercial customers
• Government subsidised loans to fund the PV installations could be linked to high local content
+
Reduced grid losses and system costs
• Embedded PV is close to the load, i.e. grid losses are low (saves add. up to 5% of costs)
• Generally only very little grid strengthening and no grid extension required (PV follows the grid)
• Lower export than import tariff incentivises load-shifting & peak-shaving to better match PV supply and onsite
demand; good for the system: matching onsite supply & demand reduces grid losses & need for peaking power
• Aggregated supply profile of spatially distributed embedded PV generators is very smooth and highly predictable
+
Reduced transaction costs
• Project development costs, legal fees, environmental assessment, etc. are all reduced or non existent for
embedded PV as compared to large PV installations
+
Funding easier due to granularity (small project size, R 100,000 to few millions)
• With a proper standard offer and Net FIT defined, rooftop PV installation would become bankable
• Banks could put the asset into the home loan (with residual Net FIT revenues as collateral) for easy financing
• Net FIT payments are linked to the asset, not to the PV owner  roof-lease business models become viable
Source: Eskom EPMD analysis
26
Renewables are very capital intensive, thus
cost of financing them needs to come down –
this only happens if uncertainties are reduced
Risk
Who should
own the risk?
Solar insulation
PV asset owner
Technology
performance
PV asset owner
Tariff (i.e. financial
Electricity
System
compensation per kWh)
Off-take
Electricity
System
Inflation
Electricity
System
Guiding principle: A risk
should always be owned by
the entity that can best
control it. This way the risk
allocation will lead to lowest
total cost to the system.
Net metering





Net FIT
Net FIT
(CPI-linked tariff)
(pre-defined tariff path)










Cost of financing  LCOE
A predefined tariff path leads to lowest uncertainties, hence lowest
cost of financing, and hence to lowest LCOE / costs to the system
27
Guiding principle must be to de-risk the PV
investment in order to reduce overall costs
Many would say in order to stimulate the market, PV needs to be more profitable with a payback of 5-7 years
But, an analogy: What payback does a private individual require when purchasing a house? 20 years? Definitely
more than 10 years. And a house comes with quite substantial running costs attached to it (levies, repairs, etc.)
The perception of the asset class of PV has to change. It is not a short-term consumable good, but rather an
infrastructure-type of investment (like a house/road). Infrastructure investments never give <10 years payback
Reducing the payback period of a PV investment by giving it a very high Net FIT will create windfall profits
• The lifetime costs of PV and their nature need to be considered: PV has >20 years lifetime and a cost structure
that is almost purely capital (running costs during the asset’s life are very low)
• That means that if the Net FIT was high enough to give a 5-7 years payback, from year 7 onwards the PV
investor would make windfall profits until the end of life of the asset. The situation would then be:
– PV asset is paid off, and the running costs are very low
– PV owner still gets the tariffs and/or the benefits of avoided energy charges without facing cost items that
counter-balance the benefits
Hence, attractiveness of an investment into PV should be increased by de-risking it during the full lifetime, rather
than giving high (and potentially too high) upfront incentives in form of high Net FIT and/or CAPEX subsidies
• Net FIT path needs to be defined upfront for the full 20 years & guaranteed/backed by government guarantees
• Government banks could offer loans with subsidised interest rates and/or very long terms to fund the PV assets
• Keep in mind: If Net FIT turns out to be too low, the feedback loop will allow an increase for new installations 28
Beneficiaries of the proposed Net FIT
approach with compensation for munics
Beneficiary
Benefit
NERSA
• Up-to-date registry of all embedded PV generators
• Therefore full transparency over the magnitude of the embedded PV market
• Full control over the speed and magnitude of the development by adjusting the Net FIT
according to the actual market development compared to government targets
• If the target is for example 500 MWp per year, the Net FIT can be steered to reach that
• Embedded PV market will be funded by private individuals, small commercial customers and
SMMEs  essentially breaking down power generator investments into many small pieces
and utilising crowd funding to raise the money for it
• Business and income-generating opportunities through “micro-utility” business in case the
PV site is a net exporter of energy
• PV business opportunity wherever there is an existing grid  very widespread reach!
• Benefit from large amounts of PV at very competitive prices due to the lower return
expectations of private individuals as compared to large companies
• Full transparency of embedded PV market makes PV forecasting very easy, which enables
the System Operator to schedule the conventional fleet day- and week-ahead accordingly
• Full certainty future PV penetration makes long-term planning for conventional fleet easier
(choice of type of generators is, amongst others, informed by PV penetration in the system)
• Lower export than import tariff incentivises load-shifting and peak-shaving
• No administrative burden apart from technical grid connection (metering done by CPPA)
• No profit losses due to embedded PV generators and therefore no threat of embedded PV
to the munics’ service-delivery and electricity-cross-subsidisation model
• Upside from embedded PV: green image, local job creation through design & installation
• Huge SMME job creation potential in design, installation & certification of PV installations
• Certainty about market size (e.g. 500 MWp/yr) gives confidence to module/inverter players to
set up manufacturing in South Africa
Department of Energy
National Treasury
Rural areas
Electricity customers
System Operator
Municipalities
Department of Trade
and Industry
29
Agenda
Status of Embedded PV Installations in South Africa
Business Case for a Residential Embedded PV Installation
Potential Regulatory Approach for Embedded PV Installations
Effects of the Proposed Regulatory Approach
Summary
30
Summary
Business case for PV on rooftop of residential customers could be profitable without subsidies
already today in some munics’ and Eskom’s supply areas (residential/commercial “grid parity”)
The stumbling block however is that feeding into the grid is not allowed / not compensated
 removing this stumbling block will let rooftop PV installations grow quickly in RSA
Many municipalities will fear these embedded generators for valid reasons as they deteriorate
the munic’s revenue base  but munic still needs to pay for fixed admin and network costs!
It is better to embrace this development than to fight it, as an “under the radar” embedded PV
market is suboptimal for cost, safety, cross-subsidisation, and system operations reasons No admin
burden for
munics!
Therefore, a nation-wide standardised approach should be applied to this downstream market
• Nationwide central off-taker for grid feed-in of all embedded generators (“CPPA”)
• CPPA pays a Net FIT to the PV asset owner and a gross-margin compensation to munics
• CPPA funded via mark-up on all (or only “premium”) kWh sold in RSA (~0.2 Rct/kWh per 500 MW of PV)
• Net FIT approach will allow “micro-utility” business (PV business opportunity where there is grid)
This approach should be seen as complimentary to the large-scale IPP programme
No profit
impact for
munics!
31
Thank you