President Cyril Ramaphosa’s announcement that a feed-in tariff is to be created to incentivise businesses and households to invest in rooftop solar is likely to further stimulate the so-called ‘silent revolution’ that is already under way as South Africans seek to navigate their way through an intensifying load-shedding crisis.

The President confirmed that the feed-in tariff would incentivise homes and businesses to sell surplus power to Eskom.

This represents a material shift in position, given that the State-owned utility has hitherto not allowed for residential solar, resulting in more than 27 000 unregistered solar installations across its distribution network alone.

The handful of municipalities that do currently allow such micro installations to feed electricity into their grids have done so only when households and businesses remain “net consumers”, which means they are selling less than they buy.

That said, on the very day of Ramaphosa’s announcement, the City of Cape Town confirmed that it would, in future, permit commercial and industrial small-scale embedded generators (SSEGs) to sell more electricity to the city than they use.

Mayor Geordin Hill-Lewis also said the city would pay cash for such electricity, rather than merely extending municipal-bill credits and also unveiled a registration process for those commercial and industrial SSEGs keen to take up the offer.

Tariff Structure

As the legal space for small-scale distributed generators opens, however, the tariff and the tariff structure are poised to become increasingly important.

There is particular concern that poor consumers should not be burdened, and that Eskom and the municipalities are able to extricate themselves from their utility death spirals through a migration to a cost-reflective tariff that fully reflects and recovers the cost of the grid and ancillary services.

In preparation for the prospect of having an ever-increasing number of prosumers on its network, Eskom has approached the National Energy Regulator of South Africa (Nersa) with a tariff restructuring proposition that seeks to separate fixed and variable costs.

The utility’s proposal to implement a fixed monthly charge of more than R900 for grid access, whether or not a household has a solar system, has sparked particular debate and concern, even ahead of any approval by the regulator.

Solar Photovoltaic Industry Association board member Frank Spencer, also of Bushveld Energy, says the move to a more cost-reflective tariff that distinguishes between fixed and energy charges is appropriate, particularly given the prospect of a possible feed-in tariff.

However, he argues that Nersa should still ensure that these are indeed cost-reflective and fair across the board.

“At the moment, there are huge discrepancies between various municipal tariffs, and Nersa should do more to bring these tariffs into being more fairly aligned with each other, while also allowing for fair access to the grid for SSEGs,” Spencer tells Engineering News & Mining Weekly.

Centre for Renewable and Sustainable Energy Studies director at Stellenbosch University Professor Sampson Mamphweli believes the regulator should consider developing a methodology and process similar to the one used to determine Eskom’s wholesale tariffs so that retail tariffs can be standardised.

He is more cautious, though, about whether SSEGs should be allowed to immediately sell more electricity into the grid than they buy, given the importance of such revenue to both Eskom and most municipalities.

Nevertheless, he is also strongly in favour of splitting the energy and fixed charges so that consumers without solar do not subsidise those with such systems and Eskom’s network costs are fairly recovered.

Mamphweli and Spencer both support Eskom’s proposal for a time-of-use structure, explaining that it will ensure that energy is priced according to what it actually costs to produce at different hours of the day.

“By having the right tariffs, I envision midday tariffs will eventually become the cheapest, and consumers will be incentivised to also have batteries to capture the solar energy at midday and then redeploy it into peak hours,” Spencer says.

To avoid the classic ‘duck curve’ problem, whereby there is a bulge of solar energy at midday that must be covered over peak, Mamphweli argues that clear market signals are needed to discourage “indiscriminate injection” of SSEG electricity into the grid.

“Convincing homeowners with battery and solar systems to charge their batteries during the day and then make this stored energy available to the grid during the evening peak is very valuable,” says Mamphweli.

“To incentivise such behaviour, we need SSEG tariffs that account for the different value of electricity during different times of the day or week or year, that is time-of-use-based tariffs.”

Mamphweli believes government’s plan to procure more batteries could also play an important role, as excess electricity can be stored and dispatched from batteries for peak shaving.

The eventual tariff structure, he adds, should ideally also reflect the fact that electricity as a service consists of more than just energy, or kilowatt-hours, and should also reflect the additional value that the grid provides, which is the “source of the capacity and network infrastructure fixed charges that Eskom is proposing”.

Short-Term Benefits

In the immediate context of an electricity shortage, however, and where Eskom is using large volumes of diesel to run its open-cycle gas turbines to back up an unreliable coal fleet and reduce the intensity of load-shedding, any additional energy provided by businesses and households will offer immediate benefits.

It will help mitigate further tariff hikes to pay for diesel and provide the energy injection required to allow Eskom to keep its pumped-storage schemes properly charged.

“So, any additional energy at any time will help,” Spencer explains, highlighting, too, that SSEG is already significantly eclipsing everything government is doing in terms of procurement.

“We estimate from customs import data that the private sector built over 700 MW of solar photovoltaic (PV) in the first half of 2022, much of this under the radar and unregistered.”

From the perspective of a business or a household, meanwhile, the economic case for solar PV is improving daily, even in the absence of a feed-in tariff.

“As solar PV has become so cheap, as long as the tariff pays similarly to Eskom’s avoided cost, this should well be sufficient to incentivise solar PV.

“But if the tariff pays a premium for peak hours, such as Eskom is proposing under the ‘Homeflex tariff’, this could incentivise battery storage as well, to help support the grid in peak hours.”

The greater risk, therefore, is arguably being posed by disallowing businesses and households from injecting their surplus electricity into the grid, as it could lead to grid defection.

“As things stand, the risk is that we continue to have a shortage of generation capacity when we can open the space and get additional generation capacity from SSEG,” Mamphweli explains.

Spencer highlights that a fully off-grid system is not as optimal or as efficient from both a use of technology and cost of electricity perspective as having such a system connected to the grid.

“The biggest hurdle remains the regulatory environment,” he says, adding that the current difficulties in connecting to the grid and the onerous requirements should be removed.

“If consumers could easily and quickly connect to the grid and get paid a fair tariff for energy they export to the grid, and this was supported by the right finance products from the banks, such as a bond-extender for a solar system, we could see an even further exponential growth in SSEG systems,” Spencer adds.

Until then, the “silent revolution” will remain unauthorised, and the country will fail to fully capitalise on the full potential that micro-scale distributed generators can offer in the short, medium and long term.

It will also stymie the sort of innovation that has been mooted previously of ensuring that low-income households become direct beneficiaries of the energy transition by offering such households a tariff that is higher than would be the case for wealthy homeowners or commercial enterprises.

Former Council for Scientific and Industrial Research Energy Centre head Dr Tobias Bischof-Niemz, currently of Enertrag South Africa, has proposed previously that low-income households be supported to install 4 kW systems that would be paid for through a feed-in tariff that would be sufficient to generate a modest level of free cash flow even after loan instalments are paid and operation and maintenance costs covered.

Households would be eligible only if there were a legal connection, which could have the added virtue of encouraging the mass legalisation of illegal electricity connections.

“This could also result in a substantial increase in the payment of nonpaid electricity bills, which is currently a serious problem for many municipalities and Eskom, because, naturally, no consumer of electricity would be paid for electricity produced until the consumption bill is settled.

“Further, the opportunity to become a micro-electricity vendor, turning the owner’s roof into a power plant, would create an income-generating opportunity anywhere in the country where there is a connection to the electricity grid,” Bischof-Niemz outlines.

He believes it would be a wasted opportunity not to include low-income households as part of the solution to solving the current load-shedding crisis.