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Energize Will changes in tariff structure threaten solar PV...
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Will changes in tariff structure threaten solar PV rollout?

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Apparently, Eskom is considering a change in the way it will charge electricity users. The national power utility says it might increase the fixed electricity tariff rather than, or in combination with, consumption tariff increases. This has led to concerns of a possible negative impact on the rooftop solar PV market. But how real are those concerns?

Roger Lilley

There are effectively two elements to the tariff: a variable, per kWh charge which, in theory, pays for the cost of generating electricity; and a fixed charge portion which pays for the transmission and distribution infrastructure which carries the electricity to the users.

It seems that the rationale behind the possible change in tariff structure is to ensure that the utility receives sufficient income to cover the cost of maintaining its transmission and distribution infrastructure as consumption revenue decreases.

What are the implications of such a change in tariff structure? While some concern has been expressed about how an electricity tariff with a larger fixed portion and smaller variable portion may affect the rollout of small-scale embedded generation (SSEG) solutions such as rooftop solar PV, one should consider what drives a company to move to SSEG in the first place.
Often, the investment into SSEG has more to do with security of supply and environmental concerns than with cost of supply. Afterall, the capital expenditure associated with the installation of a rooftop solar PV system, or some other local generation system, is not insignificant and the payback period may be ten years or more if the cost of electricity from Eskom or the local municipality is the only cost used in the payback calculation.

It is more usual for companies to factor in the cost of unserved electricity as well as ever-increasing consumption tariffs. The cost associated with a loss of production caused by interruptions in the supply of electricity from the utility or local municipality is usually significantly higher per hour than the cost of electricity locally generated – even by means of a diesel generator, which is probably the most expensive form of embedded generation.

Another factor which should be taken into account is the desire by many companies – especially international companies – to be seen to be actively assisting in the global climate-change mitigation strategy of carbon emission reduction. In this regard, some companies will invest in electricity generating technologies in order to meet their own carbon-reduction targets even if it costs more than purchasing electricity from the national or municipal utility.

Eskom’s costs keep increasing while its revenue from the sale of electricity is declining. As it is, a very large portion of its income goes to service its debt which is now almost three times its annual revenue. The organisation, in its present form is unsustainable. While it might appear at first that Eskom is simply trying to increase its revenue by restructuring its tariff, the power utility might be simply considering steps which will be necessary once the organisation has been unbundled.

The government has said that Eskom will be divided into three separate entities: a generation entity, a distribution entity and a transmission entity. Since this is on the cards, it is easy to see why the utility would be thinking about increasing the portion of the tariff which supports the transmission and distribution of electricity.

The power utility could, of course, assist large companies which are concerned about carbon emissions by taking proactive steps to dramatically increase the proportion of non-fossil-fuel fired electricity generation it supplies. This carbon-free electricity could come from its own renewable energy generation plants or from independent power producers or a combination of both.

Those firms which are concerned about their “carbon footprint” would purchase so-called “green” electricity from the distribution entity, which would have to be able to show, convincingly, that the electricity does indeed come from non-fossil-fuel fired power plant and that it is able to guarantee a reliable, constant supply of electricity in the quantity and of the quality demanded by such companies. Such firms would insist upon this to maintain their desired production schedules while reducing the amount of carbon tax they would have to pay.

Is this likely to happen soon? Who knows? We have yet to see the revised integrated resources plan, a new, permanent chief executive officer at Eskom and some timetable and plan of how and when the proposed unbundling of the power utility will be done. The tariff structure might change, but its unlikely to have a serious effect on the rollout of rooftop solar PV installations.

Send your comments to energize@ee.co.za

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