The government’s updated draft Integrated Resource Plan (IRP), released in August, is a step in the right direction for the energy sector and for the country.
The document’s purest intention is to map out the least-cost electricity path, while retaining energy security and reliability. Typically, in every iteration since its inception, the IRP is a document that has prescribed to Eskom where its investment into generation assets should lie.
However, two significant aspects in the sector have changed in the past seven years, which allows for less reliance on Eskom. Electricity can now be generated by independent parties under the Renewable Energy Independent Power Producer Procurement programme; and developments in embedded solar photovoltaic (PV) technology have made way for a market where people can generate electricity “behind the meter” — producing their own power on site.
The IRP has recognised this change and included a capped allocation for embedded generation in the new 2018 IRP. Before further discussing the cap, and the reality of how to enforce it, let’s consider what drives the embedded market and its growth.
Eskom’s tariffs are nearly five times what they were 11 years ago. In June 2018, the parastatal also had an additional R32bn Regulatory Clearing Account (RCA) claw-back approved by the National Energy Regulator of SA (Nersa), which translates to a single-year tariff increase of 18%. Above this figure, Eskom has also applied for a 15% tariff increase a year for the next three years.
The tariff increases are, frankly speaking, unhinged and unrelenting, and a deeper look at Eskom’s debt book, shows that these tariff increases will continue. We know by now that the growing tariffs are causing the consumer to use less energy, worsening Eskom’s problem.
The stark opposite is the case with embedded solar PV. Here, tariffs have been falling 20% a year over the past four years — largely due to technology price drops and global manufacturing scale.
Private companies are taking advantage and saving 40% for every kilowatt hour bought from embedded solar PV rather than Eskom. And, that’s before the aforementioned tariff increases. In addition, solar technology continues to decline in price. This has created a huge embedded energy market which, for 2018, is estimated at about 150MW in SA, growing at a rate of 20% a year. It could be as large as 1,500MW in 2030.
As stated in the IRP, there is a flat allocation for embedded generation of 200MW a year for the next 12 years, which equates to no annual growth, and when that figure is reached in a given year, it is unclear what will happen next.
My assertion is that the department of energy will, in all likelihood, then announce that the cap has been reached, at which point Nersa would refuse any more applications. Interested parties will then need to wait until the following year to lodge their application and hope it is made early enough to be awarded a licence to operate.
This will be hugely problematic because it will position the regulations in direct opposition to a basic right to produce one’s own electricity. The public will be angered by this big brother behaviour and, in all likelihood, continue without the requisite approvals, which is already a problem. This will lead to a (further) increase in illegal electricity connections, which are almost impossible to police, difficult to detect and numerous.
Besides the physical danger of unregulated electricity connections, a more pressing problem exists. Unregistered connections mean that the policymakers will have no idea how many megawatts of PV is connected to the grid, and therefore no empirical means to further update the IRP.
It is therefore crucial that the department of energy realises that it can control the registration process of embedded generators, but it can’t and shouldn’t try to control or dictate the volume of the embedded market. Instead, its approach should be predictive and monitor the progress of the market with a quick and easy online registration process.
A quick online process will give the best chance that each project is registered and legally connected. This way, the department can update their energy consumption predictions year-on-year and have a better understanding of the grid’s capacity, as well as who and what is connected. This, at the very least, will enable them to improve each iteration of the IRP.
We are hopeful that common sense will prevail. We need it if we are to transform the energy sector and, by extension, the South African economy.