November 2020

South Africa electricity grid supply

The great opportunity to reform South Africa’s power sector

Over the past few weeks, there has been encouraging movement in South Africa’s electricity sector that indicates a gradual opening of the electricity market. NERSA recently confirmed that licensing of electricity generation over 1 MW will be allowed without ministerial sign-off, which could make the processing of renewable energy generation licences more efficient; and municipalities were recently granted the freedom to procure their own power. In addition, the prospect of the renewable energy bid window 5 (REIPPP 5) opening in December indicates that South Africa is starting to take the procurement of renewable electricity seriously. 

And whilst renewables still make up a small share of South Africa’s total generation capacity, the growing cost gap between the grid and solar, along with falling battery prices, means that South African electricity consumers are faced with something new in the context of our traditionally monopolistic electricity market: choice.

As was discussed in our previous piece on going off grid, it is clear that many consumers are choosing to go entirely off grid. However, mass grid defection is not necessarily the most optimal system for the majority of South African consumers. If the government suppresses private and distributed electricity generation, forcing customers to choose between staying on grid with expensive, unreliable power, and quitting the grid entirely, there may be large-scale grid defection as businesses choose to forego the unreliable and expensive grid. This will erode both Eskom and municipal revenue streams, driving more tariff increases that impact many South Africans

However, effective grid modernisation will turn potential defectors into ‘prosumers’, who choose to remain grid-connected and participate in a more open and mutually-beneficial electricity market. There are already some municipalities in South Africa that allow for grid feed-in (see this convenient list), which helps grid-tied solar PV systems become more profitable. However, we’re still a long way from a mature electricity market, where the cheapest electricity can be generated and consumed when it is required, enabling overall cost reductions of electricity. 

A modern grid will make use of enhanced infrastructure for better management of variable renewable energy, and ensure equitable electricity pricing that allows consumers to generate their own electricity and/or buy electricity from independent power producers whilst paying fees to utilise the electrical grid. This could generate new revenue that would enable better maintenance of the existing infrastructure, further replacing outages. 

However, we are still a way off from this “modern grid” idea. Some of the immediate steps that could be taken to enable grid modernisation, preventing mass defection and price increases, could include:

  • Laws and standards must be updated to cater for all technologies in the energy mix. 
    • We’re starting to see some progress on this, but there is still a fair way to go, according to Anton Eberhard:

  • Grid operators should be assisted with tariff modernisation
  • Arbitrary size restrictions on embedded generators should be reset based on rational technical and cost considerations. 
  • Permitting and licencing authorities must be held to their mandates and assisted and upskilled where needed.

If we can ensure that these factors are considered, there will be a hopeful outlook for South Africa’s electricity future. The alternative picture is not as sunny, as our power system could devolve into something undesirable for businesses and inequitable for South African citizens. 

Is it possible for your business to go off-grid?

A question many businesses are asking in 2020, particularly with the onslaught of load shedding, is the possibility of going entirely off grid. This is unsurprising – grid reliability has been severely reduced over the past few years and Eskom tariffs are substantially higher than the costs of solar on an average lifetime basis. As such, many companies are looking at the possibility of severing ties with the grid and managing their energy needs independently.

Historically, solar has not been viable as an alternative primary electricity supply to the grid primarily because of its variability. Because the sun only shines during the day, the deployment of solar has often been limited to partial offset of daytime electricity demand – a solution which tends to save companies significantly on their electricity bill. But for solar to be a ‘dispatchable’, 24-hour alternative to the grid, it needs to be coupled with storage, or with other flexible sources of demand or generation, which has often made it an expensive choice.

This, however, is changing. In South Africa, overall costs of solar-plus-storage have historically compared unfavourably to most grid tariffs, limiting off-grid projects to areas with no grid access or grid capacity constraints. However, there are already several industrial and commercial grid tariff structures that make off-grid solutions a cheaper and more reliable alternative than remaining on grid, particularly for industrial operations that have high power requirements and tend to supplement their supply frequently with diesel generators to keep their electricity supply consistent.

How do you know if it is viable for your company to go off grid? One of the key questions to ask is how much your business currently relies on diesel generators. If you use them around 15 – 20% of the time, it is almost certain that a solar + storage solution will save your business money. Secondly, if your facility has large power (kVA) requirements and is on a high industrial tariff, the business case of going off grid could be advantageous.

Cost reductions and improved efficiency in energy storage technology have major implications for the future of South Africa’s power system: it means that some electricity consumers on expensive tariff structures can already choose an alternative to Eskom or their local municipality. Even those on cheaper tariffs are likely to follow as grid tariffs rise and solar and battery equipment gets cheaper.

Of course, large-scale grid defection might not be the ideal outcome for all South Africans. It will erode the economies of the national grid and increase costs for many segments of society. This is why power sector reform must urgently facilitate an efficient and equitable transition to renewable energy.