Residential Renewable Energy for Cape Town – a webinar hosted by Brian Jones Head of Green Energy for the City of Cape Town on 11 09 2014 gives some insight.
Starting on an optimistic note, the CoCT is to be acknowledged for taking the discussion to the public. It is clear however that the transition to a significant percent of the CoCT electricity coming from renewables still has a long way to go. At this stage the City’s offering of a residential SSEG tariff is not likely to provide a return on the investment required to install a PV or wind turbine for private homes. Local authorities appear to be stuck between the rock of declining revenue from electricity sales and the hard place of legalising independent electricity generation. Apparently electricity revenue in Cape Town has dropped by 20%. This is causing financial tension as sales from wealthier clients cross subsidizes the tariffs of poorer clients and generates revenue for other city services such as libraries etc. That said, the CoCT does not actually know what percentage of reduced sales is the result of private generation or the increasing energy efficiency of consumers responding to price increases.
Mr Jones acknowledged that the CoCT is being confronted by an approaching convergence of PV costs and the price of electricity from Eskom which makes private generation increasingly attractive. An independent study shows that PV electricity will cost less per kWh than electricity from the CoCT by 2015. A growing number of private businesses and homes are installing PV systems and the city is facing a proliferation of unauthorised grid tied PV connections including reverse metering. Just one PV supplier claims to have installed over 500+ illegal grid tied installations.
In response the CoCT is attempting to regularize SSEG and hopes to sign up its first contract this week. In addition, the CoCT recently announced a target of 10 % of renewable electricity by 2020. This sounded like a real commitment to renewables. Then Mr Jones clarified that solar water heating would in all likelihood make up a large amount of this target. While supporting SSEG is seen as promoting a green economy agenda and a sustainable city objective, he reminded consumers that local authorities do not have a clear mandate to purchase electricity from Independent Power Producers (IPP) nor to purchase at a higher price simply because it is `Green’ energy. Local authorities are still bound by a cabinet decision that Eskom is the primary electricity provider. They are also locked into an economic model that ignores the high external costs to health and environment of coal fired generation.
So while the current SSEG model provides little incentive for residential electricity generation, perhaps it is piloting a cautious way forward for more local renewable electricity generation with low financial or legal risks to local authorities. Worried about losing revenue from electricity sales the CoCT has imposed a system of net consumption. This means that the city will not purchase more kWhs from SSEGs than they sell to them which places a limit on what SSEG can generate and keeps within the law which permits generation for `own use’.
The real curved ball, however, is the cap to the size of the generation system which the city has limited to 3.26kW peak for a household with a single phase supply. This means that a household on a single phase supply, a common standard, can sell a maximum of 489kWhs per month to the city (3.26kWpeak x 5 hours of sunlight x 30 days). This maximum is reached at a total monthly consumption of aprox. 970 kWhs. Any additional total consumption will not result in an increase in permissible sale of electricity to the city. The reason for the increasing difference in the cost of electricity on the domestic tariff compared with the SSEG tariff is simply the difference in the purchase prices of electricity (R1.87kWh vs R 1.09kWhs). Have a look at the desktop examples in the table below:
When questioned about the seemingly low price the city is paying for electricity generated by SSEGs. Mr Jones explained that the price of R0.57kWh incl. Vat is consistent with the standard midday rate that the city pays Eskom. In turn SSEGs purchase electricity at a rate of R 1.09 which is based on the kWh cost from Eskom averaged across the standard and peak rates. This is far lower than the Domestic Tariff of R1.54kWh for < 600kWh per month and R1.87kWh for > 600kWhs per month which includes the service or infrastructure fee. Note that as solar electricity is generated during the day it does not reduce the morning and evening peak demand. Until consumers shift their consumption to a higher % of daily use, corresponding with the times when PV electricity is generated, the morning, but especially evening peak demands will continue to keep the cost of electricity bought from Eskom high. Time of Use meters and appropriate rates could help speed up the shift to reduce the evening peak as well as teach consumers about the real cost of electricity. Local authorities have numerous reasons, read excuses here, for why they are not introducing TOU meters and tariffs. Ethekwini (Durban) is about to embark on a project to offer TOU to residential customers who use more than 1000kWhs per month – a space worth watching.
The tariffs for SSEG for Cape Town have been approved and published as follows:
Daily service charge: R13.03 (R400 per month)
Energy charge per kWh (pay to City) R 1.09,17
Energy refund per kWh (paid by City) R 0.56,68
The daily service charge places a significant financial burden on energy efficient homes that choose to generate PV electricity. Quick to defend, Mr Jones explained that the daily service fee is required to pay for the city’s upkeep of the electricity grid and that the energy charge of R1.09 does not include an embedded energy charge unlike the current Domestic Tariff . He added that many local authorities, including Cape Town, are seriously considering reintroducing a service fee to capture revenue from wealthier households whose consumption had dropped to the extent that the city predicts it will not have enough revenue to pay for the upkeep of infrastructure. Once the service fee for domestic tariffs is introduced, SSE Generators need not feel so hard done by! No fine – then we can all feel unhappy together about being penalized for being energy efficient and for investing in green energy!!
The bottom line is that the current SSEG tariff is a disincentive for residential scale generation. Have a look at the desktop examples in the table below:
Table comparing costs of SSEG with Domestic tariffs per MONTH (30 Days) Vat Inclusive.

comparison of residential small scale renewable electricity generation costs
* This price is calculated as the difference between the cost of purchasing kWhs from the city and the refund for selling kWhs to the city PLUS the service fee.
# This is simply the cost of the monthly kWhs in column 1 based on the Domestic Tariff.
The last column provides the potential saving that could be used to pay off a home renewable energy system for a household that has made the shift from the Domestic Tariff to becoming a SSEG. Note that the table above does not give any indication of the cost of installing a PV system. The current price guide is between R25 000 – 28 000 per 1kWpeak installed. This puts a 3.2kW peak in the order of R75 000 – R80 000 excluding R6000 for a bidirectional AMI meter to measure the import and export of electricity. A PV system adds value to a property and is an environmentally responsible source of energy however it will take a good number of years to get a return on investment depending on the size of the system.
The future of SSEG, according to Mr Jones depends on the outcome of the next round of discussions about the Integrated Resource Plan. The fact that there is little clarity regarding the role of local authorities to purchase green energy from local SSEGs and IPPs provides an opportunity to lobby the government and the IRP for local authorities to get such a mandate. This sounds promising, but while local authorities see electricity sales as essential revenue for the city’s coffers electricity consumers, except those on the lifeline tariff, are likely to continue to pay more for their electricity than the actual cost of supply. Cape Town has 550 000 electricity consumers, 250 000 of whom are on the lifeline tariff subsidy. While households who have the means to install PV systems and energy efficient technologies such as solar water systems may regard the manipulation of tariffs as unfair, the local authorities are predicting genuine problems with finding the funds to provide a service to all of its citizens. What is required is a different model for providing an electricity service and revenue for the city’s fiscus. Electricity is no longer the goose laying golden eggs. Is the CoCT’s attempt to regularise SSEG the start of a transparent process that involves the citizens in an essential debate about our energy future in Cape Town. Perhaps it is up to us to take the discussion to the next level.
Kim Kruyshaar 15 September 2014
For the City of Cape Town Guidelines and application form for both commercial and residential Small Scale Embedded Generation click on the link below:
http://savingelectricity.org.za/pdf/Energy-PV-Brochure.pdf
Dear Kim ,
Thank you for an excellent commentary and thoughts on Mr Brian Jones’s presentation 11 Sept 2014 . You have raised many interesting points .
General background
All municipalities in South Africa raise substantial income from the profit made on reselling Eskom electricity . Whilst “secret” before , this was first publicly admitted/confirmed on Jan 18 2013 in a brief newspaper letter by Alderman Ian Neilson of Cape Town . A single stroke that explained years of negativity to rooftop PV . Municipal financial officers see rooftop PV as a serious threat to income , energy and environment municipal officers see rooftop PV as the way of the future . Thus we have a hesitancy in municipalities to adopt rooftop PV . The City of Cape Town has done and continues to do pioneering work but it is very slow . Thinking municipalities realise their favourite cash cow has a limited life , and are desperately thinking of new strategies to raise income as electricity profits decline .
I now pick up on your points .
Cape Town has been pushing solar water heating and energy efficiency . These two together with a bit of a recession have reduced electricity sales . PV has not yet had much effect but has serious potential . Eskom is the country’s official single purchaser of renewable energy , and Eskom does pay high prices for green energy , all which confuses the municipalities about their role . Note that the City of Cape Town offers you “green electricity” at a high price ! The Electricity Act 2006 and amendments states that all electricity generators connected to the grid must be licensed by the National Energy Regulator of South Africa (NERSA) . However , it exempts generating equipment “for own use” , without mentioning if this connected to the grid or not . NERSA has interpreted this to include rooftop PV for own use with export of surplus into the grid , but municipalities are still concerned about the legality of this .
Size of PV installation .
Eskom has studied this in relation to the size of the house connection to the grid (Notified Maximal Demand or NMD , ie power measured in kVA ) . Based on international norms , Eskom has given a ruling that reverse powering without examining the grid network may safely be done up to a maximum of 25% of NMD by each house in a street . Above that would need expensive assessment of the cables and transformers etc behind the connection . So Cape Town has adopted this as the maximal power limit . However , as a revenue saving strategy , the city has also limited export to match import in energy (kWh) and that also impinges on size of your PV array vs house consumption. A common single phase supply to a house is rated at 60 Amps x230 V which translates to an NMD of 13.9 kVA ( or kW), a quarter of which is 3.5 kW , so , yes , that is the max PV size you can connect to a single phase 60 Amp supply .in Cape Town ( maybe if you offer to pay for an assessment of the network behind the connection you may be allowed a little more – theoretically).
SSEG Tariff examples
You have given us a table of examples to show how poorly Cape Town incentivises PV .
A small correction : Jones has said that residents not VAT registered will not attract VAT on the export compensation , so you only get R 0.4972 credit per kWh exported . Makes your figures worse ! Tariffs are being hotly debated around the country .
The current SSEG tariff has not yet been applied but is soon to be applied and is only valid till 30 June 2015 . After that I guess all consumers will pay a “fixed service charge” “to cover infrastructure costs” . Make no mistake , electricity revenue can easily cover all infrastructure costs and subsidy of the indigent electricity . The real nub of the matter is the top 11% of electricity revenue that Finance dept creams off for other purposes . They call it a “rates subsidy” . I call it an electricity TAX . A tax upon citizens to enable a city to run is generally called “rates”. So the “fixed charge to cover infrastructure” is a more polite way to explain a rates increase . To call it an increase in rates would be political suicide so close to elections .
Electricty payments attract VAT , rates payments do not attract VAT . Makes you think .
Time of Use (TOU) Metering
TOU Metering is in place in commercial and industrial applications .
NERSA declared years ago that all municipalities must have TOU metering in place in residential sites where consumption exceeded 1000 kWh/month , by 1 Jan 2012 . No municipality complied , but TOU metering is destined for residential consumers one day . This would go a long way to reducing evening and morning peaks , but is very expensive to implement . Everyone has to have a new meter as no residential meters have TOU capability to date . It will be a long time in coming as municipalities see no urgency . TOU metering would also perhaps encourage some storage of PV energy to reduce expensive evenings .
As in so many areas , we need a national directive to the municipalities with carrot and stick .
Future
Yes , municipalities are very slowly progressing , with Cape Town perhaps leading the way but they all have the huge financial constraint . We need a national plan to permit municipalities with their embedded microgenerators to be recognised as (inexpensive) renewable energy generators participating in the national RE goals and funded by the national RE procurement policies , at present limited to expensive large IPP projects .
We need to lobby Dept of Energy , Finance , NERSA etc for a national plan . On their own , the municpalities are stuck between a rock and a hard place , as you so neatly put it . . They need a hand . Just raising fixed tariffs higher and higher puts peoples backs up and raises the cost of electricity .
Thanks for making me think . Anthony Keen.
Thanks for your added info Anthony. I agree that the problem starts at the top with centralized monopoly of power production and distribution. Power needs literally to be devolved to the people. A range of SSEG can produce electricity efficiently and sell surplus at cheaper than projected Medupi prices AND without massive overseas loans that bankrupt us. At the bottom end consumers need to understand the time of use cost of electricity and shift consumption patterns.
Thanks Kim, excellent, well researched and balanced article with good advice about the next level of discussion. Some of the lifeline budget for the poor should go into PV installations at least to provide lighting – not to mention redirecting some of the trillion nuke money to PVs for every household. Big strong high tech community based battery storage could help overcome the peak demand problem.
Thanks Kim. Excellent analysis, And thanks Anthony and Patrick for your also very interesting comments.
Here are my observations.
Point 1: The Blame Game and “We can’t do it”
I don’t see any real difference here between what the City said in 2009 and what they have just said.
Point 2: What should the City of Cape Town’s electricity Sales Price really be?
Note for the purposes of this discussion, prices include VAT and assume a house in the City of Cape Town using 1,200 kWh per month in 2007 and in 2014.
Even without SSEG it is obvious to any person who knows anything about economics that if you put the price of something up from 52 cents per kWh in 2007 to R1.72 per kWh in 2014, then your consumers are going to make other choices, for example, using less, using laptops instead of desktop computers, lifestyle changes, solar water heaters, other forms of energy efficiency, etc.
But the City paid 31 cents per kWh in 2007 and in 2014 this price was 80 cents, so Eskom put their price up 250%, whereas the City of Cape Town put its price up 330%.
But Eskom’s actual increase over the period was 49 cents, so including inflation at 6% over 7 years the City should have put their price up from 52 cents to 78 cents and then add Eskom’s 49 cents and the price should be R1.27, but it actually is R1.72.
Hence the City is already getting 45 cents per kWh more than it is entitled to, which is more than enough to allow it to absorb the costs of SSEG.
Point 3: Jobs
Every form of energy efficiency denotes jobs and every job denotes more money for the fiscus in the form of taxes, both personal and company. And at the same time every job implies less money needing to be spent on grants, etc. This has not been taken into account in the economy.
Point 4: Eskom can only supply 32 GW when it should be supplying at least 84 GW
If we consider that Eskom can currently only provide about 1/3rd of South Africa’s actual electricity requirements, i.e. because worldwide statistics show that electricity provision doubles every 20 years, and at the same time Eskom can only regularly provide 32 GW out of its 42 GW capacity with a third of the 32 GW capacity needing major maintenance, we can see that if there was a real level playing field and consumers could supply the grid with electricity especially at peak time, using Time of Use Tariffs, Net Metering and a Zero Service Fee, as an incentive, then electricity growth would be massive and the City of Cape Town’s total electricity profits would be at least two to three times higher than they are now, albeit with a lower kWh charge.
Point 4: Why are people who are getting free electricity allowed to sell it, but people who are buying electricity are not allowed to sell it?
The perception is that one needs to give free electricity to people in townships, but it is apparent that many of the people who are getting this free electricity are selling it to back-yarders at relatively exorbitant rates. So the cross subsidisation isn’t real. In fact cross subsidisation is a gross mistake, as one is not looking at the big picture.
The danger for the incumbents is going to be that they’re too slow to respond to a rapidly changing industry.
Self generation is rapidly reaching the point where its going to be cheaper than buying from Eskom or Municipalities. If CoCT or Eskom get too uptight about self generation, I can see people saying fine, we don’t want your power, and leaving the grid completely.
Secondary benefit is that self generation is likely to be more reliable than grid generation anyway, given the outages we’ve been seeing.
Solar has already reached price parity with Eskom, and storage is almost there.
Lithium (LiFes04) has reached the price point of Lead Acid, and lasts 6x longer.
If you amortize over 10 years, Solar + Storage is at parity with current pricing.
Given the 15% increase in Eskom / Muni rates we’ve been seeing every year on average, it will be closer to 5 years at current levels. This of course assumes that the rand doesn’t do a further death spiral, and increase prices further than it already has.
I have more numbers on my blog – http://goingsolar.co.za