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

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: