Small-scale embedded generation (SSEG), particularly rooftop solar photovoltaic systems, are increasingly used by South Africans as an alternative solution to South Africa’s current energy supply challenge. The Integrated Resource Plan 2010-2030 Update estimates that residential and commercial PV embedded generation could reach 22.5GW by 2020. However, there is no legal framework for the implementation of SSEG systems of less than 1MW. The National Energy Regulator of South Africa (NERSA), in addressing the issue, has published a consultation paper requesting interested stakeholders to comment. We highlight some of the key issues raised in the consultation paper.
What is SSEG
For purposes of the consultation paper, SSEG is a low voltage solar photovoltaic embedded generation system of less than 1 megawatt.
Gap in the legal framework
Currently, SSEG systems that are connected to the grid and operated for commercial purposes must be licensed or registered by NERSA in terms of the Electricity Regulation Act 2006. Although solar photovoltaic embedded generation of 1 megawatt or higher is regulated under the renewable energy independent power producer procurement programme, there is no special regulatory framework governing the connection of SSEG systems of less than 1 megawatt to the grid.
Licence versus registration
NERSA has identified the complexities required in applying for a licence in terms of the Electricity Regulation Act and has suggested that a register be created instead for all SSEG. The consultation paper calls for stakeholders’ views regarding the establishment of such a register.
The main concern about the tariff for SSEG systems is that the current tariff structures don’t reflect the fixed and retail-related costs involved in the management and running of the grid. This means that as customers install embedded generation systems, the network service provider loses revenue streams which have to be recovered from the remaining customers because there is no equivalent deduction in the costs of the network service provider.
In order to ensure that customers without a SSEG system are not subsidising the costs of those with a SSEG system, NERSA has advised that the tariff will include a fixed costs element and a variable costs element. The tariff will not be a credit-based structure on the current tariffs and customers will receive a multipart invoice which includes the fixed costs and variable costs and the export credit (for any electricity exported to the grid). As such SSEG may not be as cost-saving as initially anticipated and the customer’s only savings could be limited to those costs that the network service provider avoids.
Despite the potentially limited savings, the costs involved in installing a SSEG system are constantly decreasing and the levelised costs of solar electricity are at all-time lows and are even entering the realm of the costs associated with cheaper fossil fuels. Installation of solar systems is becoming more affordable and less time is required to recuperate the initial expenditure. Technology advances in the type of solar panels that can be used in SSEG systems will continue to contribute towards the decreasing costs and attractiveness of rooftop solar. Globally, an increasing number of rooftop solar systems are being installed, despite the decrease in investment in utility-scale solar power plants. These factors may contribute to the appetite of South Africans for SSEG systems.
It will be interesting to see how NERSA will structure the tariff. The tariff will be an important factor in determining whether or not to invest in SSEG. The regulatory framework to be established by NERSA following the consultation paper will be applicable to SSEG systems installed for commercial purposes (i.e. selling any excess electricity back into the grid) and not for residential purposes. NERSA’s decision and publication of the regulatory rules is expected during the course of the year, however, as NERSA is currently not following the timelines set in the consultation paper, it is not known when these outcomes can be expected.