Tariff framework for the integration of Solar Photo Voltaic Small Scale Embedded Generation power plants on the South African electricity grid

Abstract

EXECUTIVE SUMMARY South Africa’s renewable energy landscape is on the threshold of taking off and reaching high profitability in large scale deployment. Notwithstanding this impressive uptake, the small scale embedded generation (SSEG) market has experienced poor growth, despite having reached grid parity, owing to a lack of a competitive tariff structure for energy trading between consumers, municipalities and utilities. It is worth noting that, the custodian of tariff structures and rule maker is the National Energy Regulator of SA (NERSA). The value proposition of this consultancy report is to investigate the economic factors which contribute to the low maturity in the rooftop solar PV market and hence to recommend a tariff framework which can be endorsed by the regulator. The literature review on best practices globally revealed regions in Europe, North America and Asia that have successfully implemented tariff models to cultivate the market in the SSEG sector which has yielded significant uptake from the residential, commercial and industrial economies. The tariff instruments which have been used are feed-in-tariff (FiT), portfolio targets, tax credits, net-metering (net-FiT), renewable obligation, contract for difference, critical peak pricing and time of use tariffs. These instruments are excellent tools to execute a national agenda that is aligned to the market drivers in those countries. The challenge for South Africa is to identify the socio-economic driver(s) that have an influence on the SSEG market. The research design and method adopted is qualitative. The research instruments used to collect data are semi-structured interview questions administered by the researcher, who is also a research tool. An audio recorder was used to enable transcribing of the data later for analysis. Coding of the data was done on Microsoft Excel and the identified themes and sub-themes captured with their causalities. A mind map is presented to illustrate how the emergent themes interact and what desired outcomes can be expected with certain socio-economic drivers as inputs. The most compelling theme that emerged from the respondents is the lack of definitive drivers, an independent system operator and the non-existence of an energy trading market in South Africa, similar to Europex in Europe. Moving forwards, how does the regulator institute an effective and pragmatic tariff structure when the rules of engagement have not even been defined? Other themes that emerged include the policy considerations by Department of Energy which must yield the Integrated Resource Planning and/or Integrated Energy Planning that sets the targets for the country’s energy mix. The political economy also came out strongly as respondents noted the influence and executive authority vested in municipal jurisdictions and how they can react to protect their revenues and market position. The regulator’s role is accepted to be very crucial and yet its unresponsive, uncertain, and reactive stance is felt as an indictment on it for the growing industry and society frustrations. There are strong sentiments for market reform from the respondents and in the literature. There are new business models that can be activated by a sector in transition through the right reform strategy to open up the competitive landscape. Recommendations are for the development and definition of clear socio-economic drivers that will also form the basis for the policy. Moreover, NERSA needs to use the IRP to defined specific portfolio targets for each province, based on the solar resources. Then municipalities can define the competitive renewable FiT or Net-FiT to be adjudicated and adjusted by NERSA for fairness to both consumer and utility.