SSEG Financial Implications for Municipalities South African - German Energy Programme (SAGEN) SSEG Financial Implications for Municipalities Christopher Gross South African German Energy Programme (SAGEN) Tshwane Sustainability Week 2017

Background information on GIZ As a government-owned corporation, GIZ carries out sustainable development projects worldwide for the German government and other public and private-sector clients The organisation supports political, economic, ecological and social developments worldwide GIZ operates in more than 130 countries and employs more than 17,000 staff members (with a 70 – 30% split between national and international personnel) GIZ initiated activities in South Africa in 1994 and has allocated more than EUR 550 million to the bilateral cooperation with South Africa (2014) The main focus of our work in South Africa is Governance and Administration, HIV/AIDS, Energy and Climate

Customer Protection: Database of approved PV installers Compliance with industry and international best practice Safe installation and municipal grid connection Training and skills development opportunities www.pvgreencard.co.za

Opportunities for industry players all along the value chain: Installers, Financiers, Insurance, Training Institutions + Access to key resources www.pvgreencard.co.za

Best practice Solar PV installation guidelines www.pvgreencard.co.za

Technical Solar PV Training for Municipalities Nov/Dec 2016: Development of training material tailored to municipalities Jan/March 2017: Training sessions at North West University / Suncybernetics Administration through South African Local Government Associaction (SALGA) Participants from more than 25 different municipalities https://sseg.co.za/wp/ Password: STCpotch Training content building blocks

AMEU SSEG Resource Pack Requirements for Embedded Generation SSEG Supply Contract SSEG Application Form SSEG Commissioning Form SSEG Decommissioning Form

Training on Solar PV economics Training content: How to set adequate tariffs for solar PV customers How to quantify the job creation potential of solar PV policies How to cost-efficiently procure PV assets Next municipality training: July 19-20

Source: http://msolarpower.co.za/5kw-hybrid-solar-rondebosch/

Describe load profile: 5-6: Light, Water Heating, Cooking 10: Water Heating 12-14: Cooking, Pool Pump 18-21: Water heating, cooking, general appliances Based on SEA household audits – representative, but no averaging!

Source: http://msolarpower.co.za/5kw-hybrid-solar-rondebosch/

(Sunny Day) PV size 50% of peak demand Potential export

First: Registration & Approval Process (Number one for revenue protection) Second: Bidirectional Meter = Crucial for Revenue Protection. Source: City of Cape Town

2 1 1 Solution: Compensate PV customer at an lower than retail, but fair rate (e.g. avoided ESKOM avoided costs or ‘‘cost of supply“) 2 Solution: Introduce other (fixed) charges to recover parts of the induced loss

Potential measures to reform the charging basis Source: International Review of Cost Recovery Issues, Ofgem 2017 https://www.ofgem.gov.uk/publications-and-updates/international-review-cost-recovery-issues-report-cepa-and-tnei

SALGA-GIZ SSEG tariff model

SALGA-GIZ SSEG tariff model Brief: A tool to assist municipalities in cross-checking their SSEG tariffs with regards to impact on revenue and attractiveness to Solar PV customers Model features: Generic i.e. usable by all types of municipalities Simple and easy to use Data requirements not too onerous What the model can do: Generate impact on municipal revenue and VOS (avoided costs) for a given set of SSEG tariffs Determine if a business case exists for a set of tariffs for the PV customer SSEG tariffs can be changed and the results analysed to assist in tariff design What the model can’t do: Automatically generate the (best) set of SSEG tariffs

Municipality Perspective PV Customer Perspective

… Coming back to the case study Source: http://msolarpower.co.za/5kw-hybrid-solar-rondebosch/

… What is the overall impact on municipal revenue with more and more people installing Solar PV? Source: https://www.wsj.com/articles/what-solar-power-needs-for-a-brighter-future-1384202345

Example Case Study continued

Example Case Study continued Payback times per tariff – Business Case for the customer Investment Costs PV System: 22,000 R/kWp Size of PV System: 2 kWp Assumption: Export tariff (FIT) stays constant over project lifetime

  Penetration rates Payback Residential revenue impact 1% 5% 10% 20% Fixed R150/m; Energy 150c/kWh; Feed-in 65c/kWh 0,00% -0,01% -0,02% 19 Fixed R150/m; Energy 150c/kWh; Feed-in 85c/kWh -0,12% -0,24% -0,48% 18 Fixed R220/m; Energy 130c/kWh; Feed-in 65c/kWh -0,07% -0,13% -0,26% Fixed R350/m; Energy 200c/kWh; Feed-in 65c/kWh 0,45% 2,24% 4,47% 8,95% 26 Fixed R60/m; TOU Energy 175;170;125c/kWh; TOU Feed-in 175;170;125c/kWh -0,18% -0,92% -1,85% -3,70% 10 Fixed R100/m; Energy 150c/kWh; Feed-in 150c/kWh -0,17% -0,83% -1,66% -3,33% 11 Fixed R0/m; Energy 150c/kWh; Feed-in 150c/kWh -0,28% -1,39% -2,78% -5,55% 8 Assumption: Export tariff (FIT) stays constant over project lifetime

Observations Analysis is indicative of what will happen to municipal finances and the business case under different tariff scenarios Analysis uses a generic customer that consumes electricity according to a particular load profile, and generates electricity from Solar PV according to historical irradiation patterns BUT every customer behaves differently, so results need to be treated as such Results from the analysis can guide a municipality's tariff setting process BUT additional work and analysis are required to determine tariffs that fulfil each individual municipality’s requirements. Continuous tweaking and in-depth sensitivity analysis of various tariff types is essential.

Residential versus Commercial & Industrial Customers

Conclusions First and most important for municipal revenue protection are Establishing a sound application and registration process for PV rooftop systems Installing adequate metering to capture PV-feed-in (especially for residential customers) Revisiting of current tariff structures for different customer groups might become necessary Cost of Supply studies will help to determine the value of PV electricity and will help to identify potential feed-in-tariff levels When designing SSEG tariffs it is important to think of the PV customer business case and of the customers´ investment expectation Different measures exist to reform the charging basis (as presented before)

Thank you very much for your attention. Christopher Gross South African German Energy Programme (SAGEN) Christopher.gross@giz.de Credits for the content of this presentation go to:

Backup

Residential tariff elements – Standard consumption tariff Source: Adapted from GreenCape, Basic Tariff Guiding Principles: Small-scale Embedded Generation (SSEG) tariffs

Tariff elements – SSEG residential tariff Source: Adapted from GreenCape, Basic Tariff Guiding Principles: Small-scale Embedded Generation (SSEG) tariffs

+ Sol Plaatje

Tariff elements – standard consumption tariff cont. Network cost Service charge Energy charge Costs associated with maintaining and operating the network Costs associated with providing a retail service network i.e. metering, billing, call centres etc This covers the total cost of electricity purchased from Eskom, which includes a margin Should be charged to all consumers and be the same for SSEG and non-SSEG customers Service charge normally a daily rate and charged monthly Cost varies with the amount of electricity consumed per month If higher for SSEG customers could disincentivise Solar PV installations All customers should pay a service charge TOU might be the most cost-effective option Source: Adapted from GreenCape, Basic Tariff Guiding Principles: Small-scale Embedded Generation (SSEG) tariffs

Potential measures to reform the charging basis Source: Owen Zinaman (8 Dec 2016) Module 1: Power Sector Regulation and Distributed Generation, NREL