Solar Rooftop PV Financial impact of SSEG

Information/ hardcopies/ software participants will need: Tariff and customer information for their municipality GENESIS/GIZ SSEG revenue impact tool

SSEG is a financial ‘no brainer’ in many commercial applications ClearWater mall – phase 1 SSEG of 1.5MW Source: SolarEff (Project implementer)

SSEG generation and commercial load profiles match well Daytime peaking commercial load profile matches solar daytime generation profile

Load profiles and SSEG generation: residential Source: http://msolarpower.co.za/5kw-hybrid-solar-rondebosch/

Residential: variable load profile Load profile for domestic is typically very peaky, with refrigerators, water heating and and pool pumps switching on and of during the day, for example.

Residential: depending on the profile and PV size, reverse feed can occur export (Sunny Day) PV size 50% of peak demand Because of load profile peakiness, reverse feed can often take place for residences

Residential: factors to be considered in revenue impact assessment

In practice residential load profiles vary greatly, and with that PV impact, including self-generation and revenue impact (this is from actual household data logged in NMBMM SSEG installations)

PV generation and Megaflex peak times Other than to some extent in the morning, PV generation does little to reduce peak period Megaflex payments

Example of a residential bill Bill for house without SSEG and one with a reversing meter (as can happen with illegal installations and credit meters) – showing significant revenue loss in the latter case.

A more sensible approach… 1 2 Better to introduce a suitable SSEG tariff… 1 Solution: Introduce other (fixed) charges to recover parts of the induced loss Solution: Compensate PV customer at an lower than retail, but fair rate (e.g. avoided ESKOM avoided costs or “cost of supply“) 2

Bill with (1) no SSEG, (2) SSEG with no compensation (bi directional metering, not a reversing meter), and (3) with SSEG tariff (fixed charge and export tariff). Case (2) is unfair on the customer, case (3) provides some return for he customer but protects municipal revenue.

Commercial & Industrial: factors to be considered in revenue impact assessment Reduced sales (loss) PV export compensation (if any) Reduced bulk (Megaflex) purchase (gain) Resale of PV export (if any) Revenue impact calculations need to consider: ToU customer tariffs Varying Megaflex rates (ToU, seasonal) Varying solar output Reduction in tech losses (small) (there are no demand charge reductions)

Cloudy days and peak demand PV SSEG has little or no impact on the peak demand charges due to cloudy days

Solar radiation: cloudy days Tshwane example month solar radiation: Jan 2016 Solar radiation Oct 2015 – Oct 2016 Because of cloudy days the peak demand requirements for SSEG users are not reduced

SUMMER and WINTER differences: Residential versus Commercial & Industrial Customers Winter solar radiation can be around 40% less than in summer (depending on the tilt angle of the PV panels)

Revenue impact models Sustainable Energy Africa (old) PV SSEG and energy efficiency revenue impact model, and the more detailed and specialised GIZ/SALGA/GENESIS PV SSEG revenue impact model

SSEG tariff and billing theory Tariff theory Net metering Net billing Net FIT Gross FIT Acknowledgements:

Residential tariff elements – Standard consumption tariff c/kWh 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

Tariffs in place in selected metros Tariffs vary significantly depending on the objective (i.e. promote or discourage SSEG) Source: Municipal tariff documents and NERSA approved tariff schedule (all 2017-2018)

Net-metering vs Net-billing Eg. NMBM Standard bi-directional meter owned by the utility Export tariff paid by municipality Metering system captures net-production/consumption Export tariff = import tariff Eg. City of Cape Town Standard bi-directional meter owned by the utility Export tariff paid by municipality Metering system captures net-production/consumption Export tariff < import tariff (export tariff indexed to import tariff)

Net-FIT vs Gross FIT Net-FiT Gross-FiT Proposed by CSIR Standard bi-directional meter owned by the utility FiT paid by a central off-taker Metering system captures net-production/consumption Export tariff is fixed for a 20 year period Involves a PPA between customer and utility Standard bi-directional meter owned by the utility + PPA meter owned by customer Metering system captures gross production and gross consumption All SSEG electricity is exported to the grid and compensated via a FiT Power purchased either by the municipality or Eskom’s single buyer office

Using the SALGA-GIZ (GENESIS) revenue Impact Model

SALGA-GIZ SSEG revenue impact & 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: Generate the best set of SSEG tariffs

Municipality Perspective PV Customer Perspective Source: From GENESIS revenue Impact Tool Training package

… 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

CASE STUDY: Tshwane Revenue impact Commercial & Industrial Revenue impact on tariff categories with existing fixed charge may not be significant Source (incl following slides): Impact of Small Scale Solar PV Embedded Generation (SSEG) on Tshwane’s Revenue (SEA, GIZ)

Revenue impact Residential….

From the customer‘s perspective Payback times per tariff – Business Case for the customer Important to balance tariff with reasonable fixed charges and feed-in tariffs (established by a Cost of Supply study) Assumption: Export tariff (FIT) stays constant over project lifetime

Workshop Using the GENESIS Revenue Impact and Business Case tool

Modelling results from different Tshwane SSEG tariff options (impact % is for residential tariff category analysed)

Modelling results from different Tshwane SSEG tariff options (impact % is for residential tariff category analysed)

Revenue impact assessment conclusions for Tshwane Industrial and Commercial SSEG revenue impact The impact on CoT revenue from the CoT provided example industrial and commercial customers adopting SSEG is generally between 0.5% and 1% loss Overall, the revenue impact does not vary greatly with different conditions (seasonality, system size etc) because (1) there is no SSEG export potential due to daytime peaking load profiles, and (2) the existence of a fixed demand charge, which does not change with PV SSEG installation, protects against revenue loss.

Revenue impact assessment conclusions for Tshwane (2) Residential SSEG revenue impact Residential SSEG results in a large range of revenue impacts, from positive to negative, depending on the specific conditions – system size, season and whether a SSEG tariff is implemented or not. There is often significant revenue gain for CoT from residential SSEG systems. The main reason for this is that CoT makes a profit from the SSEG power exported, and residential sector SSEG has the potential to result in significant export power, and thus significant revenue for CoT. Having a 3-part SSEG tariff is the best form of revenue protection for CoT Reverse feed blocking results in revenue reduction for CoT, because of the potential profit to be made from re-selling SSEG exported power. The biggest revenue loss takes place with illegal connections (i.e. the meter reverses), effectively paying the customer the full electricity purchase tariff for each PV kWh exported, while the distributor on-sells this power at a loss.

References Impact of Small Scale Solar PV Embedded Generation (SSEG) on Tshwane’s revenue (Revised 30 June 2017). Sustainable Energy Africa, funded by GIZ. Available on www.cityenergy.org.za GIZ/SALGA SSEG impact model (spreadsheet) and Guidelines (Word document) and training presentation (Powerpoint)

The future of Municipal Electricity Business Models A brief introduction to the need to think creatively in fast changing times for municipalities…

 PV prices continue to decline faster than predicted (even with a variable ZAR exchange rate)

PV relative cost in 5 or 10 yrs time? PV now Grid power PV relative cost in 5 or 10 yrs time? PV now Break-even point Illustrative stand-alone PV payback, with grid defection implications Source: Sustainable Energy Solutions for Local Government – A Practical Guide (SEA et al)

Between 2020 and 2025 the SSEG feasibility landscape will have changed From Tshwane SoE report (and PV prices are actually decreasing, not constant as shown here) Source: City of Tshwane State of Energy Report 2017 (SEA)

Battery price trends Batteries are becoming cheaper – these will become part of our power system one way or another, but the danger is that costs decrease to the extent that wealthier users defect from the grid and install stand-alone PV systems. This is disastrous for current municipal business models.

Business plans for the future? Important to have cost reflective tariffs in Commercial & industrial categories Recover revenue in fixed charges while not destroying the residential business case When batteries become cheap… Avoid or reduce grid defection? – how? Other revenue gathering plans? Selling PV equipment? ….?

Business models Building embedded power systems Building stand-alone power plants Procuring from embedded generators Procuring from an IPP Playing a trading/aggregating role Operating a storage facility Providing electricity services

Reference New Roles for South African Municipalities in Renewable Energy: A Review of Business Models (SAGEN, March 2017) Available on www.cityenergy.org.za

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Illustration of PV generation on a sunny and cloudy day for a residential situation

National load profile PV doesn’t match the winter demand profile well, but is a slightly better match in summer

eThekwini load profile Summer aircon? The load profile of different municipalities vary, which affects the revenue impact

SSEG tariffs - definition Compensation mechanism = the instrument designed to reward the Solar PV customer for any generation that is exported to the electricity grid Compensation mechanisms matter because they influence the value proposition of a Solar PV investment for individual customers i.e. influence the customer’s business case Important components of any mechanism include: Contract length Crediting terms System caps No universally accepted definitions of the many types of SSEG tariffs that exist eg. net-metering tariffs, net-billing tariffs, net-FiT tariffs, gross-FiT tariffs Two types of SSEG tariff discussed: Net-billing tariffs: Balance rolls over from month to month (for the 12 month billing period) by ToU period Customer doesn’t receive payment from the municipality for exports > imports Export tariff is not fixed (it increases over time in the model)* Net-FiT tariffs: Customer can receive payment from the municipality for exports > imports Export tariff is fixed for a 20 year period Source: From GENESIS revenue Impact Tool Training package

Basic architecture of the financial impact model Residential Small business Medium business Large business Reduction in municipal revenue Determine “original revenue from chosen customers” using no. of customers x original municipal tariffs Determine the bill for a single SSEG customer using proposed SSEG tariffs Then determine municipal revenue post introduction of SSEG tariffs in 2 parts: That from SSEG customers – assume either 1%, 5%, 10% or 20% of customers in the chosen tariff category install Solar PV That from regular customers – the remaining 99%, 95%, 90% or 80% of customers Reduction in revenue = original revenue – revenue after introducing SSEG tariffs Value of Solar Reduction in bulk electricity purchases = total electricity generated from Solar PV @ Eskom rates Reduction in technical losses = technical losses % X reduction in bulk purchases Difference between Eskom tariff and export rate X Solar PV electricity fed onto the grid Net effect i in municipal revenue + i costs (VOS)

Basic architecture of the model – Customer business case Residential Small business Medium business Large business Savings on electricity bill Over the useful life of the system: 25 years System degradation of 0.5% Constant consumption Apply the same method as municipal revenue calculation: Determine original bill in each year Determine bill post introduction of SSEG tariffs Savings = original bill – bill after introducing SSEG tariffs Discounted net savings Net present value of savings less capex and opex Discounted using the WACC calculated using CAPM