Integration of distributed energy resources (Solar PV) a revenue impact study and tariff optimisation analysis for EThekwini Municipality.

Abstract

The South African energy generation sector is naturally evolving from a traditionally vertically integrated structure to a more liberalised one via the promotion of local generation. The main drivers of such a transition are the rapid drop in generation technology prices, especially solar photovoltaic (PV) and the corresponding increase in electricity prices. While this transition is unconventional for South Africa, it does bring fresh opportunities for local economic stimulation and job creation. However, as the generation becomes more localised, customers reduce their energy dependency from the network due to their ability to self-consume generated electricity. This self-consumption creates an imbalance in the recovery of network-related charges for the municipality, i.e. creating a revenue loss. The rate of localisation of energy generation will dictate the magnitude of loss for the municipality. To better understand the level of revenue loss associated with customers migrating to solar PV, a solar techno-economic model was designed and analysed with eThekwini Municipality’s unique loading and generation data. The model showed that customers were deemed feasible if their projects met the minimum Internal Rate of Return (IRR) of 15% and a maximum Simple Payback Period (SPBP) of ten years. Based on the number of feasible customers migrating to PV under various scenarios, the municipal revenue loss was quantified. The potential renewable energy (RE) that could be introduced onto the grid for each scenario was also quantified. The electricity tariff structures were optimised for each customer category within eThekwini Municipality to mitigate revenue losses. The optimised tariff structures were focussed on introducing fixed network access charges, based on the PV inverter size and a buy-back tariff for energy exported onto the grid. In instances where customers adopt a long term view for solar PV investing, and accept to calculate the IRR over 25 years, 37% of customers met the feasibility criteria. This resulted in the municipality potentially losing R1.041 billion and gaining 1343 MW of RE, should all feasible customers install solar PV. Applying generation limits as per NRS 097-2-3, resulted in a municipal revenue loss of R959 million and a RE gain of 1251 MW. Introducing RE tariffs to counteract the revenue loss, in conjunction with the generation limits resulted in only 3.9% of customers remaining feasible, with a reduced RE gain of 722 MW. Applying the NRS 097-2-3 generation limits and calculating the IRR over 10 years, resulted in 31% of customers meeting the feasibility criteria. Under these conditions, the municipality could potentially lose R 397 million and gain 684 MW of RE should all feasible customers install solar PV. Introducing RE tariffs to counteract the revenue loss resulted in zero customers meeting the feasibility criteria. The revenue losses were introduced because the current municipal tariffs recover fixed network charges via variable energy rates. Each unit of electricity offset due to self-consumption via solar PV results in fixed network costs incorrectly being offset as well, due to the nature of the current tariff design. RE tariffs were designed to remedy this anomaly. They incorporated fixed network charges and a buy-back energy rate, priced at the avoided cost. The RE tariffs have been optimised to position the municipality in a revenue neutral position as solar PV is introduced, resulting in no windfall gain or inadvertent revenue losses to the municipality.