Australian Ramblings are imminent – two month plans from June

Our departure date is fast approaching, and the nearer it gets, the better idea I have of where I’ll be in Australia, and for how long.

The current plan is looking something like this:

  • 9th June – 19th June – Sydney & Canberra.  Canberra will only be for a night or two, probably around the 12th June.
  • 20th June – 4th July – Melbourne
  • 5th July – end July – Queensland (between Brisbane, Toowoomba and then further up north)

So far I have some meet ups scheduled with universities, engineering consultancies, and renewable energy developers.

If you know anyone working in energy in the abovementioned cities, please put me in touch with them.  I’d take up 30min to 1 hour of their time, and the aim would be to understand, from their perspective, what’s happening (or not happening) in the energy sphere.  I’m thinking of governmental entities, NGO’s, financial institutions.

Also, if you have any interesting reading material on Australia that you think may be useful to give me a basic understanding of what’s what and who’s who, it would be very much appreciated.

Now, back to packing…

What has been happening in renewable energy in South Africa? A summary for those not in the know.

Most of the people that I come across in my comings and goings are generally well read, informed and in touch with what’s happening in South Africa.  And yet, when I say I work in energy I am often met with a response of ‘why is South Africa looking at nuclear power but they’re doing nothing in renewable energy?’ or ‘we have so much sunlight, why does the South African government not do anything to make use of this?’  It surprises me that South Africa has done something so incredibly right and so incredibly well, and very few people seem to know about it.

Ladies and gentleman of the public – I present to you the Renewable Energy Independent Power Producer Procurement Programme, or REIPPPP.

I won’t launch into the long and tangled history of it, but some things that are important are:

  • It’s a procurement programme run by the Department of Energy
  • It seeks to appoint private sector power producers to develop, build, commission and operate renewable energy facilities
  • Power generated by these facilities is exported to Eskom’s grid, and Eskom pays a fixed tariff (adjusted for inflation) for a period of 20 years
  • Development, construction and operational risks are therefore transferred to the private sector, and government only pays for what is actually produced (excepting where Eskom is unable to provide the grid – but let’s ignore that for now)
  • There have been four procurement rounds to date since 2011.
  • 79 projects have been awarded, totaling 5.23GW of renewable energy power.

The figures below show how many of each technology type have been awarded in terms of number of projects, and overall installed capacity.

No projectsproject capacity

As you can see, the vast majority are wind or solar projects, and most of the solar projects are photovoltaic (that’s the type that you can install on your rooftop to generate electricity – not to be confused with solar water heaters – see here.)

So what does this mean?

  • Our national grid at the moment is in the region of 40GW. Most of this comes from coal, which can churn out electricity at all times, so it’s not quite right to compare this directly, but it gives you a sense of how big this procurement programme is, relative to what we already have installed.
  • Concentrated Solar Power (CSP) has the potential to store energy in the form of heat, which means that solar energy can be harnessed and used when it is convenient.
  • There is a lot of work going on in the area of battery storage at the moment. Big gains in this will mean that other renewable facilities can also become ‘dispatchable’ power stations, where energy is available when it is needed, not when the sun shines.
  • Throughout the four procurement rounds, one of the most phenomenal things that has been happening is that the tariff prices have been dropping, and dropping, and dropping. There’s more info on this here for you if you’d like some idea of the extent of this.  What this means is that renewables are becoming increasingly price competitive with other more traditional technologies.  It also means that when storage options are readily available and affordable the energy picture will be totally changed.  For now, renewables may not be painting over our coal heavy picture, but they’re certainly adding a different hue.
  • South Africa has done an incredible job. This is important to acknowledge.  Countries like Spain have got themselves into trouble with committing to excessive Feed in Tariffs.  REIPPPP is a competitive programme, meaning that the country is getting the best value possible.  While the initial tariffs in round one may seem excessively high, it took other countries around the world YEARS to get to what we’re seeing in round 4.  It’s held as an example as to how these types of programmes should be run, and is also being used as the basis for the procurement of other independent power producers, including coal.
  • There are a lot of people who care. Industry associations like SAPVIA and SAWEA are pushing for further renewables to be procured.  Municipalities are trying to get involved where they can on smaller scale projects.  NGO’s like Sustainable Energy Africa work with government to help with policy development and capacity building.  Others like WWF are there to keep pushing government, challenging assumptions and questioning the basis behind decisions made.
  • Seeing the successes that have been made in this programme, national government recently announced that they will be adding over 6GW of capacity to the renewables programme. This means that we will be more than doubling what we already have.
  • On the side of this all there is also a lot of work going into small scale, distributed installations, like those you see on rooftops. Demand for these small systems is increasing.

All in all it’s a very exciting time.

Renewable energy tariffs dropped again by over 25% – how low can we go?

An opinion piece by my fabulous colleague, Johannes Horstmann, Transaction Advisor, Arup Cape Town:

In a long awaited announcement, which attracted intense media attention, the South African Department of Energy recently published the list of preferred bidders for Round 4 of the Renewable Energy IPP Programme – 415MW of solar photovoltaic (PV) and 676MW of wind projects will now soon be constructed.

Favourably to the economy, electricity prices have again dropped significantly. PV generated electricity will cost on average R786/MWh, 29% cheaper in real terms than round 3 projects. Similarly, electricity generated by wind is priced at R619/MWh, a drop of about 25% in real terms. This followed the trend of Round 2 and 3 where prices already fell by 30-40% in each round for both technologies.

A hot topic for the market is now: how far can this go? How will bidders price their projects in the next tendering rounds 5 and 6?

From a pure time trend perspective, it seems as if PV prices could decrease further by some 19% and wind by 8% in real terms, as shown in the graphs below. Those tariffs would follow a nice statistical learning curve, but can the market deliver these price cuts?

PV & wind ave tariffs

Developers and financiers will review their projects with regards to development cost, EPC cost, cost of capital, O&M expenditure and potential energy yields on a case-by-case basis. However, the market is maturing and is becoming more and more competitive. The DOE received 77 bids in August 2014 and only awarded preferred bidder status to 13.

From market responses, transaction costs and return on equity have decreased and are starting to resemble international benchmarks more closely, as healthy competition is still inducing development efficiencies. Favourable project development locations are also becoming scarcer with incumbent projects having secured the best areas, limiting the potential to improve energy yields further. In addition, grid connection is now becoming more difficult, creating cost pressure for developers.

International learning rates (the level of cost reduction when doubling the capacity), estimated and published by institutions such as the IEA or IRENA, are currently between 18-22% for PV and between 5%-9% for onshore wind. These global trends and the capacities for the next bid windows could translate to levelling out bidding prices. PV tariffs could decrease by ‘only’ 6% that would just cancel out inflation effects.

Notwithstanding the above, this aligns with the IRP update report for Crystalline and Thin Film module costs (7% and 6% decrease per annum, respectively). Wind prices could fall by 3% in real terms or a slight first-time rise in nominal terms.

Global trends

It is also worth benchmarking the South African practice with international markets. DEWA, the Dubai Electricity and Water Authority, announced in January this year a new world record for solar PV. It awarded a consortium, led by Saudi Arabian’s ACWA power, a 200MW project based in the UAE for not-yet-seen 5.84 USD-cents/kWh. Notwithstanding, the consortium has an advantage over the developers in South Africa – financing cost. The availability of a 27 years tenor for a loan of $344 million and a 4% interest rate are the biggest factors for the low bid.

To illustrate this, with a shorter tenor of 15 years, higher interest rates of 10% and amid higher inflation of 6% (as seen in the South African market), indicative modelling shows that ACWA power would have needed to bid with c7.2 USD-cents/kWh. This is interesting, because this is exactly the average PV price of the latest Round 4 projects, in 2014 USD terms.

In conclusion, based on the above observations, South Africa may now have reached global best-practice benchmarks and future prices may follow closer to those internationally observed market movements. These international learning rates may be much less than the cost reductions experienced in the past few years. Developers and financiers will follow these trends with great interest to inform their own future bidding strategies.

This projected change in trends should not be discouraging but rather be seen as a reflection of the positive development of the renewable energy programme in South Africa, and the positive impact the REIPPPP is having on the South African economy as a whole. A strong regulatory environment for renewables has led to this market confidence that increased competition and drew investors and project development companies to South Africa. It shows the achieved efficiency of the IPP programme and provides confidence for the prospects of new IPP programmes for coal and gas that are currently being implemented.

Arup is an independent firm of designers, planners, engineers and technical specialists that makes up the heart of the creative force of many of the world’s most prominent projects in the built environment and industry. Good planning is at the heart of regenerating cities, towns and rural areas to establish long-term social, economic and environmental sustainability. Its international network of inventive and highly skilled specialists marries global factors, such as climate change, with local needs to create strategies that are efficient, exciting and practical. For more information, go to www.arup.com/Global_locations/South_Africa.aspx.

REIPPP updated list of preferred bidders – up to bidding window four

I have updated the overall list of preferred bidders (previous post here) based on this morning’s DoE media announcement.

REIPPP_Round 4

Press release from the DoE found here: https://www.facebook.com/permalink.php?story_fbid=566339060135913&id=316555815114240

Big news items:

  • Financial close for Round 4 expected for Q4 this year
  • Additional capacity to be allocated to round 4.  Word on the street is that this is in the region of 1GW
  • Another 1.8GW may be allocated to an additional procurement round (Round 4.5).  This would be an expedited application process, open to bidders who were unsuccessful in previous rounds.  A good opportunity for developers to get returns on their development costs…
  • Round 5 due to be issued next year, with updates to the RFP
  • Finally, the DoE intends to apply for a further allocation of 6.3GW of RE capacity.

Bid day folks.  Big day.

A nice summary of REIPPP Round 4 preferred bidders

Done, I believe, by ED Consulting.  I haven’t seen any formal announcements, but the ferreting fairies have been working hard since the letters were issued.

Well done to all who have been successful thus far.  We wait with bated breath for any further announcements.  I have heard rumours of expectations of a Round 4.5 being announced on Friday…

REIPPP_Round 4

When the formal announcement from the DoE comes out I will update the table of all preferred bidders and reissue to all who’d like it.

NERSA Small-Scale Embedded Generation: Regulatory Rules Consultation Paper highlights

I’m a bit late on this one as the comments were due by the 25th March and the public hearing was on the 10th April, but below is a summary of what’s in the NERSA consultation paper on small scale embedded generation regulatory rules, published at the end of Feb 2015.

The document seeks to establish the principles upon which small scale (primarily solar PV) generators can operate, and the tariff structures that will apply.  It also supersedes the standard conditions for embedded generation within munics document that was issued in 2011, as this only considered systems of up to 100kW (quite small).

The paper seeks to:

  1. solicit comments from stakeholders on the proposed regulatory rules for small-scale embedded generation; and
  2. explore various tariff options available in promoting and incentivising installations that are grid-tied

1. REGULATORY RULES

Registration versus licensing:

Recognising the administrative burden associated with applying for a generation licence, as required under the Electricity Act, the paper recommends that all systems under 1MW are registered with the local distributor instead.

Various information is required for each system, including “technical studies and report on how much the network can take on these installations.”  The viability of this requirement for each individual system should probably be considered, and I suspect what they’re after here is that the munic or distributor should have a good and thorough understanding of the network’s capacity to embed generators within their system.

Reporting requirements:

The munics or distributors are required to report various information on an annual basis to NERSA.

Grid interconnection standards:

While the NRS 097 series is not complete and do not cover all technical aspects relevant for grid connection of SSEG systems, all systems are to be compliance with NRS 097-2-1:2010 and NRS 097-2-3:2014.

Inverters:

NERSA has requested comment on the suitability of type testing on inverters used for SSEG systems, in the absence of a SANS certification or inverter standards.

Codes of practice:

NERSA provides a high level outline of how they would approach the following technical requirements, and asks for comments from stakeholders accordingly:

  • Grid connection requirements
  • Power quality and limits of liability
  • Technical performance
  • Information exchange protocols
  • Signals, Communication and Control Functions

2. TARIFF DESIGN

The meaty bit of the document in my opinion.  The principles outlined in this doc are pretty similar to those explained in my previous post (found here)

They separate the tariff out into two main types:

Charges for consumption:

  • Fixed costs based on the installed capacity; and
  • Energy cost at a set tariff for net-import OR a time of use tariff

Revenue for generation:

  • Export credit for any net export of electricity.

This export credit will be equivalent to the avoided energy generation costs only, which for munics will be the marginal charge for electricity purchased from Eskom, or for Eskom, will be equivalent to the cost of generating electricity.

This is to avoid impacting any customers who are not listed as SSEG’s (again, see my previous post on this).

This means that NERSA is not proposing a net-metering structure where consumption and generation is weighted evenly in terms of energy cost, despite the fact that the term net-metering is used in the paper.

Eskom tariff changes: a quick and dirty look at some impacts on the City of Cape Town

Eskom tariff changes:

Eskom has recently had tariff increases approved by the energy regulator, NERSA.  The average tariff increase approved for 2015/16 equates to 12.69%.  This comes into effect from the 1st April for all non-municipal customers, and from the 1st July for the municipalities.

The individual tariffs that make up the whole Eskom tariff suite are not all changing by the same amount, however, and some are increasing more than others.  For example, the Megaflex tariff for municipalities is increasing by 14%, whereas the Nightsave Rural Tariff, for instance, is increasing by around 12.7%.  I haven’t looked through them all.

Another key change is that the morning and evening peak times that apply during winter months (June – August) are moving forward by one hour, to better align with national peak demand periods.

This is shown in the graph below [1]

Eskom ToU tariff change

How does this impact the City of Cape Town?

Mark-up implications

The City purchases electricity from Eskom at wholesale prices, and resells it on to its customers, after applying a mark-up.  The tariff mark-up is dependent on the allowable tariff structure, the fixed and variable costs associated with distributing electricity, the cross-subsidies inherent in the tariffs (for instance, to allow for free basic electricity to low-income households), as well as the extent to which NERSA allows for the sale of electricity to cross-subsidise the rates base (I believe this is around 10%).  This means that the City will not automatically be increasing their tariffs by 14%, as this would mean increasing their mark-up by 14% also.

However, increasing tariffs inevitably result in consumers using electricity more sparingly, which means that passing through Eskom’s tariff increases without increasing the mark-up would result in less ‘profit’ on electricity, and therefore less money to cover fixed costs and cross-subsidies.  This can result in the City needing to increase tariffs further to make-up for it.  Enter the vicious circle syndrome.

Time of use implications

With a simple tariff structure like the Domestic tariff, electricity was sold in 2014 at R1.35/kWh or R1.64/kWh (ex VAT), but the City is purchasing electricity anywhere between around R0.30/kWh to R2.10/kWh, depending on the time of use.

Therefore, it benefits the City the most if residential consumers consume electricity in off-peak times in summer, as they’ll be making the most ‘profit’ off the sale.  Electricity sold during peak times in winter, however, will actually cost the City money.  This is a result of the tariff structure, as the City is not able to pass through the time-of-use concept in their residential tariffs.

The City would therefore want Eskom’s peak period to be misaligned with their maximum demand period for all non-time-of-use tariffs.

The graphs below show an average household demand curve in January and June [2].  While these are not definitive and are based on 2010 data, they show that the change in the winter peak period could possibly benefit the City on the residential tariffs if winter peaks are sitting at around 8pm.  They also show the impact that electric geysers have on this peak period, and how solar water heaters or demand side management of geyser loads could help to lop off/shift that peak period.

CCT_January

CCT_June

Key

Sources:

1 – Eskom: “2015/16 changes to the winter time-of-use peak periods and tariff charge name changes”

2 – Trollip et al: “Potential impact on municipal revenue of small scale own generation and energy efficiency”

Summary of projects under the South African renewable energy independent power producer procurement programme

I am constantly looking for a summary of what has been awarded under the three (and a half) REIPPP rounds to date, and so thought I would put this on here, for my records as much as for your information.  I figure if I’m looking for it, someone else must be too.

Email me at vivi at energyramblings.com if you'd like this in table format

REIPPP Preferred bidders up to round 3.5

If you’d like a table version of the project and capacity summary, please drop me an email on vivi@energyramblings.com

Cape Town residential electricity tariff; how is it impacted by the installation of a solar PV system

A question came up from a solar PV installer in a forum session that I attended the other day that demonstrated that even those in the industry don’t really understand some of the challenges facing the City of CT with regards to tariff structure.  The question was something along the lines of “Why has the City come up with an embedded generation tariff with a daily charge that can be more expensive than the residential tariff – thereby disincentivising people to install solar PV systems on their home?” I’m paraphrasing.

To start with the basics:

There are two main tariff types for Cape Town households – Domestic and Lifeline. The intention of the Lifeline tariff is to provide low income households or, as it is currently set up, ‘low consumption’ households with free basic electricity (between 25kWh and 60kWh).  Some mid- or high-income households currently qualify, because they have a low monthly average consumption, but the City is planning to address this by including a maximum cap on the value of your property that qualifies (R300,000).

Let’s assume then that if you’re thinking about installing a PV system, you’re on Domestic, and not on lifeline.  If you can afford a PV system you’re probably not the target market for the free electricity programme anyway.

The VAT inclusive domestic tariff is currently set up like this, and will be increasing as of the 1st July.

  • 0-600kWh – 153.63c/kWh
  • > 600kWh – 186.81c/kWh

This is called an inclining block tariff (IBT) and there used to be a lot more blocks to it, instead of just two.  The more you use, the more expensive each kWh of electricity becomes.

There’s a lot written about IBT’s, and they’re designed to protect low-income households from increasing electricity tariffs.  They effectively represent a cross subsidy of electricity by the middle- and high-income households.

It’s not my intention to discuss the merits and demerits of this tariff structure in this post.

In response to increasing pressure for the City to allow installations of small scale embedded generators (which for the purpose of this post we’ll assume are all solar PV installations), the City developed the Residential Small Scale Embedded Generation tariff.

This tariff, for the first time, introduces a fixed daily fee which is payable, regardless of how much electricity you consume.  It is set up like this (VAT inclusive):

  • Service charge – R13.03/day
  • Energy charge – consumption – 109.17c/kWh
  • Energy charge – generation – 56.68c/kWh

What this means is that, for a 30 day month, you’d pay R390.90 in service fees, regardless of how much electricity you consumed or generated from your system.  However, you’ll notice that your marginal consumption tariff is around 2/3 of what you’d pay if you were a normal residential customer (block 1).  They have split out the fixed costs from the variable costs.

The City also does not allow you to sell them more than you buy, so you can never be a net exporter.  This will likely change in the future, but right now it’s in response to NERSA requiring you to have a generation licence if you sell power to another person, and this is the City’s way of getting around this.

Why has the City set it up like this?

Having the grid available to export electricity into, and effectively using as a battery, costs someone money.  There are maintenance or upgrading costs that need to be accounted for. This daily service charge is the City’s attempt to recoup these costs regardless of how much electricity you use.  This helps to separate the cost of the two services the City is providing; namely the provision of an electrical network, and the delivery of electricity in kWh’s.

If there was no service charge, who would pay for the grid? Ultimately, it would be people who did not have any embedded generation.  And who would that be?  Those who couldn’t afford it.  Which would effectively be a cross subsidy in the wrong direction.

And before you say ‘but it’s green energy, so should have a premium payable,’ that argument is nice for Germany, where people can afford to choose whether they’d like to have an installation on their roof.  It doesn’t work here.  And the recent trends in PV prices mean it doesn’t need to work here for PV to take off.

Commercial tariffs already have a daily service charge, so are already set up to slip nicely into an embedded generation tariff structure.  There is talk of moving the residential tariff away from an IBT structure.  If this happens this issue will become a non-issue and this blog post will become irrelevant.

Also, for the record, 186.81c/kWh is a big tariff to be paying.  If you’re consuming over 600kWh and have moved onto this tariff, you’ll be paying big money each month for electricity.

Notes:

I’ve included the VAT amounts as this is what the average household will be paying.  If I was looking at the commercial set up, I’d probably be using VAT exclusive amounts.

You can read up the impacts that IBTs have had here: http://pdg.co.za/wp-content/uploads/2012/04/Have-inclining-block-tariffs-for-electricity-made-a-difference-published-in-Business-Day.pdf

The City’s current electricity tariffs can be found here: http://www.capetown.gov.za/en/electricity/Elec%20tariffs%20201415/Schedule%20of%20Consumptive%20Tariffs.pdf

The difference between solar thermal and solar PV

I was in a meeting this week and found myself talking to someone who confusing solar water heaters with solar photovoltaic panels.  This took me a bit by surprise as I thought people were quite familiar with the two different technologies, as they’ve been around for a while, but it seems not.

Solar Thermal

Solar water heaters or solar geysers use the heat from the sun to warm up water, most often in flat panels on the roof, or water contained in tubes surrounded by a vacuum within another tube.  The warmed water is stored in a geyser, which often has back up heater like a normal geyser, to ensure there is hot water even on overcast days.  Flat panels are often used in temperate climates, where there is a lot of direct sunlight and where it is not typical to have overnight sudden frost.  Evacuated tubes are good for colder climates, or where there is sudden frost overnight, as sudden freezing of water causes it to expand and can crack flat plates, whereas the vacuum around the inner tube provides a measure of insulation from frost.

Solar water heaters help to reduce the electricity consumed for heating water, and can be an excellent investment for households, where a large chunk of electricity is used on heating water.

Solar photovoltaic (PV)

Solar PV systems are able to convert sunlight to electricity.  They are typically made up of individual silicon based cells that are connected together in a module or panel.  They can be connected to a building’s distribution boards to supplement the electricity supplied by the grid, or the electricity can be exported directly from the system to the grid.  They are able to convert direct sunlight, or, depending on the type of module used, they can generate electricity even on a muggy day.  Unlike solar geysers, they perform better when the module temperature is kept fairly low, and the light energy that is most important; not the thermal energy.

Both systems can be installed together, as they serve very different purposes.  It doesn’t make sense to install a PV system on its own if your biggest electrical load is from your geyser, and if you don’t have any hot water needs, it clearly doesn’t make sense to install a solar water heater.

Other solar thermal applications

Solar thermal installations can also be used to generate electricity, but this makes use of the thermal energy to heat water to turn a turbine, to generate electricity.  Thermal -> mechanical -> electrical energy.  These are often large scale installations, called Concentrated Solar Power (CSP) but there are some small scale systems that have been installed.

Lastly, solar thermal can also be used to run a building’s cooling system, as strange as that sounds.  The water is heated up, the steam is used to power the chilling machinery, which runs the airconditioning system.  Thermal -> mechanical -> cooling.

Generally though, most solar thermal installations are your run of the mill solar water heaters.  How to tell which you have:

  • do they have a series of glass tubes? – solar water heater
  • if it’s a glass plate, do they have lots of individual squares that are distinguishable? – solar PV
  • if it’s a glass plate, which looks like a solid black panel and/or there’s a tank installed above it? – solar water heater

EDIT: I have been reminded that I forgot to write about absorption chillers.  Read up on them here: http://www.gasairconditioning.org/absorption_how_it_works.htm