Tariff implications for SSEG Small Scale Embedded Generation (SSEG) Seminar 23 October 2018
Strategic drivers directing future tariff development and strategy Drivers Consequences Proposed interventions (what are the change-drivers today?) (if we do nothing?) (where do we want to be?) • Inform future tariff development • Need for updated integrated pricing • Isolated tariff development • Allow for customer inputs strategy going forward • Address the changing business needs and operating environment • Propose tariff development • Unable to respond to the short • Need to change the regulatory framework and approval process for term demands or request framework dynamic and flexible tariffs • Reducing sales as customers moving • Need to accommodate the evolving • Cost-reflective tariff structures off grid customer and technologies • Options that optimise the use of the • Introduces complexities in managing system and benefit the customer the system • Increases costs and risk for Eskom • High price increases if not achieved • Customised and dynamic tariffs • Need to sustain sales growth • Stranded assets • Recovery of fixed cost through fixed • Viability charges instead of variable charges • Incentivises competitive forces SOURCE: Strategic direction and tariff design principle for Eskom’s tariffs 2017, Executive summary (www.eskom.co.za/tariffs)
System overview and the potential impact of SSEG Currently in SA residential customers contribute to 23% demand to the peak period # Solar PV reduces energy consumption by 49% in summer; peak demand only reduced by 4.9% * Alters shape of residential load profile i.e. creates the “duck curve” • Reduces demand middle of the day but not during peak hours, • PV stops producing just as peak demand is required. Implications: • Steep ramp rates during evening peak, requiring use of expensive peaking generation plant, which is uneconomical, • PV lowers the Generation plant load factor, • Operational costs to serve the peaks are not reflected in current IBT tariffs. Targeted approach required to achieve *Source Do Load Shapes of PV Customers Differ? Implications for Rate Design, reduction in peak demand – change in tariff Ahmad Faruqui and Walter Graf, Brattle Group structure is needed. https://www.fortnightly.com/fortnightly/2018/02/do-load-shapes-pv-customers-differ # IDM Electrical Usage 2013 • “creating a separate rate class and/or adding a demand charge dimension to rates”
Managing residual demand going forward Key points : 1. Renewable energy in national load profile shown in 2025 and 2030, however this energy is not “ dispatchable ”. Eskom still has to provide the “balance 2025 of energy” or “residual All energy under the green area All energy under the green area demand” (green area and to be provided by Eskom to be provided by Eskom Generation/dispatchable plant Generation/dispatchable plant only below). only 2. Still have morning and evening peaks in the system. Morning and evening peaks are more steeper over time - still have to be managed by price signals. 3. Still a difference in demand 2030 level in winter and summer - require different price All energy under the green area signals. All energy under the green area to be provided by Eskom to be provided by Eskom Generation/dispatchable plant Generation/dispatchable plant only 4. Drop in mid-day demand is only evident; is more pronounced over time, therefore necessary to incentivize consumption to improve IRP + plan - draft 2016 base case + some additional renewables (approved by Eskom Integrated Strategic system load factor. 4 Energy Planning)
Challenges with inclining block rates Correcting the economic signal Non-cost-reflective tariffs (mismatch between cost and tariff) Current IBT structure is not cost-reflective: • recovers fixed costs through variable charges; • no signal for TOU usage/demand, energy capacity and network capacity • do not get fair compensation for the use of the grid Second IBT block rate: • greatly incentivises higher consumption customers to use solar PV or reduce sales through energy efficiency, • resulting in a real revenue loss not commensurate with a real cost reduction.
Recovering energy (generation) costs through bundled kWh charges still relevant? Traditional technology Peak Capacity Gas Dispatched Ramping Hydro / Energy Pump Storage Sync power Coal System strength Frequency Nuclear Voltage Wind and solar provides only energy Generation “products” now needs to be provided into discrete elements * Source “The cake”, Ronald Marais, Eskom 6
PV, tariffs, technology and the potential impact on a residential load profile Tariffs can be used to “flatten” the duck curve profile Relatively predicable Dynamic tariffs, smart metering and storage can be used to reduce the peaks and balance the unpredictability of solar Less predicable • PV does not reduce the peak demand • Results in steep reductions and increase in load • Challenge for SO and grid operators • Difficult to do with coal – need natural gas and storage solutions • Need to have standby and reserve capacity on line • Negative load can cause voltage and stability problems • Ideally utility may need to have some management of or control over production 7
Burning Platform – why redesign a residential tariff to cater for SSEG? Protecting future revenue through tariff structures that provide correct economic signals Need to position Eskom to have appropriate tariffs for future energy mix i.e. electric vehicles, battery storage and accommodate the impact of PV (fixed charges and to ensure that customers with SSEG do not get subsidised by customers without) DoE has amended Schedule 2 of the Electricity Regulation Act to facilitate registration of SSEG – expect increased SSEG penetration. Need to get fair compensation for the use of the grid and to also incentive customers to stay connected to the grid. Current IBT provides no TOU signal and no signal for net-billing – PV for example reduces sales but not peak consumption and peak demand Research studies estimate revenue lost to PV has been ~R642 * million (2013- 2017), projected to increase to ~R3.5 to R4.1 billion by 2021 # . SA residential PV contribution ~10% * Preliminary Status of Small Scale Solar PV penetration in SA, Aradhna Ramdeyal, RT&D, February 2018 8 # Prospects for Small to Medium Scale Solar PV in South Africa: 2017-2020, K Kemper & U Minnaar, March 2018
Tariffs for generators • Eskom does not have a residential TOU tariff or net-billing tariff • Propose a residential time-of- use tariff, called “ Homeflex”, which will: 1. Introduce fixed network and retail charges 2. TOU rates, reflecting peak consumption 3. Allows for compensation when exporting on to the grid, but value linked to the TOU (economic signal and keeps customers connected to grid) 4. In the process of being submitted to Nersa • Other Nersa approved tariffs for generators (see Eskom schedule of standard prices at www.Eskom.co.za/tariffs) • Use of system charges for export (Gen DUoS) – under revision • Charges for import and export (Megaflex Gen and Ruraflex Gen) • Charges for offset credit under net-billing (Gen- Offset) – rates under review • Charges for credit for wheeling transactions (Gen-Wheeling) • Presentation on website detaining how it works • Model available on request. • All subject to: • The generator must have an approved licence to generate and trade or registration from NERSA • The generator must sign the connection and use of system agreement (CUOSA). • An amendment agreement is required to effect wheeling, offset and banking 9 •
Conclusion • Existing kWh sales will reduce – adding to increases in prices if tariffs not fixed • Current tariffs do not send the correct pricing signals – makes SSEG more attractive • E.g. comparing against IBT high block rate • Recovering network and retail costs through kWh charges • Assuming that “energy” alone is recovered in kWh energy charges • Currently kWh charges recover a variety of different including costs of a fixed nature – needs to be properly unbundled • Fixed charges recovering fixed costs • PV connected and residential 3-phase to be on TOU and even consider demand charges for residential • New era in tariff design for utilities • Customers want greater reliability • Need greater flexibility • Smart metering and dynamic tariffs • Products that can be used as demand response tools • More cost reflective use of system charges for generators • Balancing mechanism – Eskom will not have rights of dispatch over all generators and the generator causing imbalance needs to pay for the imbalance 10
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