Question NW2835 to the Minister of Public Enterprises

Reply:

Recently released data by Eskom suggests that from March 2022 until the first quarter of 2023, the amount of electricity generated by Small-scale Embedded Generation (SSEGs), in the form of solar panels, has risen 350%. This increase in reliance on renewable energy is a welcome development for the environment, but poses a significant challenge to municipalities, which derive the majority of their income from electricity sales. Figures from Buffalo City Metropolitan Municipality reveals that SSEGs have cost the municipality R350 million in electricity sales.

The City of Cape Town is currently at the forefront of exploiting this situation for maximum public benefit, by implementing feed-in tariffs, which pays private owners of SSEGs for electricity redirected into the grid, which can then be sold to other consumers at a profit. Energy experts suggest that feed-in tariffs, along with the installation of smart-meters, are the most feasible strategy to overcome the potential losses to municipal income. Much of the Energy Action Plan’s recent (although questionable) successes hinge upon a decline in electricity demand. Reliance on SSEGs significantly drive down demand, and therefore also account for progress made in the fight against nation-wide load shedding.

(a)

The uptake for embedded generators including small-scale systems like rooftop photo voltaic (PV) systems, has been driven largely by customers seeking alternative energy sources due to loadshedding, followed by those wanting to buffer against the upward annual electricity tariff trends, and those that are pursuing greener options aligned with climate change objectives.

The current year’s uptake has been further accelerated by incentive programmes like the SARS tax rebates, attractive distributor feed-in-tariffs as is the case with the City of Cape Town, and the National Treasury energy bounce-back loan guarantee scheme making funding more accessible.

The uptake of small scale embedded generators (SSEGs) has resulted in the displacement of traditional grid-supplied energy volumes. The Eskom Transmission System Operator has established models that estimate the installed capacity of PV on the national grid (i.e. include the SSEGs but exclude government independent power producer programmes) to be 4 841 MW at the end of August 2023 which is estimated to be 2 500 MW more than the previous 12 months window. This translates into an erosion of 2.3% (4.5TWh) of the sales base and 1% (R3.3bn) erosion in the margins (i.e. retail revenue less wholesale purchases) in the window period. The uptake is on an upward trajectory and the Gauteng Province is the largest adopter of SSEGs in the country.

(b)

Eskom Distribution pursues an SSEG framework that is attractive to customers and will ensure network safety, recovery of network costs through unbundled tariffs, retention of customers with new grid services (i.e., net-billing, wheeling and banking) and will offer the Standard Offer Programme which is a form of Feed-In-Tariff that seeks to procure customers’ electricity generation in a competitive manner.

Customers with SSEG installations realise a reduction of about 39% on their overall electricity bill, which translates into a 21% impact on the Eskom margin (i.e. retail revenue less wholesale purchases). This impact on margins is projected to improve from a 21% decline to an 18% decline on average through grid services revenue generated via administration charges (i.e. use of system, offsetting and banking) and ancillary charges.

As the penetration of SSEGs increase, it will necessitate a more dynamic Distribution System Operator (DSO) capabilities to manage supply and demand in real-time through the trading of flexibility energy services (FES) and virtual power plants (VPP).

While there are mechanisms to contain revenue and margin decline due to lost sales and volumes resulting from SSEGs, there are plans to enable and harness the DSO and trading capabilities to offset these revenue losses into the evolving energy future.

 

Remarks: Approved / Not Approved

Jacky Molisane PJ Gordhan, MP

Acting Director-General Minister

Date: Date: