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SOLAR TARIFFS
RISING ELECTRICITY PRICES
IS GOOD NEWS FOR SOLAR
ENERGY USERS
By Gareth Warner, Managing Director at Solarcentury Africa
A mid rising petrol prices and
threats of interest rate hikes,
there’s one ballooning cost that
solar energy users don’t need to worry
about: increasing electricity prices.
To the dismay of householders
and businesses alike, Eskom and the
National Energy Regulator of South
Africa (NERSA) are in discussions
that could result in yet another hike
in electricity prices – by as much as
12.69%. While this comes as no surprise, it
is still painful news for a country where
a constrained grid and unstable energy
supply is restraining economic potential.
This proposed rise will be in addition to
the +300% increase in electricity prices
since 2007. Despite the hefty increases
in the cost of energy, Eskom is still
in financial trouble and is facing a
R225 billion ($20.2 billion) revenue
gap. It is trying to avoid a credit rating
downgrade by presenting a convincing
financial turnaround plan to ratings
agencies, the bulk of which will come
from tariffs on consumers’ bills.
July is coming to be regarded as
a black month for consumers who
face a double blow thanks to falling
temperatures, which herald July as the
coldest month of the year, so heaters,
geysers and electric blankets are turned
on. It is also the time when municipalities
implement their annual electricity price
increases, climbing this year between
7% and 12%. For Johannesburg power
users, this equates to around R1.24
($0.111 c) per unit of electricity, up from
R1.10 ($0.09 c) in June.
Let’s put that into perspective.
A nine-fin oil heater consumes two
units of electricity every hour. It will now
cost R9.92 ($0.89 c) to heat a room for
four hours, up from R8.80 ($0.79 c). That
may not seem like a huge difference,
but heating that room every night in July
means you can expect an additional
R307.50 ($27.65) to be added to your
power bill. In June, it would have cost
R272.80 ($24.53), and we haven’t even
considered the extra kettle boils, the
over-working geyser or power-hungry
tumble dryer.
In 2007, South African electricity
prices were among the cheapest in the
world at around R0.43 ($0.03 c at 2014
exchange rates) per unit. Fast forward
to today and they are now among the
highest. That’s a dramatic change in just
seven years, and prices are going to
continue rising every year.
For businesses, rising electricity
costs impact more than just the bottom
line – for some companies, a 20%
increase in energy costs has the same
effect on the bottom line as a 5%
drop in sales. And that’s bad news for
consumers, since increased operating
costs resulting from higher energy bills
push up the cost of goods and services.
The good news for those already
using solar power – and for those
considering it – is that the more
expensive grid electricity gets, the more
cost-effective and affordable solar power
becomes. This is because the pay-back
period becomes shorter, giving end users
a better return on investment.
Typically, installing a 3.5kWp solar
system would cost about R70 000
($6 294.61), adding about R650 ($58.45) to
the homeowner’s bond repayments each
month, at 7.50% interest. The average
household uses about 30kWh per day,
while the average yield of such a system is
about 20kWh per day and slightly less on
overcast days. Therefore, at rates of about
South Africa is now among the world’s top
ten countries when it comes to solar power
installations, having connected 503MW of
utility-scale solar to date.
24 R1.43 ($0.128 c)/kWh, the owner would
save about R686 ($61.68) per month.
For the commercial sector, solar PV
systems offer an attractive internal rate of
return (IRR), especially considering solar
electricity is free after the initial payback
period, presenting an effective cost-
saving alternative. In addition, it’s much
easier to budget for the monthly solar PV
system instalments rather than digging
deeper into company profits to pay for
fluctuating and unpredictable energy bills.
Solar also offers businesses a way
to cut their carbon emissions and reduce
their environmental impact. Further,
reducing reliance on the grid by using
solar electricity to meet part of their energy
needs means that businesses will be less
impacted by the continuous electricity
price rises or the impending carbon tax.
South Africa’s reliance on fossil fuels
is unsustainable. Aside from releasing
climate-warming carbon into the
atmosphere, they are also getting more
expensive, whereas the cost of solar
is getting cheaper over the long term
because the sun’s energy is unlimited
and free. And that surely appeals to
every profit-making business.
South Africa is now among the
world’s top ten countries when it comes
to solar power installations, having
connected 503MW of utility-scale solar
to date. By 2030, installed solar energy
capacity is expected to reach over
8 400MW, while government has signed
power purchase agreements for over
1 450MW from solar PV projects.
Amid concerns of cash-strapped
economies, global warming, resource
depletion and increasing demand on
South Africa’s already overloaded
national grid, there’s great opportunity
for solar to solve many of the country’s
energy concerns. Besides the clear
opportunity to choose a sustainable
energy source that can help preserve
delicate ecosystems, more and more
people will turn to solar when they do the
maths and realise that the numbers make
it a bankable energy source. ESI
ESI AFRICA ISSUE 3 2014