Eskom change of heart?

James Green, SESSA Solar Water Heating Chair

Has Eskom acknowledged that consumer renewables are going to force it out of its prevailing mindset of ‘buy power on our terms and at our prices’? I was pleasantly surprised at the SAIREC renewable energy conference earlier this year when listening to Barry MacColl (GM for Eskom research) at a session on energy storage, when he said, referring to the potential growth of solar PV and battery storage it “would be the end of the power company as we know it”.  Adding “It’s a worry for us, to be totally honest with you, we do have these discussions about what if everyone said, well, that’s it, we’re off the grid.” 

A message that SESSA has been pushing is that Eskom (despite lip service) has little interest in the consumer saving or replacing energy through solar water heaters (SWH) or rooftop solar PV, as it undermines their business model. Why would they incentivize consumers not to use their product? If it helped them “maybe”, by for example not allowing electric geysers to turn on during the evening peak, and a primary basis for SWH rebates was this factor. 

Indeed the SWH rebate structure was incentivized on the removal of the use of the size of kW element during peak, rather than the amount of kWh’s saved during the day. Furthermore the Eskom mentality that prevailed was to actually penalize energy efficiency by both ignoring the SANS rules and preferring product (by skewing the rebate), where the use of electrical back up in solar water heaters was inevitable. 

Of course it is worth noting that heating water accounts for typically close to 50% of a domestic home’s electricity bill, and the removal of this power from Eskom’s sales could be as much as 14% of their business lost through solar water heaters. Add in the factor that where Eskom is selling directly to homes, rather than through municipalities as resellers, it is probable that the profit margin on these kWh’s is greater than any other. SWH’s would impact very negatively on Eskom’s business model if the country all went solar.  

Although high pressure solar water heaters (in replacement of electric) have only achieved a market penetration of about 120,000 units to date, in a market of over 6m electric geysers, the amount of rooftop solar is little more than 50MW. 

There is a prevailing reluctance from both Eskom and municipal resellers of electricity to provide feed in tariffs that make sense for consumers to go for rooftop solar PV. In Germany and much of Europe the opposite is true. Not surprisingly when municipalities cross subsidize other services with electricity sales, they are reluctant to embrace rooftop solar PV. 

But the tide of change is inevitable and it would seem that Eskom are recognizing it. 

As the prices of solar PV have fallen dramatically over the last few years the market take up is accelerating, greatly assisted by the ROI improving as result of Eskom price increases. With potentially even greater increases than 8% per annum, maybe as high as 20% or more, every year the dynamics are moving in favor of the consumer and away from Eskom and resellers.

The interim stumbling block for domestic rooftop solar PV remains battery storage, as the prices are falling linearly rather than exponentially. But it is probable, who knows which technology, that within a few years the breakthrough will have arrived. Certainly the Tesla ‘Powerwall’ received much positive PR, although other manufacturers already had similar offerings and it remains expensive. 

For the end consumer who can actually use the PV power in the day, offices and light industrial, particularly those that operate 7 days a week, the rooftop solar PV option is a truly viable reality today, offering capex paybacks as little as 6 years without going into negative cash flow even when financed. For the domestic consumer, most of whom are unable to use the solar PV to its full value, the stumbling block from a ROI perspective remains the unattractive feed in tariffs  and the cost of battery storage.

However when either business or domestic homes use solar PV, it has the add on effect of reducing electricity sales by either Eskom or the municipal reseller, so they (the generators and distributors) are losing out already.

As the prices of consumer renewables continue to fall, both solar water heaters and rooftop solar PV, and the electricity prices rise, the pressure on the Eskom and municipal reseller business models rise, with loss of sales. Such loss puts even more pressure on price rises, to accommodate maintenance, let alone the cost of new builds.

Although Eskom retain the monopoly of power generation, ignoring REIPPP utility scale renewable generation, (less than 8% when it is all on line), projecting forward by 10-15 years and they (Eskom and municipal resellers) may have lost 30% of their current sales in the domestic and business market through consumer renewables. 

Certainly if Eskom looked to encourage roof top solar PV with feed in tariffs (on realistic rates for domestic) it might be a quick fix to generating additional GWH, where they can still benefit as resellers using their distribution network. If the additional step of Eskom providing competitive finance to enable consumers to embrace rooftop solar PV it would really accelerate growth of consumer renewables. 

If Eskom adopts the stance, as stated by MacColl, “Why can’t Eskom provide rooftop photovoltaic systems? We did electrification, we provided prepaid metres and we put in vending stations. If Eskom wants to have a future in the energy space, which is transforming rapidly . . . I think we should play a role in storage, as well as micro- and large-scale renewables generation” not only will it be a positive change of heart, but if they don’t the consumer will do it anyway over time. 

SESSA would agree with MacColl’s statement, “Hey, it would be the end of the power company as we know it,” and SESSA believes it is going to happen anyway.  Lets hope the other government players recognize it too.