DECLARATION 2 PUBLICATIONS
5.4 Renewable and offsetting potential
5.4.1 Solar potential over 15year period
The client expressed a desire for his building to become more sustainable and cost effective in light of continual energy price increases, when surveyed the only renewable resource known was Solar PV which he expressed desire to adopt mainly due to the potential to decrease his demand and reduce his buildings footprint. For this reason Solar PV was chosen in the case study.
System requirements
• The system must not disrupt business operations during installation, operation or in case of system failure;
• The total budget was R1 500 000;
• Payback period was to be a maximum of 5 years;
• Demand reduction of 5%.
While environmental considerations were a driver for the installation, the economics of the project had to be feasible in order for adoption. The short payback period of 5 years was due to no previous hands on knowledge of solar systems and thus their life span and operating costs were not clearly understood and trusted from the supplier. This was so that the risk of investment was reduced. Table 10 below summarises the first iteration of the solar investigation.
Outcomes
From Table 10 it is clear that of the requirements, the only one able to be met is number one.
Technically two would also have been met, however as the system failed on three and four, it would require more financial input to achieve those benchmarks and thus as a consequence two could also be deemed out of spec.
For a 60kWp system there is a payback period of 13.1 years and a decrease in demand of between 4.7%
and 4.2% table 11
Table 5: Returns on solar PV current scenario
Payback Period 13.1 Years
IRR 1%
ROI (nominal) 7%
Assuming: Annual electricity price increase of 12.5% as has currently been approved by NERSA Accelerated deprecation for renewable investment stands (50% year one, 30% year two, 20% year three)
Calculated at ITOU rates with predominate use occurring during standard rate periods
Discussion
At current market conditions, the project as it would be unfeasible and as such a potential annual carbon reduction of 81.6 tons was not realised a further annual 81.6 MWh of energy production was also not realised. Above the environmental benefits not realised the spending of R1 400 000 has economic effects not quantified in this investigation.
If it is assumed the client was unwilling to change the system requirements, what is needed to ensure this system would have been adopted? This is down to key areas of focus.
Area one: Energy produced should be tax deductible, energy use is an expense, and hence energy produced thus in effect becomes an income and is taxable. While this is not a direct tax, the indirect consequence of saving energy through renewable production is a decrease in the cost of energy and thus an increase in income.
Potential consequences: This alone would not be enough, however there is an improvement.
Table 6: Returns on Solar PV with Tax changes
Payback Period 11.4 Years
IRR 5%
ROI (nominal) 33%
Justification: While the renewable system is deemed an asset and subject to depreciation claims, the energy produced should be separated on paper from the system itself and be tax deductible due to its contribution to the grid supply.
Area two: All energy supplied to the grid during standard or peak periods from ITOU customers should be compensated at a rate proportional to the highest charged rates and not just ITOU rates or mega flex rates of bulk Eskom supply.
Table 7: Mega flex Eskom tariff for eThekwini
Mega flex tariff
High Season (Jun- Aug)
Low
season Average
Residential Tariff
Income/
Kwh
Peak Rate (R.c) 228.14 74.14 112,64 129,39 16,75
Standard rate (Rc) 69.10 51.22 55,69 129,39 73,7
Off-peak Rate
(Rc) 37.54 32.50 33,76 129,29 95,53
Potential consequences: While a combination of tax incentives and increased purchase prices reduce the payback period to 7,3 years, both fail to reduce payback period to within a clients requirements.
From Table 9 a payback period of 5 years is only achievable at a buy back price of R1, 78 Table 8: Results of solar return at average mega flex peak rate
Payback Period 7,3 Years
IRR 12%
ROI (nominal) 104%
Justification for higher feed in tariffs: Purely looking at mega flex and residential tariffs is not sufficient in justifying a feed in tariff of R1, 78, however if one takes into account the effects of load shedding is the rate of R1, 78 justifiable?
Table 9: Loss/savings per KWh for each season and tariff structure
Tariff High Low
ITOU R0, 16 R0, 12
CTOU R0, 36 R0, 65
RTOU R0, 39 R1, 15
Residential R1, 21 R0, 67
Red indicates savings for eThekwini
From Table 9 it is clear that during times of shortfalls eThekwini’s response with regards to load shedding should differ between both seasons.
High Season: It is economically viable for restrictions to be placed on RTOU and residential tariff users, while keeping a supply to CTOU users would restrict losses
Low season: It would be more economical to restrict supply to the ITOU consumers while keeping supply constant for the RTOU sector, it should be noted that the RTOU tariff is not active yet while pending approval from NERSA.
In effect taking an average across the year there is a theoretical average loss in profits of R0, 98/kWh due to loss of supply. If for the sake of grid supply security eThekwini were to justify a higher rate of R1, 78 needed for a feed in tariff then in effect for every Kwh of in feed at the increased tariff, and assuming this was on a level sufficient enough to avoid load shedding then the net affect is a profit of R0, 32 per kWh due to an avoidance in loss of supply across the grid equating to a net profit of roughly R 36 000 and the increased investment from the private sector in renewables