Solar power is now much cheaper than Eskom

A solar installation can produce electricity at roughly half the price Eskom currently charges South African households, NuPower’s Murray van Graan revealed.

This makes solar power with battery backups a popular option in South Africa, which is blessed with lots of sunshine but cursed with an unstable electricity supply.

Many households and businesses realised the benefits of a solar installation and the industry has been booming in recent years.

In fact, solar installations have become so prevalent that Eskom had to react to protect its main revenue stream.

In a recent presentation to the National Energy Regulator of South Africa, Eskom unveiled a new electricity price structure aimed at stemming the loss in revenue from South Africans using solar panels to generate their own electricity.

The power utility’s current pricing structure includes fixed connection charges and electricity tariffs based on usage. The latter makes up the bulk of what users pay.

This means people can significantly reduce their electricity bill by installing a solar solution and reduce their Eskom usage.

Eskom now wants to change this by increasing the fixed connection charges and reduce electricity usage charges. This will result in significantly higher monthly bills for people with solar installations.

The power utility explained its aim is to unbundle the tariffs so that energy charges correctly reflect the cost of energy generation and network charges reflect the cost of providing a network connection.

Most domestic customers who install solar installations opt for grid-tied options, which means the cost of the battery system is reduced significantly by allowing the user to access Eskom power when the sun does not shine and the battery has run down.

To enable this access to the grid, Eskom said, it has to maintain an extensive infrastructure to be accessed on-demand.

“The new tariff structure will ensure that the cost of maintaining this infrastructure is recovered, while still allowing the customer to benefit from their solar installation,” Eskom said.

Solar versus Eskom charges

To illustrate the benefits of solar installations, MyBroadband asked South African solar experts for details on the savings they are seeing in South Africa.

NuPower’s Van Graan said they have run a simulation on a typical household which goes completely off-grid and cut off their Eskom supply, and the numbers look good.

A typical household uses roughly 30 to 40 units (kWh) per day. To take a household like this completely off the grid will require an initial investment of between R200,000 and R220,000.

This will buy a solar system which has a 5KVA Victron Hybrid Inverter, a 9.6kWh LiFePO4 (Lithium Iron Phosphate) battery, 5kW of solar panels, and a solar water heating panel fitted to the geyser to reduce the geyser’s usage. This setup can generate and save between 27kWh and 37kWh on a sunny day.

Van Graan said such a solar installation yields a return on investment of between 9% and 12% in the first year.

After 20 years of operating the levelised cost of electricity – i.e. all the power generated by the system divided by the purchase price and maintenance costs – comes in at less than R1 per kWh. This is roughly half of what Eskom currently charges households.

Although this simulation is a theoretical exercise where many factors could influence the electricity, it clearly illustrates the attractiveness of solar power.

Solar Advice director Neil Berrow said their calculations show the payback period for a solar installation based on electricity savings is around 85 months.

“Basically, the saving on electricity charges would go into paying off your solar installation system and after 85 months your energy is free,” Berrow said.

Considering the savings which solar power offer, it is not surprising that there are already commercial offerings built around solar installations.

DPA Africa, for example, partner with companies to provide them with a sustainable and affordable alternative to Eskom-only power.

It operates, monitors, and maintains its solar plants for companies with monthly payment premiums set below their current blended energy costs.

DPA Africa COO Tony Pretorius said they offer a discount to its customers against what they would pay when sourcing energy from the grid from Eskom or their local municipality.

It offers such a compelling business case that many companies, including Massmart and Liquid Telecom, have partnered with DPA Africa.

Its solar plants include a 1.2MW installation at Liquid Telecom’s Johannesburg campus and a 421kW system at Makro Cornubia.

Impact of Eskom pricing structure changes

Solar installations clearly make financial sense to companies and households, especially when using a grid-tied system.

Eskom’s new pricing structure can, however, negate many of the cost benefits associated with a solar installation.

This raises the question of what impact the local solar industry expects if Eskom’s proposed pricing structure gets the green light.

Van Graan said it will definitely have a negative impact on the customers whose primary concern is the savings aspect – and commercial installs where a business does it for the return on investment.

In these environments, it may work against Eskom by incentivising people to go completely off the grid and cut their Eskom supply.

Berrow added that grid-tied systems currently make more sense than going off-grid, but that it can change when people have to pay a high connection fee.

Pretorius echoed these views, saying in most cases grid-tied solutions are more economical as grid supply is still more economical than local battery storage solutions.

Eskom’s proposed pricing structure change and tariff structure will therefore determine the trajectory of solar installation in South Africa.

If the connection fee is too high, many people will opt to go completely off-grid. If it remains fairly priced, people will maintain their current grid-tied systems.

Now read: How much it costs to say goodbye to Eskom

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Solar power is now much cheaper than Eskom