Tariff implications for SSEG Small Scale Embedded Generation (SSEG) - - PowerPoint PPT Presentation

Tariff implications for SSEG

Small Scale Embedded Generation (SSEG) Seminar 23 October 2018

Strategic drivers directing future tariff development and strategy

SOURCE: Strategic direction and tariff design principle for Eskom’s tariffs 2017, Executive summary (www.eskom.co.za/tariffs)

Proposed interventions (where do we want to be?)

• Need for updated integrated pricing

strategy going forward

• Unable to respond to the short

term demands or request Drivers (what are the change-drivers today?) Consequences (if we do nothing?)

• Need to accommodate the evolving

customer and technologies

• Reducing sales as customers moving
• ff grid
• Introduces complexities in managing

the system

• Increases costs and risk for Eskom
• Need to sustain sales growth
• High price increases if not achieved
• Stranded assets
• Viability
• Incentivises competitive forces
• Propose tariff development

framework and approval process for dynamic and flexible tariffs

• Need to change the regulatory

framework

• Isolated tariff development
• Customised and dynamic tariffs
• Recovery of fixed cost through fixed

charges instead of variable charges

• Cost-reflective tariff structures
• Options that optimise the use of the

system and benefit the customer

• Inform future tariff development
• Allow for customer inputs
• Address the changing business

needs and operating environment

System overview and the potential impact of SSEG

*Source Do Load Shapes of PV Customers Differ? Implications for Rate Design, Ahmad Faruqui and Walter Graf, Brattle Group https://www.fortnightly.com/fortnightly/2018/02/do-load-shapes-pv-customers-differ # IDM Electrical Usage 2013

Currently in SA residential customers contribute to 23% demand to the peak period # Solar PV reduces energy consumption by 49% in summer; peak demand only reduced by 4.9% * Alters shape of residential load profile i.e. creates the “duck curve”

• Reduces demand middle of the day but

not during peak hours,

• PV stops producing just as peak demand

is required. Implications:

• Steep ramp rates during evening peak,

requiring use of expensive peaking generation plant, which is uneconomical,

• PV lowers the Generation plant load factor,
• Operational costs to serve the peaks are

not reflected in current IBT tariffs. Targeted approach required to achieve reduction in peak demand – change in tariff structure is needed.

• “creating a separate rate class and/or

adding a demand charge dimension to rates”

Managing residual demand going forward

IRP + plan - draft 2016 base case + some additional renewables (approved by Eskom Integrated Strategic Energy Planning) 4

2025 2030

Key points:

• 1. Renewable energy in

national load profile shown in 2025 and 2030, however this energy is not “dispatchable”. Eskom still has to provide the “balance

• f energy” or “residual

demand” (green area and below).

• 2. Still have morning and

evening peaks in the

• system. Morning and

evening peaks are more steeper over time - still have to be managed by price signals.

• 3. Still a difference in demand

level in winter and summer - require different price signals.

• 4. Drop in mid-day demand is

evident; is more pronounced

• ver time, therefore

necessary to incentivize consumption to improve system load factor.

All energy under the green area to be provided by Eskom Generation/dispatchable plant

• nly

All energy under the green area to be provided by Eskom Generation/dispatchable plant

• nly

All energy under the green area to be provided by Eskom Generation/dispatchable plant

• nly

All energy under the green area to be provided by Eskom Generation/dispatchable plant

• nly

Challenges with inclining block rates

Correcting the economic signal Non-cost-reflective tariffs (mismatch between cost and tariff) Current IBT structure is not cost-reflective:

• recovers fixed costs through

variable charges;

• no signal for TOU

usage/demand, energy capacity and network capacity

• do not get fair compensation

for the use of the grid

Second IBT block rate:

• greatly incentivises higher

consumption customers to use solar PV or reduce sales through energy efficiency,

• resulting in a real revenue

loss not commensurate with a real cost reduction.

Recovering energy (generation) costs through bundled kWh charges still relevant?

6

Sync power System strength Frequency Voltage Dispatched Ramping Peak Capacity Energy

* Source “The cake”, Ronald Marais, Eskom

Coal Gas Nuclear Hydro / Pump Storage

Generation “products” now needs to be provided into discrete elements

Traditional technology Wind and solar provides only energy

PV, tariffs, technology and the potential impact on a residential load profile

• PV does not reduce the peak

demand

• Results in steep reductions and

increase in load

• Challenge for SO and grid operators
• Difficult to do with coal – need natural

gas and storage solutions

• Need to have standby and reserve

capacity on line

• Negative load can cause voltage

and stability problems

• Ideally utility may need to have

some management of or control

• ver production

Relatively predicable Less predicable Tariffs can be used to “flatten” the duck curve profile Dynamic tariffs, smart metering and storage can be used to reduce the peaks and balance the unpredictability of solar 7

Burning Platform – why redesign a residential tariff to cater for SSEG?

Protecting future revenue through tariff structures that provide correct economic signals

Need to position Eskom to have appropriate tariffs for future energy mix i.e. electric vehicles, battery storage and accommodate the impact of PV (fixed charges and to ensure that customers with SSEG do not get subsidised by customers without)

DoE has amended Schedule 2 of the Electricity Regulation Act to facilitate registration of SSEG – expect increased SSEG penetration. Need to get fair compensation for the use of the grid and to also incentive customers to stay connected to the grid. Current IBT provides no TOU signal and no signal for net-billing – PV for example reduces sales but not peak consumption and peak demand Research studies estimate revenue lost to PV has been ~R642* million (2013- 2017), projected to increase to ~R3.5 to R4.1 billion by 2021#. SA residential PV contribution ~10%

*Preliminary Status of Small Scale Solar PV penetration in SA, Aradhna Ramdeyal, RT&D, February 2018 # Prospects for Small to Medium Scale Solar PV in South Africa: 2017-2020, K Kemper & U Minnaar, March 2018

8

Tariffs for generators

• Eskom does not have a residential TOU tariff or net-billing tariff
• Propose a residential time-of-use tariff, called “Homeflex”, which will:

1. Introduce fixed network and retail charges 2. TOU rates, reflecting peak consumption 3. Allows for compensation when exporting on to the grid, but value linked to the TOU (economic signal and keeps customers connected to grid) 4. In the process of being submitted to Nersa

• Other Nersa approved tariffs for generators (see Eskom schedule of standard prices at

www.Eskom.co.za/tariffs)

• Use of system charges for export (Gen DUoS) – under revision
• Charges for import and export (Megaflex Gen and Ruraflex Gen)
• Charges for offset credit under net-billing (Gen- Offset) – rates under review
• Charges for credit for wheeling transactions (Gen-Wheeling)
• Presentation on website detaining how it works
• Model available on request.
• All subject to:
• The generator must have an approved licence to generate and trade or registration from NERSA
• The generator must sign the connection and use of system agreement (CUOSA).
• An amendment agreement is required to effect wheeling, offset and banking
• 9

Conclusion

• Existing kWh sales will reduce – adding to increases in prices if tariffs not fixed
• Current tariffs do not send the correct pricing signals – makes SSEG more attractive
• E.g. comparing against IBT high block rate
• Recovering network and retail costs through kWh charges
• Assuming that “energy” alone is recovered in kWh energy charges
• Currently kWh charges recover a variety of different including costs of a fixed nature –

needs to be properly unbundled

• Fixed charges recovering fixed costs
• PV connected and residential 3-phase to be on TOU and even consider demand charges for

residential

• New era in tariff design for utilities
• Customers want greater reliability
• Need greater flexibility
• Smart metering and dynamic tariffs
• Products that can be used as demand response tools
• More cost reflective use of system charges for generators
• Balancing mechanism – Eskom will not have rights of dispatch over all generators and

the generator causing imbalance needs to pay for the imbalance

10

Thank you