Grid defection: Cutting ties to Eskom’s apron strings

Grid defection: Cutting ties to Eskom’s apron strings

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By Jack Ward, Soltra Energy CEO

Renewable electricity generation, especially solar photovoltaic (PV) generation, is rapidlygaining ground and becoming much cheaper when compared to long-term soaring electricity prices. Distributed electricity storage is doing the same as new battery technologies reach the market, thanks largely to electric vehicles.

Globally, solar power is already starting to cut into power utility company sales and revenues. It is a trend that has the potential to disrupt the viability of utility companies, including South Africa’s Eskom, as customers move to cut their ties and live off the grid.

It’s not as unlikely as was thought only a year or two ago. The tremendous advances in solar PV technology combined with the massive strides being taken in battery design can make the electricity grid optional for many customers – sooner than was anticipated.

Grid defection is today entirely possible. Equipped with a solar PV system and battery storage, customers can ‘opt out’ of the traditional utility service with what is described as a ‘utility-in-a-box’.

Previously, solar PV (and other distributed resources) without storage required some degree of grid dependence.However, the utility-in-a-box or ‘solar-plus-battery’ concept has changed that largely because the point at which the system is able to reach grid parity is so much closer now.

For example, in some areas in the US, this point has arrived, while for many others it is imminent- as early as 2020 for tens of millions of commercial and residential customers.

Generally speaking, grid parity arrives sooner for commercial than residential customers, based on average load profiles.

Such parity and the customer defections could – and should – trigger economic alarm bells for Eskom which continuously implore its customers to use less of its product while regularly denying them access to it during frequent ‘load shedding’ events.

As grid deflections grow in number, electricity revenues would fall, prompting a rise in electricity prices that would make solar-plus-battery systems even more attractive and speed the cycle. It’s a reality that Eskom and NERSA (the National Energy Regulator) will have to address – sooner or later.

Importantly, solar-plus-battery systems are commercially available in South Africa today. They’re cost effective, their technology is relatively mature, and they can operate independently of the grid on installation.

Globally, many utility companies have acknowledged the threat of impending solar-plus-battery grid parity. However, unlike Eskom, they are also seeing it as an opportunity to add value to the grid and their business models by offering grid-tied private electricity generators a feed-in tariff for their over-supply.

Interestingly, in Australia,rural customers living off the grid are a boon for the electricity company as it supplies power to remote farms and homesteads at a loss.

One of the trends underpinning the surge in solar-in-a-box adoption is the advances in storage battery technology. Electric vehicle market growth world-wide is driving the lithium-ion battery industry’s rapid expansion. Though it lags behind the growth of the solar PV market, it has nevertheless been significant in recent years.

One of the most important innovators in this arena is Tesla Motors, the electric car manufacturing company established in the US by South African Elon Musk.

Tesla has recently launched its Powerwall lithium-ion-based energy storage product at its Gigafactory that is expected to slash the cost of battery storage by between 30 and 60%. Panasonic, the Japanese electronics giant, is a major investor.

Significantly, there are many other battery chemistries under development. Disruptive new innovations in battery technology, together with accelerated demand-side energy usage improvements (where 50% is a targetable figure), may well accelerate the time frames for reaching grid parity with solar-plus-battery systems.

For those who believe South Africa’s electricity prices will escalate further in the years to come, it is encouraging to note that in Hawaii grid parity has arrived for commercial customers with solar-plus-battery systems and a standby generator. (Note that adding a standby generator to a solar-plus-battery system reduces the capital required for the battery bank, bringing grid parity sooner.)

In other countries and regions with high commercial retail electricity prices, these systems will potentially become competitive within the next five to ten years.

In all countries – even those with the cheapest electricity — parity will happen within the next 30 years in terms of most modelling scenarios.

Market watchers are already accepting the so-called ‘utility death spiral’ which they say will result in the eventual demise of traditional utility business models. Solar PV early adopters will increase their pain and speed the day of grid parity. Will Eskom accept the change or cling obstinately to its increasingly-challenged, legacy business paradigms?

Another important question is will Eskom, NERSA, technology providers and customers be able to work together to reshape the market – either within existing regulatory frameworks or under an evolved regulatory landscape — to build an electricity system of the future that delivers reliability as well as value and affordability to the South African consumer?