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Rising electricity price good news for solar users

Rising electricity price good news for solar users

Jul 30, 2014

By Gareth Warner, Managing Director at Solarcentury Africa

Amid rising petrol prices and threats of interest rate hikes, there’s one ballooning cost that solar energy users don’t need to worry about: increasing electricity prices. To the dismay of householders and businesses alike, Eskom and the National Energy Regulator of South Africa (NERSA) are in discussions that could result in yet another hike in electricity prices – by as much as 9%.

While this comes as no surprise, it is still painful news for a country where a constrained grid and unstable energy supply is restraining economic potential. This proposed rise will be in addition to the +300% increase in electricity prices since 2007. Despite the hefty increases in the cost of energy, Eskom is still in financial trouble and is facing a R225 billion revenue gap. It is trying to avoid a credit rating downgrade by presenting a convincing financial turnaround plan to ratings agencies, the bulk of which will come from tariffs on consumers’ bills.

July is coming to be regarded as a black month for consumers who face a double blow thanks to falling temperatures, which herald July as the coldest month of the year, so heaters, geysers and electric blankets are turned on. It is also the time when municipalities implement their annual electricity price increases, climbing this year between 7% and 12%. For Johannesburg power users, this equates to around R1.24 per unit of electricity, up from R1.10 in June.

Let’s put that into perspective: A nine-fin oil heater consumes two units of electricity every hour. It will now cost R9.92 to heat a room for four hours, up from R8.80. That may not seem like a huge difference, but heating that room every night in July means you can expect an additional R307.50 to be added to your power bill. In June, it would have cost R272.80, and we haven’t even considered the extra kettle boils, the over-working geyser or power-hungry tumble dryer.

In 2007, South African electricity prices were among the cheapest in the world at around R0.43 per unit. Fast forward to today and they are now among the highest. That’s a dramatic change in just seven years, and prices are going to continue rising every year.

For businesses, rising electricity costs impact more than just the bottom line – for some companies, a 20% increase in energy costs has the same effect on the bottom line as a 5% drop in sales. And that’s bad news for consumers, since increased operating costs resulting from higher energy bills push up the cost of goods and services.

The good news for those already using solar power – and for those considering it – is that the more expensive grid electricity gets, the more cost-effective and affordable solar power becomes. This is because the pay-back period becomes shorter, giving end users a better return on investment.

Typically, installing a 3.5kWp solar system would cost about R70 000, adding about R650 to the homeowner’s bond repayments each month, at 7.50% interest. The average household uses about 30kWh per day, while the average yield of such a system is about 20kWh per day and slightly less on overcast days. Therefore, at rates of about R1.43/kWh, the owner would save about R686 per month.

For the commercial sector, solar PV systems offer an attractive internal rate of return (IRR), especially considering solar electricity is free after the initial payback period, presenting an effective cost-saving alternative. In addition, it’s much easier to budget for the monthly solar PV system instalments rather than digging deeper into company profits to pay for fluctuating and unpredictable energy bills.
Solar also offers businesses a way to cut their carbon emissions and reduce their environmental impact. Further, reducing reliance on the grid by using solar electricity to meet part of their energy needs means that businesses will be less impacted by the continuous electricity price rises or the impending carbon tax.

South Africa’s reliance on fossil fuels is unsustainable. Aside from releasing climate-warming carbon into the atmosphere, they are also getting more expensive, whereas the cost of solar is getting cheaper over the long term because the sun’s energy is unlimited and free. And that surely appeals to every profit-making business.

South Africa is now among the world’s top ten countries when it comes to solar power installations, having connected 503 MW of utility-scale solar to date. By 2030, installed solar energy capacity is expected to reach over 8400MW, while government has signed power purchase agreements for over 1450 MW from solar PV projects.

Amid concerns of cash-strapped economies, global warming, resource depletion and increasing demand on South Africa’s already overloaded national grid, there’s great opportunity for solar to solve many of the country’s energy concerns. Besides the clear opportunity to choose a sustainable energy source that can help preserve delicate ecosystems, more and more people will turn to solar when they do the maths and realise that the numbers make it a bankable energy source.

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