Featured image credit: CSIR

To establish the best case scenario for the procurement of solar photovoltaic (PV) projects, the Council for Scientific and Industrial Research (CSIR) published a guideline on the Cost-efficient Procurement of Photovoltaic Assets, where a suitable approach is clearly outlined.

This article originally appeared in Issue 2 2018 of our print magazine. The digital version of the full magazine can be read online or downloaded free of charge.

This guide can be applied by entities interested in procuring and owning solar PV assets, instead of entering into a Power Purchase Agreement with an Independent Power Producer.

South Africa has one of the highest carbon emissions per capita in the world and this has raised the need to reduce reliance on carbon intensive coal generated power. Grid based electricity prices in the country have increased over fourfold in the last ten years and are anticipated to rise further.

In contrast, the cost of solar photovoltaic (PV) technology has reduced dramatically, making it increasingly attractive for consumers to complement their grid supply with embedded generation. Embedded generation refers to a power generation facility located in a customer’s premise.

Most of the electricity generated by an embedded generator could be consumed directly at the site.

Periods could also arise when the generation exceeds the customer’s load consumption and power flows in reverse from the consumer back into the utility grid. Such reverse power flow needs to be done within the constraints imposed by the local distribution network operator rules and commercial arrangements.

An embedded generator system therefore generates electricity that is ‘embedded` in the local electricity distribution network in that it is connected to the utility network on the consumer’s side of the utility’s electricity meter.

As a result, embedded solar PV systems can reduce consumer electricity consumption from the grid during the lifetime of the PV plant, which is typically between 20 and 30 years. Furthermore, a customer with an embedded solar PV system could generate revenue periodically from the sale of excess energy to the utility.

Installing embedded rooftop PV systems

Given the increasingly attractive business case for the installation of embedded rooftop PV systems, the cost effective procurement of solar PV assets becomes important, and generally involves a screening process where tender responses are evaluated based on scope, technical criteria, energy output and a financial offer.

Within a traditional procurement approach, bidders generally would only offer the lowest Engineering, Procurement and Construction (EPC) price to meet minimum technical
standards. This approach does not necessarily result in best value for the system owner, as a range of equipment selection and design options materially impact on the future energy yield and the reliability of the system.

In a Power Purchase Agreement (PPA) with an Independent Power Producer (IPP) the IPP typically owns and operates the PV installation, and is hence directly incentivised to design and procure a cost and risk balanced optimal solution.

In cases where public institutions are looking to own the solar PV assets, a procurement approach is required where the PV service provider is required to provide an optimised offer whereby the service provider shares in the risk of the system energy yield and performance.

This necessitates a public procurement process with performance based evaluation and contracting.

PV system suppliers should be suitably incentivised to design systems that maximise the customer’s business case and allow these suppliers to optimise the system design considering their specific equipment and capabilities.

The tender evaluation in the procurement of assets for South African public entities generally considers three elements/steps:

1. Screening: to check the completeness of the submission;

2. Functionality: to evaluate the fulfilment of minimum technical requirements; and

3. Procurement: in terms of price and Broad-Based Black Economic Empowerment (BBBEE) policy.

For PV assets, the cost of a PV system can be calculated in different ways, with two broad approaches:

I. Total system installation cost (equipment + labour cost) in Rands;

II. Total cost of a system in ‘Rands per kilowatt hour’ (the total cost of the system as a function of the total energy it is expected to produce). The application of Option I to PV asset procurement can be problematic.

The outcome may result in the procurement of a lower quality system that is initially cheaper but with reduced life time energy yield and a higher cost of delivered energy.

It is, therefore, preferable to use Option II considering the Levelised Cost of Electricity (LCOE), which is a unit cost of generating electricity over the lifetime of the solar PV plant.

The LCOE reflects all of the costs required to build and operate the solar PV plant over its economic life, normalised over the total net electricity generated.

Tried and tested model

The CSIR has developed a PV procurement approach that focuses on the LCOE of a solar PV plant. This approach considers a lifetime view of the solar PV asset and guarantees the performance and cost of the plant on a risk-adjusted lowest lifetime cost basis. The method, which was successfully implemented in the procurement of the CSIR’s PV assets at the CSIR Pretoria Campus, includes a control loop to ensure that the LCOE bid by the contractor is delivered.

The CSIR PV projects procured with the approach include: 558kW ground-mounted single-axis tracker (Figure 1); 200kW ground-mounted dual-axis tracker (Figure 2); and a 250kW rooftop fixed incidence installation (Figure 3). Systems with a competitive LCOE have been achieved for all three PV facilities.

Embedded generators can play an important role in climate change mitigation. Rooftop PV installations can also increase the uptake of solar PV technologies and contribute towards localising the solar PV market and associated industrialisation opportunities.

The CSIR PV procurement guideline is an enabler for the development of embedded generation. It is presently undergoing further best practice enhancements to improve the procurement framework based on the learning from the procurement of the CSIR PV assets, as informed by the actual measured plant performance. ESI

About the authors

Dr Clinton Carter-Brown is a chief engineer in the CSIR Energy Centre, focused on energy systems, utility asset management, electrical grid planning and power generation procurement and grid integration.

Ms Lehlogonolo Chiloane is a senior engineer in the CSIR Energy Centre’s Energy Markets and Policy research group, focused on energy economics.

This article originally appeared in Issue 2 2018 of our print magazine. The digital version of the full magazine can be read online or downloaded free of charge.