Small scale embedded generation (SSEG), in the form of solar photovoltaic (solar PV), presents an exciting new opportunity to tackle the energy issues faced by many African countries. The relative affordability (increasingly so) and simplicity of solar PV means that almost anyone can install a solar PV SSEG system on their rooftop.

SSEG has a number of benefits over large centralised power stations and is set to be a significant part of the future grid. There are, however, numerous safety and financial risks in allowing this to occur in an unregulated environment. Effective rules, regulations, and tariffs must be in place to ensure that rather than into the transmission networks. Being integrated into the distribution network has a number of advantages. Technical losses (which can be as high as 10% on a distribution network alone) are reduced, resulting in a decrease in distribution costs. Furthermore, wear and tear on the distribution infrastructure can be lowered, meaning less maintenance and hence additional cost savings. What do regulations need to do? Regulations need to ensure that SSEG is safe and financially beneficial for both the customer and the electricity distribution utility. Safety is the most important aspect of any electricity regulation system. Both the safety of those working on the network and the safety of people living or working around the installation need to be considered. Unlike larger systems which are easy to monitor, embedded generation systems are notoriously difficult to police. Thus, in order to ensure that safety regulations are followed, it makes sense to make complying with regulations simple and attractive to the customer. Tariffs need to ensure that SSEG customers choose to remain connected to and contributing to the grid (as opposed to installing batteries the systems installed are safe and financially viable, while at the same time promoting overall system efficiency and sustainable growth of the SSEG market. The customers’ interests (which are to reduce their electricity bills and to provide a safety net against load shedding) should be aligned with both the utilities’ (to ensure that financial losses are minimised while safety is maintained) and national requirements (national energy security and meeting of clean energy goals).

What are the opportunities presented by SSEG?

SSEG has a number of advantages over large centralised electricity infrastructure projects. The distributed and small-scale nature of SSEG makes investment far more accessible. With the investment no longer limited to governments or the banking sector, there is a diverse new pool of private funds that can be leveraged to solve energy issues.

SSEG has a number of advantages over large centralised electricity infrastructure projects. The distributed and small-scale nature of SSEG makes investment far more accessible. With the investment no longer limited to governments or the banking sector, there is a diverse new pool of private funds that can be leveraged to solve energy issues.

SSEG connects directly into the lower voltage distribution networks rather than into the transmission networks. Being integrated into the distribution network has a number of advantages. Technical losses (which can be as high as 10% on a distribution network alone) are reduced, resulting in a decrease in distribution costs. Furthermore, wear and tear on the distribution infrastructure can be lowered, meaning less maintenance and hence additional cost savings.

What do regulations need to do?

Regulations need to ensure that SSEG is safe and financially beneficial for both the customer and the electricity distribution utility.

Safety is the most important aspect of any electricity regulation system. Both the safety of those working on the network and the safety of people living or working around the installation need to be considered. Unlike larger systems which are easy to monitor, embedded generation systems are notoriously difficult to police. Thus, in order to ensure that safety regulations are followed, it makes sense to make complying with regulations simple and attractive to the customer.

Tariffs need to ensure that SSEG customers choose to remain connected to and contributing to the grid (as opposed to installing batteries and going off-grid), while still providing a level of financial protection to the utility and its remaining customer base. The tariff needs to balance the value of energy with the costs of running a network. This is especially important as not all customers can afford to invest in SSEG and those that can’t should not be forgotten nor forced to carry the burden of paying for grid maintenance.

Timing is crucial. Rapidly increasing utility electricity prices and decreasing SSEG costs mean that an increasing number of utility customers are already installing SSEG systems. Customers are acting based on the current situation and large cities such as Johannesburg and Cape Town have already seen hundreds of systems installed. The longer it takes to put in place the requisite rules and regulations, the greater the risk of regulation change becomes. With every additional system installed, the potential backlash to policy changes increases.

How to implement the most beneficial rules and regulations.

It is clear that strong rules and regulations need to be put in place to properly harness the benefits of SSEG and that tariffs are going to need to be linked to this.

The question now is how best to achieve this. Due to the fact that this investment in energy generation is likely to come from private money, and through many small projects, there is less control over what is installed and how systems are designed. In order to make sure that the systems being installed are aligned with both utility and national interests, tariffs need to be used to give the correct signals to investors.

Tariffs for embedded generation should be split into a consumption charge and an export rate. These need to be carefully balanced in orderto make sure that the correct signals are given. Customers should be basing their investment decisions on the factors that would be considered for large scale investment.

  • Consumptive tariffs need to reflect the real cost of the energy being delivered to the customer. It must account for the generation and distribution costs of the energy. Ideally fixed costs (such as network maintenance, administrative charges and billing fees) should be unbundled from the tariff.
  • Export tariffs should be designed so that a customer is rewarded based on the value of the energy that is being generated. Undercompensating customers for the value of their energy will lead to customers building inefficient systems, while overcompensating leads to revenue issues for utilities.

Rules and regulations also need to be designed in a way that does not result in people avoiding following the rules. Creating difficult policies will again lead to illegal installations that are incredibly difficult to police, and are likely to be a hazard. It needs to be easy for a customer following the correct procedures to meet the required rules and regulations.

  • The technical requirements need to be easy to understand and implement, and should be clear and accessible to approved installers.
  • The amount of paperwork should be minimised and costly procedures (such as a professional engineer’s sign off) avoided wherever possible.
  • Application and approval processes need to be streamlined to ensure that there are minimal processing delays.

Customers who comply with the required rules and regulations should be rewarded for doing so. Export tariffs should be reserved for customers who have followed the required procedures and have installed a system that complies with all the rules and regulations. Punitive actions should only be explored as a last resort.

The end game

By implementing the correct SSEG rules and regulations now, it can be ensured that potential issues around safety and financial viability are avoided and that opportunities such as leveraging of private funding and increases in system efficiency are seized. The electricity system can also be better positioned to adapt to future disruptive technologies (such as battery storage) and made stronger for all users.

In the future, customers who can afford SSEG will be incentivised to install systems in a manner that benefits all users on the network. The utility will remain viable and relevant and customers who do not install SSEG will still have access to an affordable grid. With SSEG on our doorstep, the future of African energy looks bright.