Hold your horses! We don’t even know yet if feeding the national energy grid will pay off for farmers and other investors who want in.
This, in a nutshell, is the response from Logical Waste director and biogas industry expert Jason Gifford following President Cyril Ramaphosa’s announcements of an energy action plan for Mzansi last night.
In short, the president announced that a comprehensive plan to fix the power shortages in the country includes state procurement of electricity from the private sector “to add as much new generation capacity to the grid as possible, as quickly as possible”.
As former chairperson of the Southern African Biogas Industry Association, Gifford has extensive knowledge of trying to negotiate energy supply pitfalls.
“I think that there will be a lot of people or companies very eager to participate in the new expanded programme. However, there are no details with regards to pricing structures and access to the grid,” he warns.
He believes piggeries, dairies and poultry operations would be prime candidates to benefit from government’s new plan, but only in very specific circumstances.
Can the power you generate be stored?
“It must be understood that not all electrons are equal,” Gifford says. “Grid-tied renewable energy systems such as photovoltaic (PV) and wind – without energy storage – can only supply power when the elements are available.”
He believes systems that have energy storage and are available to produce power on demand must therefore be paid more.
“As an example: A biogas plant on a piggery can produce three times the power the piggery requires. The gas engines’ output can be ramped up during peak and standard times to maximise the tariff for the farm.”
“If you can store energy and supply more power during peak times, you [could] generate a far greater income than producing power 24/7.”
He adds that Eskom or a municipality could also pay farmers an additional tariff to generate on demand.
“It is feasible that, with enough farms signed up, this can remove the country’s dependence on the fleet of open cycle gas turbines. The additional benefit [is that farms are] distributed throughout the country, which will contribute to grid stability and reduce transmission losses.
“If farms were paid 80% of the cost of OCGT power, this would be an attractive proposition for farms with the ability to store energy.”
“Piggeries, dairies and poultry would be prime candidates for this type of operation.”
How much will the market be controlled?
But all of this is “absolutely dependent” on the access to market, Gifford says, and he is cautious about begin too excited too soon.
He cites Eskom’s historical preference for large-scale solutions and conditions such as suppliers still needing to be net users, as reasons for his scepticism.
“My position [is] that a seller should not be forced to still be a net user as is [currently] the case.
“I don’t know if this position has changed, but it does not make sense that companies are encouraged to sell excess power back to the grid so long as they are still net users of power.
“In the end it all comes down to whether or not there is a financially viable market to sell power into. In my view, this is what has been missing for years and the prime reason more power is not available to the grid.”
Power suppliers are now making less
Another factor to consider in the viability of new energy projects, is that the first companies in made the most money.
“The first companies to invest took the biggest risk and were paid for taking that risk in the tariffs that were awarded,” says Gifford.
“Since then, the cost of power from independent power producers, particularly in PV and wind, has steadily fallen.
“Based on the above, I think that companies who are already familiar in this space stand to benefit first.”
Invest for your own sake
Still, both Gifford and Prof. Sampson Mamphweli, director of Stellenbosch University’s Centre for Renewable and Sustainable Energy Studies, believe that farmers should invest in renewable energy for their own sustainability.
“Renewable energy is important because when there are power cuts, production is affected,” says Mamphweli. “It is advisable for farmers to get alternative energy to mitigate the risks such as closing, cutting jobs, losing production time and products that they are farming.
“Initial investment capital may be a little steep, but you will find that your investing in alternative energy will actually lead to a big saving.”
Mamphweli believes it is quite easy for farmers to develop small-scale, off-grid systems for their own use, using solar energy and small wind turbines.
“For farming, we have seen various technologies’ prices drastically going down … allowing for businesses to purchase such technologies at a reduced price. This is the right time for farmers to implement renewable energy.”
Gifford adds that, for farmers to remain competitive and in business for the next ten years, they would have to take their energy security seriously.
“The first step is for farmers to utilise what they have got, to secure their own energy so that they can continue operating, and then – as the grid starts opening up and more private power is welcomed into the system – an opportunity to exploit more power avenues could be looked at.”
In summary
Although more details will emerge as the plan develops further, some of the most important announcements from the president include:
- Eskom is being unbundled to create an independent, state-owned transmission company and the Electricity Regulation Amendment Bill will be fast-tracked to establish a competitive market for electricity. These changes will allow private generators to compete with state-owned and other private suppliers while the grid remains public.
- The licensing threshold for new generation projects, which was raised from 1 MW to 100 MW last year, will be removed entirely to facilitate private investment in utility-scale projects, and special legislation will be tabled to remove regulatory hurdles for a limited period.
- The solar and wind generation capacity to be taken in during Bid Window 6 (for independent power producers to apply for grid connection and feed into the national electricity system) will be doubled to 5 200 MW. Existing independent power producers will also be allowed to sell their current surplus energy to Eskom.
- The “unleashing” of businesses and households to invest in rooftop solar, and Eskom will develop a feed-in tariff for small-scale embedded generators. Tax incentives are a possibility.
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