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Renewable Energy Policy 771 Individual Assignment 2014
Student Number: 13718436 Degree: PGD Sustainable Development
Module: Renewable Energy Policy Lecturers: Prof. A. Brent
Total Words: 7.217 (Part A: 4200, Part B: 3029, Policy Brief: 900) Due Date: 7 July, 2013
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Table of Contents
List of Figures ............................................................................................................................ iii List of Tables ............................................................................................................................. iii List of Equations ........................................................................................................................ iii PART A ........................................................................................................................................ 1
Individual Assignment - Renewable Energy Policy: Literature Review ...................................... 1
PART B ...................................................................................................................................... 12
Case Study: Commercial Scale Rooftop PV Supported by Smart Metering, Load Demand Control System incorporating ZigBee technology with IDM Funding for Heat Pumps.................................................................................................................................................. 12
Figure 1: Load management load shape objectives. Source (Malik and AL Mata’ni 2007) .... 13
Figure 2: Top view of where Zigbee wireless load switches have been placed to control geyser and boiler loads. ....................................................................................................................... 14
Figure 3: SCADA interfacing allowing viewing and controlling of demand control system..... 15
Figure 4: Demand Control and Metering EcoSystem ............................................................... 15
Figure 5: Maximum Demand of more than 170 KVA before demand control install –cost per month in around R15 000 ........................................................................................................ 16
Figure 6: Maximum Demand of around 135 KVA after demand control install – cost per month in around R11 500 .................................................................................................................... 16
Figure 7: South African Historical Prime Interest Rate. Source SARB (2014). ......................... 19
Figure 8: The energy consumption and cost of conventional boiler system. .......................... 20
List of Tables Table 1: System cost summary ................................................................................................ 18
efficiency projects, an announcement was made that the IDM programme would be put on
hold until further notice (ESKOM 2014).
5. Conclusion
South Africa energy sector is indeed still on its long walk to freedom. The energy sector is
steeped in political interest. The energy sector has been under tremendous pressure for the
past decade due to capacity constraints and sustainability. (Büscher 2009) argues that there
should be a move towards focusing on the political economy of energy as there are numerous
links between politics, socio-economic, poverty and sustainability which need to be
considered.
A review of some of the options to promote renewable energy and factors to be included in
the political economy of energy shows that FIT’s are globally seen to be the most common
policy mechanism and also less resource intensive (REN21 2013). Quantity driven schemes
often require markets which have more freedom opposed to a monopolised system as it
exists current in South Africa. These are typically markets where TRECs would be a able to
operate as promotion mechanism (van der Linden et al. 2005). A general concern around
competitive bidding or tendering schemes were that they are restrictive and could potentially
exclude stakeholders as it is only viable for large scale projects (Msimanga and Sebitosi 2014,
Winkler 2005). Although globally competitive bidding have high failure rates (UNEP 2012), the
South African government had up till now had a successful implementation of its REIPPPP
program. Other incentive structures such as the Green Energy Efficiency fund provide
affordable funding for viable renewable energy and energy efficiency which meet certain
criteria while the Eskom IDM initiatives or programs have been offering rebate and funding
programs since 2005 which have now all been put on hold.
The affordability of electricity is an important part of major polices developed by government
and within the South African environment institutional and budget considerations will play a
role in keeping prices as low as possible (DME 1998). According to Winkler (2005) numerous
studies have shown that in order to obtain the most positive beneficial change in terms of
the environment and the economy a combination of the policy mechanism mentioned should
be deployed.
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PART B
Case Study: Commercial Scale Rooftop PV Supported by
Smart Metering, Load Demand Control System
incorporating ZigBee technology with IDM Funding for
Heat Pumps
1. Introduction
The researcher had, between 2010 and 2013, part of a project which entailed the
development and implementation of innovative metering and demand control systems.
These integration and solution development projects centred on smart metering applications
with real-time and quasi real-time data collection combined with localised real-time
maximum demand control. These projects were also unique as they were the only projects of
its sort in South Africa using ZigBee2 in the system design.
This case study will investigate the potential of stimulating the commercial scale solar PV
industry by combining new build commercial PV systems with energy efficiency projects. The
objective would be to investigate project viability when no FIT is available but where the
customer received the benefit of self-consuming energy generated by a PV system. Although
the actual projects only consisted of smart metering, maximum demand control and energy
efficiency measures this study will incorporate PV from a theoretical perspective. An attempt
will be made to assess projects from a financial feasibility perspective when combining energy
efficiency; maximum demand control; and commercial scale PV projects. Power generation
and energy efficiency projects are not only technological developments or deployments but
also a function of policy and societal behaviour.
Technology plays a very important function in transitions related sustainability and the multi-
level perspective (MLP), which is considered as a socio-technical transition, deliberates not
only the influence of technology but that of policy, ecology, socio-economics and economics.
Technological curves are not solely influenced by engineers but also those who make policy,
research, society and investors (Geels 2002).
2 ZigBee is of high level wireless communication protocol that can form mesh networks and enables the relay of information between devices.
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2. Demand Control and Background
Maximum demand controls systems are capable of altering the load profile or demand level
at which a system consumes electricity. According to Malik and AL Mata’ni (2007) involves
the decrease and modification of the electricity demand against time profile with the aim of
improving the balancing act of meeting the power needs of customers with that of the
utility’s’ capacity to generate and distribute power. Demand control is often a function of
behaviour and ABU-Zeid and AL-Shakarchi (2002) stated that the success of demand
management programs often depending on their design and how they influence end users.
According to ABU-Zeid and AL-Shakarchi (2002) load management aims to flatten the load
curve by influencing the behavioural use of energy, usually via financial incentives, through
striving to reduce consumption in high demand periods by shifting it to low demand periods.
2.1 Load Management Techniques
There are numerous techniques, as shown in Figure 1, which can be deployed in order to
obtain the objectives. The demand control objective of the system mentioned in this study is
load shifting whereby peak demand is limited and energy is shifted into low demand periods.
Load shifting often does not reduce the amount of energy consumed but just controls when
the energy is consumed within a system.
Figure 1: Load management load shape objectives. Source (Malik and AL Mata’ni 2007)
2.2 Benefits of Demand Control
Utilities and consumers can benefit, especially financially, from the implementation of
demand control systems. Promoting public awareness concerning the benefits of energy
efficiency is often neglected according to The Energy Efficiency Strategy of the Republic of
South Africa (DME 2005). Shifting and decreasing peak load can have a substantial cost saving
benefit for business users. Commercial customers get billed on different tariff structures
compared to residential users and the time energy is consumed, or Time-Of-Use (TOU), can
offer a financial benefits in conjunction with limiting demand below notified demand3.
3 Customer has to in writing notify Eskom (the utility) what their notified maximum demand will be.
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3. Overview of Technology and Functionality
Since 2010 a large scale and ongoing project smart metering role out for large power users
(largely commercial) in the Nelspruit municipality supported by the advent of automated
meter reading (AMR4) brought about a change in how the Municipality and the business
consumers viewed their use of energy. The environment created the foundation where
additional projects such as energy efficiency initiatives and other energy related projects
could be built.
The advent of smart metering and AMR enables users to review energy consumption data
online and has had a positive impact on how users are managing their consumption and
energy bill. Smart meters, heat pumps and other mechanisms of energy have been around
for quite some time and are reliable tools within the energy efficiency. However the demand
control solutions have good prospects but not commonly used as it is not well known and
generally costly to implement.
The demand control system deployed at numerous businesses and schools in Mpumalanga is
unique as is uses Zigbee wireless mesh to communicate across the control network. Zigbee
was selected as the technology could practically be deployed in situations where a big area
(see Figure 2) had to be covered by control devices. The Zigbee devices have the ability to
relay data from node to node and create a wireless mesh via which information can travel
back to the central control unit.
Figure 2: Top view of where Zigbee wireless load switches have been placed to control geyser and boiler loads.
4 Automated meter reading (AMR) is the collection of energy consumption data via remote methods such as GPRS in order to bill clients. No person has to visit the meter to take readings.
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Figure 3: SCADA interfacing allowing viewing and controlling of demand control system.
Figure 4: Demand Control and Metering EcoSystem
Zigbee, unlike outdated radio controlled ripple switches, uses two way communication which
allows the real-time reading of data and control of devices such as smart meters and load
shedding relays. Two way communication also enables the development of real-time
maximum demand control algorithms that can respond to actual system conditions and not
rely on static statistical data. In addition Supervisory Control and Data Acquisition (SCADA)
can be designed and implemented allowing the visualisation and manual control of the
system using a desktop computer, see Figure 3. In Figure 4 is an example of a system
implemented at a school which offers all three of the technologies previously mentioned.
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In addition to the demand control system this study will consider what the impact would be
of the installation of a commercial size PV were to customer remain a gross consumer of
energy. This means energy will still be flowing from the grid to the customer premises but the
embedded generator (EG), the PV system, will only assist in decreasing the amount of energy
required from the grid. The financial saving due to this would be the same as the rate per kWh
paid for energy by the customer which is a common scenario in South Africa (Reinecke,
Leonard, Kritzinger, Bekker, van Niekerk and Thilo 2013).
The combination of having a demand control system performing load shifting is that the time
when the energy is consumed can now be controlled to ensure that the most energy is used
in conjunction with PV production to maximise self-consumption. This also ensures that there
is a more evenly distributed level of energy demand. Figure 5 shows the peak demand and
energy consumption before demand control system was installed while Figure 6 shows the
effect of the demand control.
Figure 5: Maximum Demand of more than 170 KVA before demand control install –cost per month in around R15 000
Figure 6: Maximum Demand of around 135 KVA after demand control install – cost per month in around R11 500
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4. Considerations from Regulations, Policy and Legal Frameworks
NERSA, The National Energy Regulator of South Africa has a mandate to implement policies,
regulations and laws related to energy. NERSA is also responsible for publishing Distribution
Grid Codes which generally refer standards developed by South African National Standards
(SANS) and include but not limited to Distribution Metering Code, Distribution Network Code
and the System Operating Code. One of the codes in development is the NRS 097-2 standard
which is more specific to renewable energy technologies. NERSA also released “Standard
Conditions for small-scale (<100kW) Embedded Generation within Municipal Boundaries” and
in process of drafting the “Scheduling and Dispatch Rules” (Reinecke et al. 2013).
Currently South African does not have a complete set of standards for small-scale embedded
generators. The South African Bureau of Standards (SABS), which is also in charge of
maintaining the South African National Standards (SANS) is currently busy developing the
standards related to the complete installation of PV systems (Reinecke et al. 2013).
The SABS also works with the National Rationalised Specifications Project Management
Agency who is currently developing the NRS 097 standard for grid interconnection of
embedded generation systems. The objective is to have the NRS 097 standard provide the
overarching framework for embedded generation and consists of NRS 097-1, for systems
larger than 100KW and requiring a medium or high voltage connections; and the NRS097-2
which will consider small-scale rooftop type applications (Reinecke et al. 2013).
This particular case study is relevant to a dedicated LV feeder and would fall within the
“Simplified utility connection criteria for LV connected generators”. This could eliminate the
need for an expert analysis of grid impact and reduce time and cost. This is a draft document
which is under consideration as to whether it should be endorsed by the NRS 097. The
requirement for this case study would thus be for the maximum generation not to be more
than 75% of the notified maximum demand (NMD) and be balanced across all three phases.
The NMD for the customer in this case study is 180KVA which limits the possible PV system
to 135KW however a 120KWpeak system is selected by considering Figure 6.
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5. Financial Analysis
5.1 Assumptions Made During Modelling
This section will consider a financial analysis of a practical combination of existing and
implemented solutions. The system has 26 smart meters in order to measure and bill the
energy consumption of teachers living on a school premises. The school provides cost
effective living arrangement to attract teachers. A Zigbee based maximum demand control
system is installed to control the 26 geysers and 4 boilers where the boilers will be replaced
with heat pumps. The IDM Standard Program will be considered for this case. A 120 KW
rooftop PV system will be considered as an embedded generator.
Table 1: System cost summary
This project is ideally suited toward the Green Energy Efficiency Fund as it contains an energy
efficiency in the form of heat pumps as well as maximum demand control. The project also
involves a renewable energy component by using a PV system to generate energy for self-
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consumption. The total project cost is over a R1mil and would thus be eligible to receive
funding for up to 15 years at prime minus 2%.
The cost of the demand control system comes in at R136 800 and financed with a monthly
payment of R15 88.36 at 7% which is 2% less than the current prime rate as seen in Figure 7
below. The cost for the PV system is selected at R15 per watt peak, based on cost of Vodacom
PV system noted by Msimanga and Sebitosi (2014) as well as research by Reinecke et al.
(2013) indicating figures of R16 per watt peak. An additional cost reduction is assumed for
economy of scale, learning rates and PV panel cost reduction in order to obtain R15 per watt
peak. The total cost of the 120 KW PV system is calculated to be R1.8 mil which is also financed
at 7% with a monthly repayment of R20 899.53 via the GEEF. The load term is 10 years.
Figure 7: South African Historical Prime Interest Rate. Source SARB (2014).
The installation and capital cost for heat pumps and metering are paid up front with a two to
four week payment period of IDM Standard Product rebate for approved heat pumps (ESKOM
2013b). Using the Standard Product Toolkit, it is calculated that a rebate of more than R50 000
could be obtained via the IDM programme, this was verified by a consultation with Dr Johan
Delport (ESKOM 2013b, Delport 2013).
The automated meter reading and billing services, management services, general and PV
related maintenance incur a monthly cost of R2000, R1150, R750 and R1800 respectively. PV
related maintenance is estimated at 0.1% of the total PV system cost.
A energy saving of up to 1/3 can be obtained by using heat pumps instead of electric boilers
(Rousseau and Greyvenstein 2000). History consumption data, as shown in Figure 8, indicates
that the cost due to electric boilers could be reduced from more than R6000 pm to around
R2000 pm due to heat pumps, translating to a saving of more than R4000 pm.
Due to the installation of smart meters at each of the 26 tenant houses, collecting electricity
consumption cost from the tenants would equate to an additional R13 000 per month.
Looking at Figure 5 and Figure 6 the effect of the maximum demand control system can clearly
be seen as the demand is brought down from around 180 KVA to 140KVA translating to a
saving of more than R3000pm. Figure 6 clearly shows the “flat” profile which also an improved
load factor due to the real-time maximum demand control. Load factor, which is the average
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power demand divided by peak demand, is good indicator to typify customers and can play a
role in determine the customer tariff (Masters 2005). The closer the customer is to 100% load
factor the less costly it is for the utility to supply power as power is being used more efficiently
(Masters 2005).
A 10% inefficiency rate is applied to all savings mechanisms in to account for various
circumstances which reduce the savings they deliver. These instances could be PV panels
malfunctioning, control system failures, metering errors.
Figure 8: The energy consumption and cost of conventional boiler system.
In assessing project profitability or viability the “hurdle rate” is a very important decision
making criteria (EPA 1998) and regarded as marginal cost of capital attuned to the related
project risk. As the cost of capital increases and risk increases, it will effectively increase the
hurdle rate. According to EPA (1998) a 20% hurdle rate should be considered for energy
efficiency relate projects and will be used for this case study discount rate.
Net Present Value (NPV) as well as the Internal Rate of return (IRR) are methods used to
determine the feasibility of projects (Bas 2013). NPV is calculated by considering the net cash
flow generated in the lifetime of a project and has to include initial costs and discount future
cash flows (EPA 1998).
𝑁𝑃𝑉 = ∑𝑏𝑛 − 𝑐𝑛
(1 + 𝑟)𝑛
𝑁
𝑛=0
[1]
Equation 1: Formula to calculate the Net Present Value. Source (Bas 2013).
The cash flow period for 10 years is indicated in Table 2 below after which the NPV of the
project is in excess of R74 000. According to Bas (2013) projects with a negative NPV should
not be considered while Park and Sharp-Bette (1990) states that if the NPV is positive it should
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be considered. This project will make a huge impact on operations and cost saving and needs
to be considered.
The Internal Rate of Return (IRR) is the interest percentage that associates project input
capital costs with expected cash flow. The IRR can assist in determining how profitable an
investment is the hurdle rate or loan rate can directly be compared (EPA 1998).
∑𝑏𝑛 − 𝑐𝑛
(1 + 𝑟)𝑛
𝑁
𝑛=0
= 0 [2]
Equation 2: Formula to calculate the Internal Rate of Return. Source (Bas 2013)
A value needs to be found which can substitute 𝑟 and satisfy the equation, this is how the IRR
is found. In the event that that the IRR is larger than the “Minimum Attractive Rate of Return”
or hurdle rate the project can be considered and if it is below should be declined (Bas 2013,
Park and Sharp-Bette 1990). Over the 10 year period the case study project delivers a 24% IRR
which is 4% above the 20% hurdle rate and a good indication that the project is indeed
feasible, see Table 2 below.
Table 2: Cash flow analysis.
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Provisions are made for regulations allowing savings related to energy efficiency by allowing
a tax incentive to be claimed for projects related to energy efficiency. The incentive, which
can be used until 2020, was brought into effect in November 2013 is provisioned for by
Section 19 of the National Energy Act, 2008 (Act no 34 of 2008) (DOE 2008) in conjunction
with section 12L of the Income Tax Act, 1962 (Act No. 58 of 1962) (DTI 1962). The case study
IRR and NPV can be improved by incorporating this tax incentive into the model.
6. Conclusion
This case study demonstrates the financial viability of rooftop PV and energy efficiency
projects should the correct incentives be in place. Although a FIT was not directly applied the
case study accounted for the most common current scenario where grid feedback via rooftop
PV is not allowed, however there are a handful municipalities which have programs to support
grid feed. The financial viability could be greatly increased should a FIT be applied during
periods where energy is not required such as weekends and tax incentives or accelerated
depreciation are realised. The study clearly shows that projects like these, which do not
require new policy and technical feasibility studies can be viable and offer real value to the
people and the country.
A statement by the Minister of Minerals and Energy, Phumzile Mlambo-Ngcuka reads, “Major
energy savings can only be achieved through changes in people’s behaviour, and that depends
on informing them about what options exist” (Mlambo-Ngcuka 2005:i). Energy efficiency
thought technologies and behaviour is a proven method to achieve short terms and long term
financial, environmental and social goals. There is also a clear benefit for the utility and the
customer which can roll over to other socio-economic benefits such as jobs.
Allowing enough time and hind sight a fair degree of certainty can be attached to making
predictions around the viability of such projects however the question of sustainability is still
and open debate. There are too many variables affecting sustainability such as behaviour,
business relationships, policy mechanisms, financial incentives, incentive and energy price
stability which could all alter the course of project sustainability. There is a real need for
government to step up and finalise technical standards such as the NRS097 and other relevant
documents. This combined with firm commitments on incentives would help drive the uptake
of legal RE system grid connections and boost confidence while reducing perceived risk.
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Policy Brief Energy policy has always greatly been influenced by the political agenda of the reigning South
African government and large corporate entities. This will mostly likely continue to be the
case and there needs to be an awareness of how interlinked issues of poverty, economic,
ecology, sustainability and policy are. This is highlighted by Büscher (2009) who notes that
special attention needs to be given on the political economy of energy. There should be a
conscious shift towards diminishing the second economy and eradicating the Minerals Energy
Complex (MEC) propagating social and environmental inequalities. The South African energy
sector is currently still monopolised by Eskom which limits the policy mechanisms that could
help drive the uptake of renewable energy projects. Policy based instruments are a well-
known and accepted methods to promote dissemination of renewable energy technologies
(Haas et al. 2004, Bird et al. 2005, Agnolucci 2006).
The energy sector which is starting so see a reform requires catalyst to drive the change.
According to Eberhard (2006) there is a need to improve on the operations of state owned
monopolies such as Eskom as well as investment efficiency; strong involvement from the
private sector due to large capital investment requirement; and the redistribution of electrical
generation assets, reduction of debt and privatisation.
There are thus many barriers which need to be overcome in order to promote and develop
the renewable energy sector. There are three main categories of barriers which need to be
overcome which are related to “Market Performance” ; ”Legal and Regulatory” ; “and Cost
and Pricing” (Beck and Martinot 2004).
Costing and Pricing: Renewable directly compete with fuel types which receive state
subsidies. This creates a pricing distortion on the final energy price. Renewables have high
upfront capital costs and with the perception of the technology being high risk increases the
cost of capital. The cost of renewables should be compared to conventional fuels on a more
realistic base with consideration of volatile fuel process as well as negative environmental
and health impacts to understand the true cost.
Legal and Regulatory: There is a lack of clear legal framework related to many aspects of
renewable technologies specifically for small scale or Independent Power Producers (IPPs).
This combined with difficulty in interconnecting with utilities which discourage investment.
There needs to be a drive in establishing the required legal framework to promote renewable
technologies.
Market Performance: If there are problems gaining access to credit and the lack of affordable
commercial information the uptake of renewable projects could be hampered. There is a need
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to make commercial knowledge available to the local market in order to grow confidence and
boost investment.
A Case Study
A brief overview on a case study performed. A study was done to assess the financial
feasibility of developing projects which combine energy efficiency technology with
renewables. The study involved deploying a smart metering system, maximum demand
control system and a 120 KW commercial rooftop installation. The project costs amounted to
around R2.3mil with R2mil funded via a 7% interest rate load from the Green Energy Efficiency
Fund (GEEF). Additional rebates were received assuming that the Eskom IDM Standard Offer
was still applicable for energy efficiency measures. Saving were obtained from the energy
efficiency measures such as heat pumps, demand control and self-consumption of energy
generate by the PV system at a mere 52c per kWh. After a 10 year period the Internal Rate of
Return was 24% which is 4% above the target hurdle rate with a positive NPV. Clear signs that
this study could deliver a viable project according to Bas (2013) and Park and Sharp-Bette
(1990). The financial performance of this project could be made even more attractive by
ensuring policy and standards framework is in place to facilitate the feedback of energy to the
grid and the payment of a FIT. The application of tax incentives or accelerated depreciation
could further improve the case.
There is a clear alignment between policies, laws, regulations and discussions around rooftop
and commercial scale PV when looking at the division making happening in government.
There is a positive movement towards accepting and promoting renewable energy
technologies (Reinecke et al. 2013).
There are however areas of shortcoming which need to be addressed. There is yet to be a
complete set of standards which outline the requirements for grid connected small-scale and
commercial-scale rooftop PV systems. Without these standards there is a hesitancy from
municipalities as well as investors who have to consider factors such as safety and grid
stability.
Currently there are now real incentives in place for connected small-scale and commercial-