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Wednesday, May 23, 2012

Photovoltaic Electricity at Parity?

Photovoltaic Electricity at Parity?

Imported from a Knol I wrote in September 2011

Is Photovoltaic (PV) electricity the same price as Electricity from the City of Cape Town?
A household using 1200 kwh of electricity is paying R1.28 per kwh, ie R1536 incr VAT and R1347 excl VAT, or R1.12 per kwh. If we can install for R25 per watt for business owners working from home who have cash to invest and who are earning 7% on their money, then the cost per watt is R1.12 per kwh.

Created: 17 Sep 2011

I thought you might like to know that under certain conditions Grid Tie PV with Reverse Feed is equal to or cheaper than City of Cape Town electricity, three years ahead of schedule!! Reverse Feed is still "not illegal" according to the City of Cape Town. How can we make it legal?

The reason for this amazing state of affairs is because the price of City of Cape Town electricity for homeowners has doubled, whilst the cost of Grid Tie PV has halved.

Here are the assumptions:

  1. Minimum order(s) of 60KW, eg 12 x 5 KW houses;
  2. Business owner working from home paying R1.28 per kwh incl VAT for 1200 kwh per month;
  3. Business owner has a cash deposit earning 7%, ie money is used from cash deposit rather than from debt;
  4. System financed over 20 years;
  5. Daily Average Sun Hours of 5.7 per day in Cape Town;
  6. Reasonably simple roof install. Complex roof installs can push up the price to R35 per watt;
  7. O&M, Operation & Maintenance costs including Repairs and Maintenance, Security, Insurance, included in PV price makes PV installed price R1.28 per kwh!!

Note that I have put a consortium together called ESX Energy Saving Experts. We have done 57 PV projects over the past 2.5 years totaling 151KW; 200W min; 36KW max. Note that a 1200 kwh house needs 8 KW to take it off the grid, but with Energy Efficiency, one can reduce this to 3 KW. This brings the Renewable Energy price down below R1.28 per kwh.

In a year's time if the City of Cape Town increases prices by 25% to R1.60 per kwh and assuming PV doesn't reduce, we are at parity including borrowing from one's bond at 10% per annum. This price is R1.60 per kwh including VAT!! If PV reduces to R20 per watt as we are expecting, then the PV price per kwh will be less than the City of Cape Town price per kwh.

Here is the explanation in English:

A grid tie system is one where all the output from the Photovoltaic (PV) Panels, which convert sunlight into electricity, is fed via Grid Tie inverters into the Electrical Grid. This feeding the grid is called "reverse feed."

A private homeowner in Cape Town using 1200 KWH per month pays R1.28 per kwh including VAT for a total of R1536 per month.

If one can sell excess electricity to the City of Cape Town at the same rate of R1.28 per KWH, then this is called "Net Metering." The PV system owner buys and sells electricity at the same rate.

In a Grid Tie with Net Metering scenario, the grid is called the battery. In 5 average sun hours the house can make enough electricity for the day. When the sun is down the grid supplies the electricity.

Other system designs are 1) hybrid systems with Grid Tie and Battery Backup so that if there is a power failure then critical loads like lights, TV, computer, gates, garages, can have electricity during the power failure; and 2) battery only systems that are used off grid which don't connect to the grid and which must have batteries and which often have generators as backup.

So if a house uses 1200 KWH per month, then per day this is 39.5 KWH (1200 KWH * 12 months / 365 days). Divide 1200 KWH by 5 for average sun hours per day and we get to 8 KW. Note that if we divide by the South African average of 5.7 average sun hours, we need a 7 KW system. And if we are in Upington, we can divide by 8.2 and get a 5 KW system. Note that in London, England, the average sun hours is 2.4 which means that an 8 KW system produces 42% of an 8 KW PV system in South Africa. Germany installs half of the world's PV panels. If they have to install twice as many panels as we need to for the same KWH production and they have been doing this for 20 years, then what is our problem?

The kw (kilowatts) represent the demand and the kwh (kilowatt-hours) represents the consumption. See http://www.think-energy.net/KWvsKWH.htm for a more detailed explanation.

When I do quotes over the phone, the guideline pricing I was using till August 2011 was R40 per watt for Grid Tie; R60 per watt for Grid Tie with battery backup; and R90 per watt for battery only. Usually once we have done a design, the price will be less than this, but the quote gives the client a starting point.

For the purposes of this discussion, I'm also assuming that we will need to install the full 8 KW whereas in practice, one would do a bunch of energy efficiency exercises which could reduce electricity demand by as much as 70%, meaning that only 3 KW of PV might be required. This could reduce the R320,000 system to R180,000. I have a different presentation which shows this. This also assumes there is enough space for the full 8 KW on the roof of the house. In many situations there might only be enough space for between 2 and 4 KW, but every little bit helps. The installation will reduce the homeowner's electricity bill whilst at the same time reducing demand on the grid, thus reducing the need for coal or uranium and reducing pollution.

In August 2011 we did a quote for a client for a 163 KW system for a flat roof on a building. Our price was R23 per watt. 1MW and greater systems are currently priced at R35 per watt; and Coca Cola did an install on their Valpre bottling plant in August 2011 at R53 per watt. I should note that our R23 per watt increases depending on the complexity of the installation and is subject to a full design which is per client.  I should note that we charge our clients for designs and hence our installed prices per watt are quite a lot less than our competitors costs.  Historically we have only got 1 out of 20 designs changed into orders.  This means that we need to charge a lot more per watt for our systems.  This is the same in the industry.  It hurts the market and makes systems more expensive than they need to be.

My main income still comes from working in the Information Technology (Computer) Industry.  In this industry, we do quotes for free.  The quote is based on a relatively short meeting with a client, followed by a thumb suck estimate.  If the client is happy with this, then the client pays for Systems Analysis and Design.  Once this process is complete, we charge the client for programming, testing, installation, support, maintenance, upgrade, etc.  Why should the Renewable Energy Industry be any different?

In order to get the economies of scale that selling the PV system at R23 or even R30 per watt needs, we would need a minimum order of 60 KW which is 12 x 5 KW houses or 8 x 8 KW houses. The reward for someone being prepared to wait is a much better costing.

The next area to consider is interest rates and repayment times. Normally one uses 10% to 13% in South Africa for the capital borrowing cost. Someone might borrow from their bond 10% or from a specialist financial institution using more expensive finance at 13%.  If borrowing from bond or selling investments such as unit trusts, one can "borrow" over 20 years.  Typically financial institutions want repayments over 7 years at 13% thus pushing up the cost per watt (and per kwh) of the installation.

But consider a retired person who has cash, or a wealthy person without debt and with cash investments, unit trusts, shares, etc. This person's portfolio might be growing at 7% per annum, which means that if the person takes money out of this capital to finance a Renewable Energy purchase, then they need to earn at least the value of the money that they were earning.

Considering that the equipment will last for at least 20 years with only the inverter needing replacement in 12 to 15 years, we can borrow money over 20 years. And at the 7% just discussed.

An 8 KW system at R23 per watt is R161,000. Borrowing R161,000 at 7% over 20 years is R1278 per month. I used the Bond Repayment calculator on Standard Bank's web site for this. At R25 per watt we get to R1583 per month which is almost exactly the same as what the person is paying for their electricity.

So if my numbers are right, and if we can install for R25 per watt, and if we can use capital at 7% over 20 years, then we are already at "grid parity" for homeowners in the City of Cape Town who are living off interest on their capital!!

So pensioners would be wise to consider Net Metering for their electricity consumption. If we can install at R23 per watt then the pensioner immediately saves R1536 - R1278 = R258 by making their own electricity!! And their house will become more valuable and more sellable should they wish to sell it later on.

At 10%, and at R25 per watt, the monthly cost is R1970 for R200,000. In July 2012, R1536 becomes R1920, so in one year, we are at parity for homeowners who can take money out of their bonds to pay for their own electricity generation.

Please note that this is not rocket science. Electricity was invented in nature at the beginning of time (think lightening) and by mankind a few hundred years ago. Most homeowners in South Africa use electricity every single day, either at home or at work, or even if they don't use electricity directly, if they use water or take a bus, they are using electricity indirectly.

There are numerous countries which allow reverse feed, some with Net Metering and some with Feed In Tariffs. Considering that our electricity in South Africa is so expensive, we don't need Feed In Tariffs for homeowners. But we do need our ANC and DA government to allow people to reverse feed the grid and to take full advantage of the total electricity that their PV panels produces. The problem with a battery only solution or a solution which doesn't allow reverse feed is that the system might only be 30% efficient, thus pushing the cost of the system up per KWH. Note that in many cases, one can install systems that are Grid Tied but that never reverse feed the grid. This would happen if, for example, a business's base load is 10 KW, and they install a 5 KW system. In this case, the system can be Grid Tied and it will never reverse feed the grid. Government is already allowing these kinds of systems, for example Pick 'n Pay in Joburg which has a 100 KW system.

Eskom say they can't rely on the Grid Tie inverter disconnecting from the grid if the grid is shut down and that an electrician working on the power lines might get electrocuted (get a shock). This problem was resolved in 1999 with two international standards that all good Grid Tie inverters adhere to. In fact the grid doesn't have to go down for the inverter to disconnect and stop feeding electricity into the grid. If the grid voltage is out of range (eg less than 208 Volts or more than 250 Volts) or if the frequency is wrong, then the Grid Tie Inverter disconnects. And in any case, anyone working on power lines should check if there is voltage on the line before working on it. It is also possible to isolate the grid tie inverter by switching off its connection to the Grid. In the USA there is a law called NEC (National Electrical Code) Article 690 which governs Renewable Energy systems. South Africa could easily adopt this law.

From Wikipedia: Since 1999, the standard for anti-islanding protection in the United States has been UL 1741, harmonized with IEEE 1547. Any inverter which is listed to the UL 1741 standard may be connected to a utility grid without the need for additional anti-islanding equipment, anywhere in the United States or other countries where UL standards are accepted.

So what are we waiting for? Ke Nako. The time is right for homeowners to take responsibility for the own electricity provision, especially that they can now make their own electricity cheaper than the City of Cape Town can provide it. And at the same time, they will cut their carbon footprint and become sustainable human beings.

Does South Africa have cheap electricity? Homeowners in the City of Cape Town pay US 17 cents per KWH. In Austin, Texas, homeowners pay US 9 cents per KWH and in Gujarat, India, homeowners pay US 7 cents per KWH. The culprit for cheap energy is basically the South African government which gave big business electricity at between 12 South African cents per KWH and 60 South African cents per KWH on long term contracts hoping for jobs. Was it worth it? I don't know. These companies are saying they'll close if the price of electricity rises again. Do South Africans need to be scared of this? Not if they can make their own electricity, collect or get their own water, grow their own food, build their own houses and make their own clothes. This has been happening in South Africa, and currently happens in the Eastern Cape, which we are told has high unemployment. But this unemployment figure is based on our Western Notion of employment and not on the needs of the people.

Ke Nako. The time is right for people to take ownership of their needs.

We do all types of on grid and off grid and hybrid installations for homeowners, businesses, and townships. Finance is available on a project by project basis subject to a business case and financial numbers that make sense.

I have my own system with 1 KW of PV and a 1 KW turbine. I hope to upgrade this to 3 KW of PV in the near future.

Battery problems have been sorted out. I can send you a separate presentation which shows that using batteries under certain conditions are cheaper than building coal fired power stations.

It's just a matter of realising how to use what's available. Everything exists already.