South Africans can expect a 15% increase in their electricity costs from mid-2021. This follows a recent court ruling which grants Eskom the right to recover operating costs through additional tariff escalations and marks more than a decade of average annual increases of 14%, relative to average inflation of just under 6%.

These escalations have fundamentally changed our economy and pressurised our struggling manufacturing and mining sectors. They have also occurred in parallel to decreasing grid reliability, with 2020 already shaping up to be the worst on record for load shedding.

This is driving the growth of alternatives including solar, wind and, more recently, energy storage. A decade ago average Eskom tariffs were half what they are today and the costs of installing solar PV were two to three times higher. This has fundamentally changed and Eskom and municipal electricity tariffs are now substantially more expensive than the equivalent lifetime costs of solar PV.

Previously, the uptake of solar PV was hindered by the upfront costs of equipment, which often exceeded the available capital of consumers seeking alternatives. However, many local businesses are now buying power from independent power producers (IPPs) who own and finance solar assets on their behalf. 

A maturing IPP sector now has the skills and experience to offer reliable solar power at a substantial discount relative to the grid, making solar electricity available to a wider pool of consumers.

In parallel, advances in battery technologies are improving the range of useful applications of variable solar and wind power. For solar or wind to be “dispatchable”, 24-hour alternatives to the grid, they need to be coupled with battery storage or other flexible sources of energy demand or generation.

Historically, batteries have been expensive and limited to areas with no grid access, grid capacity constraints or severe reliability issues. But today there are several industrial and commercial grid tariff structures that make off-grid solutions that combine batteries and solar PV a cheaper alternative.

All of this equates to greater choice and lower costs for many commercial and industrial electricity users. Some who are on expensive tariff structures are already choosing to defect from their Eskom or municipal grid connections. Many who are on cheaper tariffs may follow as grid tariffs rise and solar and battery equipment gets cheaper.

However, large-scale grid defection might not be the ideal outcome for all South Africans: it will erode the economies of the national grid and drive ongoing cost inflation for many segments of society. To avoid this, our power system needs to be fundamentally modernised and equipped for the clean energy transition.

If policymakers suppress or fail to enable private and distributed generation, they may inadvertently encourage large-scale grid defection as businesses choose to forego an unreliable and expensive grid. By comparison, effective grid modernisation can turn potential defectors into “prosumers”, who choose to remain grid connected and participate in a more open and mutually beneficial electricity market.

The modern grid will make use of enhanced infrastructure for better management of variable renewable energy, equitable electricity pricing that ensures fair, cost-reflective use of the public grid, advanced demand response to increase flexibility and energy storage to support grid stability.

There are immediate steps which can be taken in this direction. Laws and standards must be updated to cater for all technologies in the energy mix, grid operators must be assisted with tariff modernisation and arbitrary size restrictions on embedded generators should be reset based on rational technical and cost considerations. Permitting and licensing authorities must also be held to their mandates and assisted and upskilled where needed.

These are just the first steps to an efficient and clean power sector that can create jobs and drive economic recovery. The alternative is to let the widening cost gap between the grid and renewables drive the devolution and fragmentation of our power system, to the detriment of all South Africans. DM