Transition from rebates to contracts to bolster solar-geyser roll-out

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State-owned power utility Eskom has indicated that it favours a transition to a competitive bidding, or contractual, model for the large-scale procurement of low-pressure solar water heaters (SWH) ahead of a continuation of the current rebate scheme, or the deployment of a so-called ‘standard offer’ incentive.
The utility argues that such an approach should provide the offtake certainty being sought by both suppliers and financiers and support the country’s aspiration of rolling out one-million solar geysers by 2014/15, in an effort to achieve power savings equal to between 3 000 MW and 3 500 MW.
However, Eskom is still likely to pursue a standard offer incentive in other areas of demand management, whereby the utility will pay for verified energy savings using a pre-determined and pre-published rate in cents/kWh for the implementation of an approved technology.
Eskom integrated demand management senior manager Andrew Etzinger told delegates to a Sustainable Energy Society of Southern Africa function on Thursday that the current rebate system has been sufficient to stimulate the delivery of 200 000 units.
But to reach the one-million target and create the platform for sustainable growth beyond that target a new approach is required. This is because the rebate programme is not geared towards industry development, but is rather geared towards encouraging homeowners to switch to solar.
The Industrial Development Corporation’s green industries business unit managerRafikh Ismail concurs, saying the current financial model is insufficient to support the industrial development dimension of the SWH programme.
“A contract route for the low-pressure SWH programme will go a long way in giving us certainty on revenue streams over a certain period,” he says, adding that he is encouraged by efforts being made to ensure that revenue streams are bankable.
STRONG BUSINESS CASE
The business case, Etzinger argues, remains favourable for a large-scale SHW programme, not only for the one-million target over the coming three years, but to increase that across 12-million households by 2025.
The anticipated R100-billion of investment needed to save up to 3 500 MW by replacing electric geysers with SWHs remains compelling when compared with the R120-billion-plus it is currently costing the utility to build the 4 800 MW Medupi power station in the Limpopo province. However, Etzinger notes that there is growing costs competition from other technologies, notably rooftop solar photovoltaic solutions.
The main shortcoming of the current rebate model is that it is not “bankable” for financiers seeking the comfort of firm offtake agreements. Therefore, Eskom is proposing a competitive bidding approach, whereby a small number of large contracts are put out to tender.
“For the low-pressure SWHs, we are proposing that we transition out of the rebate environment to a contracting approach. There will probably have to be a competitive tender process, which means that there could be some losers. But ultimately, those selected will have certainty over their orders and it will be far easier to conduct business planning,” Etzinger explains.
Such contracts should also offer certainty for larger suppliers and their funding partners to invest in the manufacturing capacity required to produce the units, as well as the key components, locally.
To encourage participation by smaller manufacturers and suppliers, the large packages could be supplemented by a large number of smaller contracts, which would be geared towards smaller enterprises, particularly those owned by previously disadvantaged South Africans.
“Cabinet has indicated its ‘in principle’ support for this programme, but we are now focusing on how exactly it will be funded,” Etzinger explains, arguing that a decision should be made soon as to whether the contractual model or the standard offer will be pursued.
For the high-pressure SWHs, Eskom believes the focus should be on improving marketing campaigns, particularly while discussions continue on the potential for rebates, or tax breaks for homeowners.

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