A pre-feasibility study to assess the options for Eskom to accelerate the uptake of distributed energy resources – Part I

Background and context

Between 2020 and 2023, South Africa experienced its most severe load shedding to date, both in terms of frequency and intensity, since the crisis began in 2007. In response, President Cyril Ramaphosa established the National Energy Crisis Committee (NECOM) on 25 July 2022 to oversee the implementation of the Energy Action Plan, which outlines five key interventions to mitigate load shedding:

• Fix Eskom and improve the availability of the existing supply.
• Enable and accelerate private investment in generation capacity.
• Accelerate the procurement of new capacity from renewables, gas, and battery storage.
• Unleash businesses and households to invest in rooftop solar.
• Fundamentally transform the electricity sector to ensure long-term energy security.

Purpose of the study

In January 2023, Eskom Distribution (Eskom Dx) commissioned Nova Economics to undertake a two-part study examining the role Eskom Dx could play in accelerating the adoption of distributed energy resources (DERs), in line with NECOM’s fourth objective.

The specific objectives were to:

• Assess how Eskom Dx could facilitate the adoption of rooftop solar PV and battery energy storage systems (BESS) among its own customers as well as those served by municipal distributors (Part I).
• Explore how Eskom Dx could support electric vehicle (EV) adoption through public charging infrastructure and smart charging solutions (Part II).

Our approach

Part I of the study began with a detailed assessment of the current and potential market for rooftop solar PV and BESS in South Africa. This included:

• Desktop research and stakeholder interviews to understand the DER landscape and identify key demand drivers and adoption barriers.
• Analysis of electricity consumption data from Eskom Dx and the City of Cape Town to estimate market size and customer potential.

Drawing on international best practice, we developed a set of “must do” and “could do” actions for Eskom Dx:

• “Must do” actions included key enablers, such as improving grid access and streamlining connection processes.
• “Could do” actions involved more proactive support, including customer-facing programmes to stimulate DER uptake.

Following the development of these actions, Eskom selected high consumption small power users for further investigation. These are customers with a notified maximum demand below 100 kVA who consume more than 450 kWh of electricity per month on average. Eskom requested that one of the “could do” actions – on-bill financing – be explored in greater detail for this customer segment.

On-bill financing programmes allow utilities to offer low- or zero-interest loans for clean energy investments, with repayments made through the customer’s electricity bill, thereby reducing or eliminating large upfront costs.

A financial model was subsequently developed to assess the potential impacts of such a programme on:

• Eskom’s operational and financial performance
• Customer affordability
• Load shedding reduction
• Greenhouse gas (GHG) emissions

Key findings

For residential customers, electricity bills would rise by over 50% in the first year following system installation. However, the levelised cost of electricity (LCOE) over 20 years would fall by approximately 23%, meaning customers would spend less on electricity over this period. Despite these long-term savings, the steep initial increase in monthly costs may pose affordability challenges, particularly given that many customers tend to undervalue future savings relative to immediate costs. Nevertheless, residential customers could achieve significant reductions in:

• Grid-supplied electricity consumption by 44%.
• Peak demand by 90%, assuming batteries are used for peak shaving.

Interestingly, for commercial and industrial (C&I) customers, the upfront cost burden would be even higher. As a result, these customers would experience a more modest reduction in LCOE of around 10 per cent over 20 years. Agricultural customers exhibited similar dynamics, although their LCOE declined by approximately 30 per cent, reflecting differences in load profiles and system design.

Overall, the findings indicate that while DER investments offer substantial long-term cost savings and energy security benefits, affordability constraints remain a key barrier to uptake, particularly for residential customers.