Enhancing consumers’ voluntary use of small-scale wind turbines to generate their own electricity in South Africa

Abstract

This paper investigates whether households and small businesses can voluntarily take advantage of the South Africa’s substantial wind resources to produce their own power from small-scale wind turbines in a viable way. The viability of small-scale wind turbines used to displace electricity consumption from the grid is assessed by means of a financial analysis based on the internal rate of return method. The benefits of small-scale wind turbines output is valued at the grid power tariff which is saved rather than at the wind feed-in tariff rate. The analysis found the small-scale wind turbines to be robustly viable in locations with a mean annual wind speed of at least 8m/s, which is only a few of the windiest locations in South Africa. The competiveness of the wind turbines is seriously challenged by the relatively low coal-based electricity tariffs in South Africa. As such, the financial analysis also considers alternative scenarios where the turbines are supported by financial mechanisms, namely: a tariff subsidy; a capital subsidy and revenue from carbon credits. The analysis reveals that a tariff subsidy of between R1.00 and R1.60/kWh or a capital subsidy of between R25.95 and R32.330/kW or a carbon credit price of between R2.135 and R3.200 will be needed to boost the viability of consumer-based small-scale wind turbines in areas with a mean annual wind speed of at least 5m/s, which is considered to be above average. Thus, there is a need for subsidizing all producers of renewable energy including those who produce it for their own consumption as they equally contribute to renewable energy expansion in the country. A tariff subsidy is however likely to be met with both political and public resistance if it means that consumers have to cross-subsidize the tariff, while the significant funds required for capital subsidies might not be freely available. Carbon credit prices have yet to mature to the required high levels. Thus, the removal of distortionary support to coal-based electricity generation might be the only currently available alternative of enhancing viability of consumer-based small-scale wind turbines.