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

This paper investigates whether South African households and small businesses can take advantage of the country’s substantial wind resources to produce their own power from smallscale wind turbines in a viable way. The viability of small-scale wind turbines is assessed by means of a financial analysis based on the internal rate of return method. The recently announced wind feed-in tariff will not affect the viability of consumer-based small-scale wind turbines considered in this paper since such turbines are used to displace electricity consumption from the grid rather than supplying electricity to the grid. Thus the benefits of such wind turbines’ output is valued at the grid power tariff which is saved rather than at the wind feed-in tariff rate as electricity arbitrage opportunities are non-existent because of the smallness of the turbines. The analysis found the turbines to be viable in only a few of the windiest locations in South Africa. As the competiveness of the turbines is seriously challenged by the relatively low coal-based electricity tariffs in South Africa 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 about R1.45/kWh or capital subsidy of about R30,000/kW will be more effective in boosting the viability of consumer-based small-scale wind turbines in areas with winds of at least 5m/s. Thus, if the government’s goal is renewable energy expansion in the country, 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 that goal. 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. Also, the significant funds required for capital subsidies might not be freely available. An alternative solution would be granting soft loans to potential wind turbine buyers. Ultimately, the removal of distortionary support to coal-based electricity generation will go a long way in enhancing the viability of small-scale wind turbines.

Working Paper 135
1 July 2009
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21 September 2012
Publication Type: Working Paper

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