It’s a funny thing, but “base load” has lost its meaning.
Base load used to be a requirement for power station builders to build power stations.
For example, let’s suppose you wanted to build a 1 GW (1000 MW or 1 million kW) power station. You would need one or more large “off-takers”, i.e. buyers who would agree to buy your electricity at a certain price for a very long period of time, sometimes 20 to 30 years.
One sees examples of this in the agreements that Eskom is providing to Independent Power Producers (IPP), where Eskom signs a 20 year off-taker agreement with the IPP to buy the IPP’s solar, wind or coal electricity.
You would also need an “underwriter”. The underwriter in a power station build is usually the government. So in South Africa’s case, the government’s proxy, Eskom, a wholly owned subsidiary, also called a State Owned Enterprise, firstly has to find the long term off-taker(s). Secondly, it finds the money and resources to build the power station, and thirdly it must provide the underwriting to buy the electricity in case no-one else wants it. Doesn’t this seem like a conflict of interest? And who funds the long term underwriting? The taxpayer of course!
So who are the long term off-takers? Mines. Smelters. Large shopping centres. Railways. Plastics manufacturers. Glass manufacturers. Concrete manufacturers. Refineries.
Large power stations are built for these long term off-takers, but these off-takers only provide the basic “base load”, which can be seen as funding the power station’s capital repayments which gives the banks and other organisations providing loans and capital the business case and funding model they need for the power station to be built. The remainder of the electricity is sold at very high prices to homeowners and other users, who basically fund the profits of a large scale nuclear, coal, gas, or oil based power station.
For all intents and purposes, homeowners and other people, who actually pay for their electricity, are not only cross-subsidising “poor” (non-tax-payers) people and others who get free electricity, but these homeowners are also subsidising the power station’s ability to run and provide electricity to the “base load” users. Hence another reason why the miners, smelters, etc., make such big profits.
The “base load” off-takers get their capital and operating expenses before tax and before VAT, while homeowners have to invest after tax and also need to pay employee tax.
A homeowner in the 40% tax bracket who buys a renewable energy system for R100 000 has to earn R167 000 to pay for this investment, whereas a business which buys before VAT, has to earn around R88 000 to pay for this investment.
Imagine how many more systems could be installed in South Africa if homeowners were allowed to invest before tax and before VAT?
If I was in government, I would say to homeowners that they can invest before tax and before VAT, but they must invest in smart meters and backup batteries which can be used during peak load times, i.e. 7am to 10am in the morning and 6pm to 10pm in the evening. This would dramatically reduce the amount of diesel, coal and other fossil-fuelled power stations in the system. The smart meters would give the utility the information it needs to have smart information, and these meters can be used to switch off high-use appliances in the home or business, allowing electricity to still flow, thus reducing loads on the power stations, and eliminating load shedding.
Furthermore many countries provide a 30% rebate, which could be a straight 30% refund on the capital cost of the renewable energy system, or it could be a 30% tax refund, i.e. assuming you have paid the tax on the build cost, you get it back when you do your tax return. This 30% is called the “avoided cost” to the utility. The reasons for this avoided cost include: fewer peaking power stations are required and fewer power stations are needed; less maintenance is required; less strengthening of the grid is required; smaller transformers are required in the grid; transmission cabling doesn’t have to be strengthened nor mileage increased, because embedded generators (homeowners and rooftop owners) already have the electricity cables to their houses.
“Strengthening” is basically about increasing the size of the cables in the grid, e.g. the cables from Lephalale to Gauteng have had to be dramatically increased in size because there are now two large scale coal power stations Medupi and Matimba, at Lephalale.
Nest week, I will discuss how homeowners and other roof top owners can provide base load power in a rooftop renewable energy revolution.
– David Lipschitz FSAAEA, computer scientist, mentor and energy analyst with a Bachelor of Science Honours and an MBA, has run a Software Development business since 1994 and an Energy business since 2008. David motivates people to change the way they think about their environment and shows people that it is possible to live a sustainable lifestyle with minimal impact on the earth. Keynote, conference and workshop topics include energy efficiency, load shedding, and producing electricity