The Case for BESS in Ekurhuleni: A Technical and Financial Breakdown
Ekurhuleni, a key economic hub in South Africa, faces rising electricity costs and an increasingly strained grid. To address these challenges, businesses and municipalities are turning to Battery Energy Storage Systems (BESS), focusing on energy arbitrage to optimise electricity costs.
Daniel Goldstuck, Chief Commercial Officer at SustainPower, explores the technical and financial aspects of BESS for arbitrage in Ekurhuleni to help you make an informed decision about your energy needs.
What is Energy Arbitrage?
Energy arbitrage involves storing electricity when prices are low – during off-peak hours – and selling or using it during peak periods when prices are high. This strategy is highly effective in regions like Ekurhuleni and the City of Johannesburg, where expensive peak time-of-use (TOU) tariffs create a substantial price difference between periods.
Technical and Financial Considerations for BESS in Ekurhuleni
To build a solid business case for BESS in Ekurhuleni, you must closely examine the Capital Expenditure (Capex), installation costs, and the ongoing operating and maintenance costs that come with a service-level agreement. Additionally, you need to understand the impact of tariff structures, how tariffs might escalate over time, and the degradation of the battery with use, which are all vital.
Below, we break down the different battery sizes and costs, giving you a clear picture of what to expect from your investment.
Time-of-Use (TOU) Tariffs
Ekurhuleni’s electricity pricing is largely shaped by time-of-use tariffs, where electricity costs vary greatly between peak and off-peak periods. To develop a precise business case for a BESS, model these tariffs over several years, taking into account expected price hikes and shifts in energy consumption.
For an industrial facility in Ekurhuleni under Tariff Category E, peak tariffs are R10.18 per kWh, while off-peak rates are R1.71 per kWh in the High Season, and R3.09 and R1.52 in the Low Season respectively.
By charging a BESS during off-peak hours and discharging it during peak periods, businesses could save R3.01 per kWh, directly boosting their bottom line.
This calculation considers the average price difference over nine months of Low Season and three months of High Season, factoring in an 85% Round Trip Efficiency. It’s worth noting that the “kink” seen in the following graphs is due to an inverter size change (from 500 kW to 630 kW), which impacts Capex and slightly reduces the economy of scale for the BESS’s kWh size.
Difference in Arbitrage Expected Return Between Tariffs
Battery Sizing and Capacity
Getting the size and capacity of your battery system just right is crucial for building a strong business case. The key is to balance your initial investment and the savings you can achieve through energy arbitrage.
If you oversize the system, you might end up with unused capacity, while an undersized system could prevent you from fully taking advantage of arbitrage opportunities, costing more to install per kWh than a larger system. The battery’s energy capacity (kWh) and power capacity (kW) must match the facility’s energy usage patterns and the TOU tariff structure.
For example, a BESS with a capacity of 1,368 kWh and a power output of 500 kW could be the perfect fit for an industrial user in Ekurhuleni. This system can fully charge during the overnight Off-Peak period and then discharge over a two-hour morning Peak window, making the most of the TOU tariffs to maximise savings. Further revenue is available if a second cycle is activated to charge during standard and discharge again during the evening Peak window.
Battery Degradation
All battery systems degrade over time and with use, gradually losing capacity and efficiency. This degradation is a key factor to consider in your business case because it directly impacts the system’s long-term financial viability and performance.
Typically, you can expect a degradation rate of 1.5% to 3% per year, depending on the technology used and how the battery is operated and maintained, as well as site conditions. It’s important to include sensitivity analyses in your business case to see how different degradation rates could affect your ROI.
For instance, a battery with a 1.5% annual degradation rate might retain about 85% of its original capacity after ten years. However, if the degradation rate is closer to 3% per year, you might see a 5% reduction in returns, which could extend the payback period by a year or more.
Effect of Capacity Degradation on Expected Arbitrage Return
We recommend that your technical plan include strategies to maintain battery performance over time, such as designing an optimal operating environment and securing a multiyear total product warranty. SustainPower can provide this peace of mind. Our operations and maintenance (O&M) services ensure that your system operates at its best, whether it’s a large-scale multi-megawatt biogas plant or an advanced energy management setup.
Tariff Escalation and Inflation
When planning your business case, it’s important to factor in the potential rise in electricity tariffs and the impact of inflation over the lifetime of the BESS system. If electricity tariffs rise faster than expected, it can boost the financial returns from energy arbitrage.
On the other hand, inflation will affect the system’s operating expenses, so it’s crucial to model different scenarios with varying inflation rates to fully understand the financial risks and opportunities.
For example, if Ekurhuleni’s tariffs increase by 8% each year as expected, the savings from arbitrage will grow annually, improving the overall ROI. If tariffs escalate at 10% per year, the returns could be even higher, making the investment in BESS even more compelling.
Effect of Tariff Escalation on Expected Arbitrage Return
The Financial Benefits of BESS in Ekurhuleni
With the right setup, the investment case for a BESS in Ekurhuleni is strong. For example, a BESS with a 630 kW inverter and 1600 kWh capacity could achieve payback in just under five years. Let’s break down the numbers:
- Capital Expenditure: R8,750,000 (including installation)
- Operating Expenses for Year 1: R185,978
- Annual Savings from Arbitrage (Year 1): R1,676,000
- Tariff Escalation: 10% per year
- Battery Degradation: 3% per year
- Tariff: Ekurhuleni Tariff E ->230/400 V & ≤ 11 kV
In this scenario, your system would generate annual savings of R1,676,000, with savings growing yearly as tariffs rise. This leads to a payback period of approximately four years and seven months.
Comparing BESS Sizes and Returns
Getting the system size just right is crucial. Below, we compare different BESS sizes and their returns under two distinct tariff categories in Ekurhuleni.
The analysis assumes a 3% degradation rate, an 8% annual tariff escalation, 80% utilisation of the battery’s nameplate capacity (to account for optimal operation), and two daily cycles – charging during off-peak and standard periods and discharging during peak times.
What’s more, the above returns can be significantly improved if the second charging cycle uses solar energy, procured at just R0.8 per kWh through a Power Purchase Agreement (PPA). This adds another layer of cost savings and makes the business case for BESS even more compelling.
Effect of Solar on Arbitrage Returns
BESS for energy arbitrage presents a powerful opportunity for businesses based in Ekurhuleni specifically, but almost all municipalities with TOU tariffs for businesses, to reduce energy costs and improve grid reliability.
If you’re ready to explore the benefits of BESS for arbitrage for your facility in Ekurhuleni, contact us today. Our team of experts is here to help you navigate the complexities of energy storage and integration to maximise your returns.
Reach out now, or submit a direct enquiry, and let’s get started.
About Daniel Goldstuck
Daniel is a seasoned energy professional who has led and participated in teams responsible for bringing ZAR 9bn worth of solar PV and battery projects (totalling 450 MW) to fruition since 2013. As Chief Commercial Officer at SustainPower, he oversees the strategy for developing and selling targeted energy storage solutions that cater to the specifics of the South African and broader African markets.
Daniel was previously responsible for driving a cluster of 3 x 100 MW PV plants (with private off-takers) to Financial Close.
