The use of distributed energy resources to mitigate the negative imbalance between bulk purchase versus distribution tariffs in South Africa

Distributed Energy Resource (DER) integration has proven to be a viable option to mitigate the challenges that utilities and consumers face. In South Africa, distribution utilities are experiencing financial losses due to a mismatch between regulated bulk purchase tariffs and the regulated distribution tariff, leading to an erosion of gross profit margin (GPM). This paper aims to explore how a distribution utilityowned DER system can mitigate the negative financial effects of this tariff mismatch. The hypothesis is that a front-of-meter DER system consisting of photovoltaics (PV) and a battery energy storage system (BESS) can in some cases successfully mitigate the tariff mismatch of a distribution utility. To investigate this hypothesis, simulations are set up in Homer Grid in conjunction with Microsoft Excel to perform a techno-economic analysis of utility-scale PV and BESS solutions for a sample South African distribution utility. From the simulation results PV, BESS and PV-BESS provide significant improvements in GPM with the PV interventions resulting in improving the GPM by 1.54%/MW and 1.52%/MW for two different-sized PV systems. BESS resulted in a 0.41%/MW change in GPM. PV-BESS improved the GPM to 18.83% and 30.25% for the two respective PV-BESS interventions. Although, the IRR for the different interventions greatly impacts the true extent of the effectiveness of the interventions. The contribution of this paper is to present a case study where DERs are shown to be a viable option for distribution utilities to address the tariff imbalance challenges - this confirmation is valuable not only to South African utilities but also to international distribution utilities facing similar challenges.