Affordable Own Use Energy Will Most Likely Force Municipal Electricity Reform, EU-facilitated Webinar Hears

An energy storm is driving innovations and reforms in own use electricity generation in South Africa’s municipalities. 

The municipalities – which rely heavily on surpluses from generating and distributing electricity to pay for other municipal functions – have been living on borrowed time due to above-inflation electricity tariff hikes, blackouts and other challenges at Eskom, aging distribution infrastructure, climate change imperatives, decreasing costs of embedded generation (particularly photovoltaics) and now the COVID lockdown, leaving them at tipping point.  

The resulting decline in revenue from customers using less electricity and high-end  users shifting to generating their own energy is now forcing municipalities to face the reality that long overdue reforms can no longer be avoided.

But with adversity comes innovation, and some municipalities are coming up with creative solutions to stabilise their electricity income streams, a recent European Union-facilitated webinar on unlocking private sector energy generation in South Africa heard. 

Initiatives include: 

• Allowing individuals and businesses to generate their own electricity;
• Partnering with companies who will be paid to maintain municipal electricity systems; 
• Adjusting their tariff structures to protect revenue streams; and
• Using tariffs such as time of use tariffs and use of system charges.

High profile energy analyst Chris Yelland moderated the discussion which included presentations from City of Cape Town’s executive Director of Energy Kadri Nassiep; Elliot Monama from the Development Bank of South Africa; Josh Dippenaar, energy advisor at Sustainable Energy Africa; Graham Cruikshanks, Head of Sustainability and Utilities at Growthpoint Properties; Nikkie Korsten from the University of Stellenbosch and Sabine-Dall’omo, CEO of Siemens South Africa.

Welcoming the over 250 attendees, Roberto Cecutti, Head of Trade and Economics at the Delegation of the European Union to South Africa, highlighted that “consumers and the private sector have an important role in the electricity market, both on the demand and supply sides”. 

In Cecutti’s view, South Africa’s investment target of R1-trillion by 2030 is unlikely to be met solely by the public sector, as Eskom has confirmed. In addition, President Ramaphosa, made clear reference to self-generation in his SONA speech in February this year.

The energy sector has the potential to catalyse South Africa’s post-COVID recovery, and the EU and its  Member States are willing to share their experiences in electricity markets and energy transition, he indicated.

The attendees heard renewable energy – while desirable in reducing CO₂ emissions – is threatening municipal finances. Consequently, councils have little incentive to embrace small scale or own-use electricity generation (SSEG) – even through it is considered by many to be one solution to South Africa’s electricity crisis.

However, while there is little municipalities can do to retard SSEG uptake – which is compromising their ability to subsidise poorer users and maintain their energy and other municipal infrastructure – some are responding positively and creatively. 

For example, Nassiep revealed the City of Cape Town has experienced a 20% reduction in energy consumption between 2006 to 2020. This has forced it to change tack to “liberalise the electricity supply market”. 

Outlining Cape Town’s plans, Nassiep highlighted the City’s high-profile court case to win the right to develop its own clean electricity capacity, without the need for ministerial approval;  the necessity of cost-efficient wheeling (the ability to transfer electricity between different networks) and the programme being developed to facilitate this;  an initiative to encourage large users to switch to time of use tariffs to reduce their costs and the trialling of hybrid generation projects, such as waste to energy. 

Meanwhile Midvaal in Gauteng is taking a different approach, said Monama. “The municipality has this month issued an RFQ for a Private Public Partnership (PPP) concession for electricity distribution, the first of its kind in South Africa.” In addition, the municipality is also benefiting from the Infrastructure Investment Programme for South Africa, joint developed by the EU and the Government of South Africa through the Development Bank of Southern Africa.

Midvaal, Monama explained, was also facing dwindling sales from its larger (and most profitable consumers). “With less revenue, the quality of maintenance goes down. So Midvaal decided to undertake a PPP feasibility study to secure a private party to maintain the electricity distribution assets, for a fee.”

The two municipalities are not the exceptions.

Dippenaar revealed the number of councils implementing SSEG to allow individuals and companies to generate their own electricity and feed it into the grid, was growing. Between 2018 and 2020, the number of municipalities implementing SSEG had grown from 41 to over 60 and their modelling had shown that if tariffs were priced correctly, council’s finances can be maintained and protected. 

While highlighting some of the major challenges confronting municipalities, the webinar demonstrated  these problems are not insurmountable, and much can be done to restore energy generation and maintain revenues though appropriate policy reforms and increased private sector participation.