municipalities
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By implementing clear guidelines for small-scale embedded generation (SSEG) and allowing energy to be fed back into the grid, along with corresponding feed-in-tariffs, municipalities can enable greater participation by their customers in energy generation.

The article first appeared in ESI Africa Issue 4-2020.
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Municipalities are a key role player in, and enabler of, the energy transition in South Africa. The draft amendments to new generation capacity – which, once gazetted, would allow municipalities to generate their own power or purchase from independent power producers (IPP) – are an important step in South Africa’s power journey. Municipalities will be able to reduce their reliance on just one generator, Eskom.

With loadshedding continuing, this, unfortunately, puts pressure on the profits of businesses that are invested within the boundaries of the municipality. The result is a reduction in revenue for the municipality in the form of electricity sales. Key to any economy’s recovery and growth going forward will be access to finance and reliable energy.

Therefore, where electricity customers can invest in their own generation (including generators and batteries), this will attract IPPs as well as produce power. This would have positive spinoffs. The benefits will ensure municipalities do not lose those sales of kilowatts and also present them as positive investment zones for business owners.

Embracing SSEG and avoiding the classic utility death spiral

Many municipalities have embraced SSEG and implemented rules and regulations for these, including publishing feed-in-tariffs. By embracing the energy transition and working with their customers, these municipalities can hopefully be a step ahead of the classic utility death spiral. They have the added advantage that their customers consume multiple products from them. Therefore, even if embracing SSEG means revenues are flat or decreasing from that customer’s energy bill, there might be other revenue spinoffs.

Therefore, municipalities face a balancing act in terms of the reduction of sales volume versus increasing in other revenue lines or the reduction in the cost of bulk power purchases. They might also have to weigh up compensating businesses and households for excess energy through feed-in tariffs versus having cheaper energy to on-sell. Another positive spinoff could be that municipalities see fewer customers investigating the option of going off-grid and therefore avoid potentially larger losses in revenue over the long term.

Supporting the energy transition

Given the importance of renewable energy from a UN SDG perspective but also the fact that the business case is supported through our natural resources as well as increasing tariffs, there will continue to be an increase in volumes and values of funding in South Africa. Importantly though, a clearer regulatory environment through SSEG rules and regulations, as well as clearer rules enabling generation by municipalities or the IPPs selling to them, will remain a key catalyst to growth.

To enable even greater levels of funding, at Absa we would like to see all municipalities adopt SSEG rules and regulations as well as see that the updates to the regulations on new generation capacity be gazetted.

Furthermore, proactive approaches by municipalities who see electricity as one of multiple products in their relationships with customers would hopefully bear fruit in terms of long-term revenue generation as well as creating a more attractive environment to do business in. The greater the ease of business for those customers, the more likely we are to see investment into those same businesses as a win-win for all parties. ESI

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