Municipalities are now able to sidestep Eskom in favour of cheaper and greener power solutions after amendments to electricity regulations that support the president’s promise to urgently reform SA’s energy sector.
The amended regulations on new generation capacity, as gazetted by mineral resources & energy minister Gwede Mantashe last week, enable SA municipalities in good standing to develop their own power generation projects. This gives effect to President Cyril Ramaphosa’s commitment in February’s state of the nation address, the department said.
In presenting his economic recovery plan for SA last week, Ramaphosa also outlined aims to achieve sufficient, secure and reliable energy supply within two years — something experts have criticised as impossibly optimistic.
The amendments offer a lifeline to municipalities, which rely heavily on income from providing utilities such as electricity and water, but are expected to continue to cause electricity sales to dwindle as Eskom prices rise and consumers opt for cheaper, greener alternatives.
Nhlanhla Ngidi, head of energy and electricity at the SA Local Government Association (Salga), welcomed the news.
“It’s a position we have been pushing — that municipalities become part of this sector, that they have a role also in the IRP [Integrated Resource Plan, SA’s electricity infrastructure road map], that they are not a captive customer to Eskom.
Ngidi described the move as “a step in the right direction”.
Clean audits
The condition that the municipalities must be in good financial standing may prove a substantial limitation considering that only 20 of SA’s 257 municipalities received clean audits this year.
Ngidi says it is unclear how “good financial standing” will be determined. He cautioned that it should not be defined in accounting terms only.
“There could be a lot of legal relationships that could make this work. For example, a municipality could contract with an IPP [independent power producer] for a build, own and operate kind of set-up, where they only pay for the energy. So even if a municipality is [technically] not financially viable [it] does not mean it cannot pay for that energy,” he said.
He conceded that this would have to be done responsibly. “We cannot allow someone that is going under to engage on a 20-year power purchase agreement worth millions or billions.”
The SA Wind Energy Association (Sawea), which welcomed the amendments as a step closer to a broader energy transition, said there are various ways in which IPPs can transact with municipalities to sell power.
Virtual supplier
“The first option is for IPPs to be selling directly to municipalities, in which case the consumer could connect directly to the municipality,” Sawea said.
They could also be the municipalities’ virtual supplier from another point on the Eskom network.
IPPs could furthermore transact inside the municipalities through “wheeling” to customers that are on the municipal system, “where the municipality becomes the carrier and not the direct off-taker”.
Wheeling is the transportation of electric energy from within an electrical grid to an electrical load outside the grid boundaries.
The Western Cape government, which earlier this year failed in a court bid to compel the minister to allow it to procure independent power, said it is well placed to benefit from the new regulations as 13 of the province’s 30 municipalities recently received clean audits and 14 unqualified audits.
The Western Cape is already implementing a municipal energy resilience project and, as part of the preparatory work said it will study the conditions and requirements under which municipalities will be able to procure power from IPPs and develop alternative energy projects.
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