Renewable Energy Scenarios - for Municipalities in South Africa January 2018 - CITY ENERGY
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Renewable Energy Scenarios for Municipalities in South Africa January 2018
Opportunities in Renewable Energy and Energy Efficiency for Municipalities in South Africa
2
Opportunities in Renewable Energy and Energy Efficiency for Municipalities in South Africa
Contents
1 Introduction................................................................................................................2
1.1 Structure of This Booklet.............................................................................................2
2 What is Renewable Electricity Generation?............................................................3
2.1 Some Key Terms..........................................................................................................3
2.2 Overview of the Legislation.........................................................................................4
3 Procuring Renewable Electricity..............................................................................6
3.1 Scenario One: Procuring Electricity From a SSEG......................................................6
3.2 Scenario Two: Procuring Electricity From an IPP........................................................7
4 Generating Renewable Electricity............................................................................10
4.1 Scenario Three: Generating RE for Own Use..............................................................10
4.2 Scenario Four: Generating RE for Sale........................................................................11
5 Facilitating Additional Electricity Services..............................................................13
5.1 Scenario Five: Wheeling of Private Sector Electricity..................................................13
5.2 Scenario Six: Increasing Energy Access and Reducing Energy Poverty.....................14
5.3 Scenario Seven: Operating a Storage Facility.............................................................16
Produced by SALGA, in partnership with the Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), Pretoria, January 2018
1
Renewable Energy Scenarios for Municipalities in South Africa
1. Introduction
The electricity industry is undergoing consider- ipalities. It is targeted at municipal councillors
able changes around the world. The key global and officials and outlines several possible sce-
trend in the electricity sector is to move away narios that a municipality may be faced with. The
from centralised generation and distribution booklet also outlines some ways in which mu-
monopolies to more localised and integrated nicipalities can respond to changes in the sector.
electricity systems. Increasingly, new play-
ers are becoming involved in generating and This booklet is part of a series of booklets about
distributing electricity at a local level. There is Energy and Electricity for Municipalities. This
also a growing trend towards digitisation and booklet is about Renewable Energy. Another
alternative low-carbon electricity technologies. booklet in the series is about Opportunities for
This is driven by a reduction in the costs of Municipalities in Energy Efficiency. Other book-
renewable energy technologies, such as so- lets are under preparation, including a booklet
lar photovoltaic and wind turbines, combined on the Challenges in the Electricity Distribution
with increasing integration with telecommuni- Industry. The purpose of the series of booklets is
cations networks through smart metering. to provide municipalities with information on key
topics within the energy and electricity sector that
These trends are also becoming visible in South Af- have implications for the role of municipalities in
rica, which has a traditional monopolistic electricity energy and electricity. The booklets also provide
industry. Eskom has been the primary generator guidance on dealing with the various issues as
and transmitter of electricity, with bulk electricity well as access to additional resources.
being distributed to customers by both Eskom and
municipalities through local grids. However, there 1.1 Structure of This Booklet
is now an emerging trend where municipalities This booklet summarises three primary areas of
and consumers (such as local businesses and res- potential change, linked to the renewable ener-
idents) are beginning to generate their own elec- gy trends. These are:
tricity. This is due to high electricity tariff increases, • Procuring electricity
supply constraints and load shedding, cost reduc- • Generating electricity
tion and increasing environmental awareness. This • Facilitating electricity
results in both a reduction in demand for electricity
and an increase in new players in the market. Within each of these sections, possible scenarios
facing municipalities are presented, outlining the
Changes in the electricity sector have the po- key challenges and possible ways in which munici-
tential to create both risks and opportunities for palities can respond to these trends and challenges.
municipalities. Without adequate preparation,
municipalities may not be able to adapt quickly It is important to note that this is a snapshot in
enough to the changing market. This could have time representing the status quo in early 2018.
a significant impact on income streams for mu- The renewable energy sector is very dynamic,
nicipalities, as well as result in a potential loss of and opportunities and risks are evolving con-
opportunities in the new emerging sector. stantly. However, by proactively engaging with
the changing environment of the electricity sector,
The purpose of this booklet, therefore, is to pro- municipalities can continue to ensure that com-
vide background information on the current key munities have access to affordable, sustainable
topics in relation to renewable energy in munic- and simplified electricity services into the future.
2
Renewable Energy Scenarios for Municipalities in South Africa
2. What is Renewable Electricity Generation?
Renewable electricity (RE) is generated by ogies, such as coal, nuclear and various renew-
resources that are easily replenished, such able energy technologies.
as wind, solar, biomass and hydro power. Re-
newable electricity generation, therefore, re- Independent Power Producer (IPP)
fers to electricity from non-traditional forms An IPP is defined as an entity in which the
of base load generation, such as large-scale government or any organ of state does not
coal and nuclear. Renewable energy is much hold controlling ownership that undertakes or
more scalable than traditional forms of elec- intends to undertake the development of new
tricity, with installations ranging in size from generation capacity.
small residential ones to large-scale wind
farms. However, they are limited by the avail- Levelised Cost of Electricity (LCOE)
ability of the renewable resources and often An LCOE is way of calculating the value of a
a mix of technologies is required to accom- unit of electricity (at present Rand value) over
modate fluctuations in resource availability. the lifetime of a generating asset. LCOE con-
RE may also involve additional investment in siders a range of factors, such as financing,
the electricity grid infrastructure to allow for a fuel, operational and maintenance costs, to
more flexible flow of electricity. determine a price for electricity generated from
a particular installation. LCOE costs are often
2.1 Some Key Terms required for financing large-scale RE projects.
Balancing Costs
Balancing costs are the costs of having elec- Power Purchase Agreement (PPA)
tricity reserves in place to accommodate the A PPA is a contract that outlines the conditions of
difference in forecasted generation and the an agreement by a generator of energy and a pur-
actual generation from RE facilities. For exam- chaser of that energy. PPAs are usually long term
ple, a wind farm may forecast production of and specify the rate at which the electricity will be
100MWh but only manages to produce 80MWh. bought for between the period of the agreement.
The system still needs to have the additional
20MWh in reserve. The cost of maintaining this Renewable Energy Independent Power
reserve is called the balancing cost. Producer Procurement (REIPPP)
The REIPPP Programme was set up by
Grid Parity the state to add new sources to the ener-
Grid parity refers to a situation where the cost gy mix in South Africa, as defined in the IRP.
of producing energy from a renewable energy Through the REIPPP, renewable energy is
source is similar to, or less than, the cost of pur- purchased from IPPs and connected to the
chasing energy from the traditional electricity grid. national electricity grid. For more info see:
https://www.ipp-projects.co.za/
Integrated Resource Plan (IRP)
The IRP is the National Electricity Plan and is a Small-Scale Embedded Generator (SSEG)
subset of the Integrated Energy Plan (IEP). The Small-scale embedded generation refers to
IRP directs the expansion of the electricity sup- power generation facilities located at residential,
ply over the long term. The IRP lists targets for commercial or industrial sites where the electric-
generation of electricity from different technol- ity is generally also consumed. These are mainly
3
Renewable Energy Scenarios for Municipalities in South Africa
solar photovoltaic (PV) systems, but also include lution on the financial benefits of the con-
other technologies such as wind and biogas. A tract and authorised the municipal man-
SSEG customer generates electricity on the cus- ager to sign the contract on behalf of the
tomer’s side of the municipal electricity meter, to municipality.
which the generation equipment is connected,
and which is synchronised with the municipal The Electricity Regulation Act (No. 4 of 2006)
electricity grid (i.e. ‘embedded’). and the Electricity Regulation Amendment Act
(No. 28 of 2007) defines ‘municipality’ that
Wheeling has executive authority and rights to reticulate
Wheeling refers to the transportation of elec- electricity within its boundary. These regula-
tricity from a generator to a customer using the tions provide municipalities with the ‘authority
electricity grid. Since the wheeling of electric function’ of energy reticulation. This function
energy requires the use of transmission and/or includes the development of policies, drafting
distribution infrastructure, there is often an asso- by-laws, setting tariffs, deciding how energy re-
ciated fee paid by the users to the infrastructure ticulation services are provided and regulating
owners. This fee is called ‘use of system charge’. the provision of these services in terms of the
by-laws and other mechanisms.
2.2 Overview of the Legislation
Electricity Distribution Mandate New Generation Regulations
The Constitution of the Republic South Afri- Over and above the energy reticulation mandate,
ca (No. 108 of 1996) assigns to municipalities there are also a number of regulations and rules
the responsibility for administering services to that provide guidance on how municipalities can
communities in a sustainable way, including deal with new generation in their areas of control.
electricity reticulation and street lights. Some of these are summarised below:
The Municipal Systems Act (No. 32 of 1998) Electricity Regulation Act, 2006. New Gener-
defines the roles of municipalities as service ation Regulations of 2011 (published as GNR.
authorities and assigns to municipalities the 399 in Government Gazette No. 34262 dated
right to determine the service provider that will 4 May 2011) provides regulations targeted spe-
distribute electricity within their boundaries. cifically at government structures and outlines
the rules for the procurement and new gener-
The Municipal Finance Management Act (No. 56 ation capacity of electricity by organs of state.
of 2003) outlines the requirements for municipal- The regulations state that the Minister of Energy
ities to set tariffs for service provision, including may make a determination as to whether any
electricity tariffs. Section 33 of the MFMA stip- new generation capacity shall be established
ulates that a municipality can only enter into a by Eskom, another organ of state or an Inde-
contract imposing financial obligations on the pendent Power Producer (IPP). If the new gen-
municipality beyond a three-year period if: eration capacity is established by an IPP then
• A draft of the contract is publicly adver- the Minister may also determine the identity
tised for comment 60 days prior to the of the buyer or, where applicable, the procur-
municipal council meeting at which the er and the buyer. The REIPPP is a programme
contract will be considered for approval. managed through such determination.
• The municipal council has considered the
financial implications of the contract and The New Generation Regulations are important
any comments received on the proposed for municipalities to take into account, particu-
contract. larly if they are intending to procure electricity
• The municipal council has adopted a reso- from an IPP. The potential impact of the New
4
Renewable Energy Scenarios for Municipalities in South Africa
Generation Regulations for municipalities is tricity is supplied either directly, through wheel-
discussed under sections 3 and 4. ing or to a facility on the same property, does
not need a generation licence but is required
Electricity Regulation Act, 2006. Schedule 2 to be registered with NERSA. These types of
Licensing Exemption And Registration Notice systems also have to enter into a connection
(2018) defines which energy generation activi- and use-of-the-system agreement with the lo-
ties are exempt from the requirement to apply cal electricity distributor. These examples are
for and hold a licence. However, these activities covered in more detail in the scenarios overleaf.
must be registered with the National Energy
Regulator of South Africa (NERSA).
There are many different types of exemptions
that are potentially relevant for municipalities.
For example, one of the new exemptions is that
a system with installed capacity of no more
than one megawatt (1MW), and where the elec-
5
Renewable Energy Scenarios for Municipalities in South Africa
3. Procuring Renewable Electricity
The first broad area of transition linked to re- What are the Key Challenges?
newable electricity is where the municipality is If there is no system in place to accommodate
presented with the option of procuring elec- SSEGs (such as an application form), it is like-
tricity from generators other than Eskom. This ly they will proceed to connect to the distribu-
could be from embedded small-scale genera- tion grid in an uncontrolled manner. This could
tors (SSEGs) which have excess electricity that cause safety risks when there is a need for grid
they wish to sell to the municipality or projects maintenance and it is not clear whether or not
run by Independent Power Producers (IPPs) there are SSEGs feeding into the grid.
set up specifically to sell electricity.
There is also a risk of loss of income to mu-
3.1 Scenario One: Procuring nicipalities that distribute electricity, as a result
Electricity from a SSEG of increasing numbers of SSEGs purchasing
What is the Scenario? less electricity from municipalities once they
One of the most common scenarios a municipal- have invested in their own RE systems. This
ity is presented with is when a small-scale em- migration of customers could be motivated by
bedded generator (SSEG) has excess electricity security of supply, cheaper electricity or envi-
that can be fed back into a municipal grid. In ronmental concerns.
this scenario, an existing customer who is con-
nected to the municipal grid installs an electricity The loss of customers could be further inten-
generation system, such as solar photovoltaic sified if tariffs are increased to try and com-
panels or mini wind turbines. The customer is pensate for a decrease in revenue, pushing
not able to use all the electricity generated by up prices further. This creates an additional in-
the SSEG system and would therefore like to sell centive for customers to migrate to renewable
the excess electricity to the municipality. energy. It is, therefore, important to ensure that
the municipality establishes the correct pricing
structure to ensure that all customers, including
customers with SSEG, contribute to the cost of
maintaining the grid.
SSEGs intending to sell electricity to munici-
palities could fall into one of the categories for
exemption from licensing in terms of the new
“Schedule 2 Licensing Exemption And Regis-
tration Notice (2018)”. For example, a solar PV
rooftop installation that is 1MW or smaller in-
stalled on a property that is connected directly
to the municipal grid will not need a generation
licence. However, they will still be required to
be registered with NERSA and sign a connec-
tion and use-of-the-system agreement with the
municipality.
Credit: GIZ/Glenn McCreath
6
Renewable Energy Scenarios for Municipalities in South Africa
Resource Tip
What Should You Not Do?
See the Small-Scale Embedded Generation Municipalities should not ignore SSEGs. There
Impact Model to assess the potential impacts of is a risk that uncontrolled grid connection will
SSEGs on municipal revenue: cause safety risks on the grid. Not responding
http://www.cityenergy.org.za/uploads/resource_437.xlsx
to requests from SSEGs will also cause cus-
http://www.cityenergy.org.za/uploads/resource_436.pdf
tomer frustration and may force them to relo-
cate or withdraw from the grid entirely.
What Should You Do?
Municipalities need to ensure there is a holistic What is the Way Forward?
system in place to accommodate SSEGs con- These are some of the requirements:
necting to the local grid. The components of • Finalisation of the NERSA regulatory rules
this system should include: for SSEG to clarify the regulatory frame-
• Revision of the metering and billing sys- work.
tem (to allow for bi-directional flows of • Finalisation of technical standards or
electricity). guidelines, for example, for wiring code or
• Definition of the requirements for a gener- metering requirements.
ator to connect to the municipal grid and • National registry and reporting systems for
the adoption of a clear application pro- SSEGs.
cess for SSEGs. • Support for municipalities in electricity tar-
• Design of embedded generation tariffs iff design.
and an assessment of their implications • Additional capacity (human resources) to
for the municipality and for customers. be allocated by electricity departments to
• Establishment of an embedded genera- this new area of work.
tion tariff that is approved by NERSA. • Electricity distribution departments to in-
• Setting up a system for monitoring and re- clude new approaches into their work to
porting on SSEG installations, as required retain customers and develop new reve-
by NERSA. nue streams.
• A communications campaign highlighting
the new SSEG system and how the tariff 3.2 Scenario Two: Procuring
was designed. Electricity from an IPP
What is the Scenario?
Resource Tip There are Independent Power Producers (IPP)
The AMEU SALGA SSEG Resource Pack
provides templates for municipalities to establish
that would like to set up an electricity gener-
sound SSEG permitting procedures. More documents ation facility for the primary purpose of gener-
are under development and will be added to the pack, ating electricity and selling it to a municipality
which currently contains the following five documents: at a rate that is competitive when compared to
• Technical Requirements for Embedded the Eskom bulk tariff. In this scenario, a munic-
Generation: http://www.cityenergy.org.za/ ipality is considering purchasing electricity from
uploads/resource_410.pdf these IPPs.
• Application Form: http://www.cityenergy.org.
za/uploads/resource_412.pdf What are the Key Challenges?
• Commissioning Report: http://www.cityenergy. For IPPs to have a viable business model they
org.za/uploads/resource_415.pdf will often require a long-term power purchase
• Customer Service Contract: http://www. agreement (PPA) with a municipality at a particu-
cityenergy.org.za/uploads/resource_413.pdf lar tariff. It is widespread practice for PPAs to in-
• Decommissioning Report: http://www.cityenergy. clude tariff escalation over time. A key risk is that
org.za/getfile.php?id=411&category=5 the tariff escalation may result in the municipality
7
Renewable Energy Scenarios for Municipalities in South Africa
paying in the long term for renewable electricity
at a higher rate than the bulk electricity price. Case Study: City of Cape Town
The City of Cape Town (CoCT) initiated a
There are also challenges related to capacity process to purchase electricity from IPPs
within municipalities to adequately manage to meet its renewable energy and climate
the technical and financial complexity intro- change commitments. From the outset the
duced by projects of this nature. For example, CoCT acknowledged that the IPP would
the intermittent supply of renewable energy need to obtain a generation licence from
projects (only when the wind blows or the sun NERSA. However, NERSA indicated that
shines) requires high levels of electricity de- there was a requirement for a ministerial
mand-and-supply planning and tariff modelling. determination for it to grant generation
licences, as per Section 34 of the Electricity
There are also risks related to the current regula- Regulation Act (No 4 of 2006). Following two
tions in South Africa regarding the procurement years of unsuccessful discussions between
of electricity by municipalities. The key regula- the CoCT, NERSA and the Department of
tions that impact licensing of IPPs are the Elec- Energy, the Minister of Energy refused to
tricity Regulation Act 4 of 2006 (ERA), and the gazette the determination.
New Generation Regulations of 2011 (NGR). The
ERA states that ‘no person may operate a gen- In 2017 the CoCT initiated legal proceed-
eration facility without a licence issued by NER- ings against NERSA and the Minister re-
SA, unless exempt by the ERA as per Schedule questing the court to allow the municipality
2’. The NGR states that the Minister of Energy to buy electricity directly from the IPP. The
may make a ‘Section 34 Ministerial Determina- basis of the court application is to test
tion’, which allows for new generation to take whether a ministerial determination is in
place and determines to whom this electricity fact needed (or is just a possibility) and,
can be sold. In effect, a Section 34 determina- if the determination is needed, to test the
tion from the Minister of Energy may be needed constitutionality of Section 34 of the Elec-
for a municipality to purchase electricity from an tricity Regulation Act and the ministerial
IPP. This could be a very lengthy process with determination process.
no guarantee of a positive outcome. This read-
ing of the regulations is, however, currently being
challenged in the courts (see case study below).
8Renewable Energy Scenarios for Municipalities in South Africa
What Should You Do? Resource Tip
The following steps outline a possible starting Ekurhuleni Metropolitan Municipality is currently
following the process as described above. The
point for a municipality intending to explore the
eThekwini Municipality has a draft PPA that can be
possibility of procuring electricity from IPPs. used as a template for other PPAs. See:
These steps have been developed based on www.cityenergy.org.za/uploads/resource_384.docx
lessons from municipalities that have started to
experiment with RE procurement. What Should You Not Do?
ŦŦ Step1 – Assess the need and set targets Many municipalities are approached by pro-
for alternative electricity procurement spective IPPs with unsolicited bids requesting
and generation. This assessment should municipalities to sign memoranda of under-
take into account costs not necessarily standing (MoU) or PPAs that will allow them to
reflected in the tariff, such as additional generate electricity for the municipality. A PPA
grid management costs. This assessment without a formal procurement process should
could lead to a general energy procure- NOT be entered into with an IPP.
ment strategy for the municipality which
would analyse all scenarios and options What Is the Way Forward?
and their respective costs. These are some of the requirements:
ŦŦ Step 2 – Develop a local energy supply • Secure policy clarity from the Department
plan to define the best mix for a diversified of Energy and other national departments
energy supply portfolio. around the scope for municipalities to procure
ŦŦ Step 3 – Ensure that NERSA and Treasury their own electricity. This could include the fol-
(national and provincial) are aware of the lowing, or a combination of the following:
municipality’s intention to investigate pro- • Specific allocation for municipal RE
curement from IPPs. projects within the IRP with determi-
ŦŦ Step 4 – Develop a standard PPA that can nations from the Minister.
be used for IPPs. • An implementation programme un-
ŦŦ Step 5 – Draft terms of reference for the der the IRP, which could be managed
procurement of electricity from IPPs, out- in partnership with with IPP Office,
lining the size and technology limitations. for example, where a municipal IPP
ŦŦ Step 6 – Conduct a procurement process procurement programme could be
and assess the offers made by different developed and managed.
IPPs. • Dedicated support from NERSA for
ŦŦ Step 7 – Award preferred IPPs, subject to assisting the IPPs through the licens-
the Section 33 process of the Municipal ing process.
Finance Management Act (MFMA) of 2003 • Municipalities developing their own
being concluded (i.e. approval to commit individual programmes.
the city budget for a period exceeding • Conduct evidence-based research to
three years) and the necessary electricity quantify the costs and benefits of such
generation licences being obtained by the programmes to strengthen the municipal
IPP from NERSA. and SALGA lobbying position.
ŦŦ Step 8 – Conclude a final agreement on a • Undertake pilot projects (once policy clari-
PPA between the municipality and the IPP, ty and evidence-based research is in place)
based on conclusion of the licensing and through the most capacitated municipalities.
section 33 processes. • Share lessons learnt and tools, such as
ŦŦ Step 9 – Conduct a grid connection as- standardised PPAs, terms of reference
sessment. and technical specifications, from these
pilot projects with other municipalities.
9Renewable Energy Scenarios for Municipalities in South Africa
4. Generating Renewable Electricity
The second broad area of transition linked to re- proves the handover and long-term functional-
newable electricity is where a municipality gen- ity of the system.
erates its own electricity from renewable sourc-
es. This could be through the installation of a The steps that can be followed include:
solar photovoltaic system, biogas digester or a ŦŦ Step 1 – Assessment of the renewable en-
range of other renewable energy technologies. ergy resources available in the municipal-
ity to help determine which technologies
4.1 Scenario Three: Generating to focus on. This assessment could lead
RE for Own Use to a general energy procurement strategy
What is the Scenario? for the municipality which would analyse
The municipality may decide to install a renew- all scenarios and options and their respec-
able energy system on existing infrastructure or tive costs.
buildings. This size of installation is designed to ŦŦ Step 2 - Assess the need and set targets
supplement the electricity use of the infrastruc- for alternative electricity generation and
ture, but may also have excess energy to feed procurement.
into the grid during less-busy periods. ŦŦ Step 3 – Assessment of infrastructure (e.g.
wastewater treatment works, building roofs,
What are the Key Challenges? parking lots, etc.) for possible integration of
The primary risk with these types of smaller in- alternative electricity technologies.
stallations is the upfront capital cost associated ŦŦ Step 4 – Conduct a feasibility study of po-
with the technology. For example, a one mega- tential installations.
watt (1MW) solar photovoltaic roof-top system ŦŦ Step 5 – Ensure a budget allocation for the
may cost R15 million. As a result, there needs installation in the Medium-Term Expendi-
to be careful assessment of the financial impact ture Framework (MTEF).
of the installation over a long-term period. ŦŦ Step 6 – Issue a terms of reference for
installations and conduct a procurement
Resource Tip
process.
See the CSIR’s “A Guideline for Public Entities on
Cost-efficient Procurement of PV assets”: https://
researchspace.csir.co.za/dspace/handle/10204/9738 What Should You Not Do?
Municipalities should not install small-scale
What Should You Do? systems that have very long payback periods
The installation of renewable energy systems (e.g. longer than 15 years) as this could be con-
will typically follow a standard supply chain sidered wasteful expenditure. Municipalities
management process. It is also common should also not install systems that are inap-
practice to finance an installation of this size propriate to the available resources. The design
from the municipal budget rather than sourc- and size of the installations should match the
ing finance from an external agency. It is good available resources (wind, sunshine) and the
practice to include at least a three-year main- potential use for the electricity.
tenance component in the installation contract,
or even longer for more complex installations. What is the Way Forward?
Lessons learnt from pilot projects have shown These are some of the requirements:
that having a maintenance contract greatly im- • Easily accessible renewable energy re-
10Renewable Energy Scenarios for Municipalities in South Africa
source information at a municipal level There are also various legislative and licensing
(e.g. fine-scale wind and solar maps). requirements. The municipality will need to ap-
• Support in identifying funding for pilot ply for an electricity generation licence and reg-
projects. ister the plant with NERSA (if it is above 1MW).
• Standardised procurement documents and The municipality may also need a determination
technical specifications for installations. from the Minister of Energy to go ahead with
the installation (refer to Scenario Two for more
Resource Tip
information on this).
There are a number of case studies on municipal
RE projects available on http://www.cityenergy.
org.za/category.php?id=3#13 What Should You Do?
Installations of this nature should be treated part-
4.2 Scenario Four: Generating ly as infrastructure investment projects and partly
RE for Sale as potential income-generation projects (resulting
What is the Scenario? from the generation and sale of electricity).
A municipality may decide to install a renewable
energy plant for the specific purpose of gener- The following steps should be considered when
ating electricity and feeding into the electricity embarking on a project of this nature:
grid. This could be in the form of a waste-to-en- ŦŦ Step 1 – Assess the renewable energy
ergy project, solar farm, wind farm or other type resources available in the municipality to
of renewable energy installation. determine which technologies to focus on.
ŦŦ Step 2 – Assess the need and set targets
What are the Key Challenges? for alternative electricity generation and
Medium and large-scale electricity generation procurement. This assessment could lead
facilities can be very expensive. They require to a general energy procurement strategy
advanced technical, financial, contractual and for the municipality which would analyse
project skills. Careful financial planning will be all scenarios and options and their respec-
needed during the planning process. tive costs.
11Renewable Energy Scenarios for Municipalities in South Africa
Credit: GIZ/Glenn McCreath
ŦŦ Step 3 – Assess infrastructure (e.g. waste- It is current best practice to include an opera-
water treatment works, building roofs, tional and maintenance component in the scope
parking lots, etc.) for the possible integra- of work or the terms of reference, where the
tion of alternative electricity technologies. external service provider will initially ensure the
ŦŦ Step 4 – Calculate a levelised cost of elec- operation and maintenance of the facility, as well
tricity (LCOE) for the potential installation. as the transfer of knowledge to the municipality.
ŦŦ Step 5 – Conduct a feasibility study of po-
tential installations. What Is the Way Forward?
ŦŦ Step 6 – Investigate financing options, These are some of the requirements:
which could include different types of • Ensure there is a clear framework for mu-
ownership and investment options. nicipal energy generation projects, for
ŦŦ Step 7 – Issue a terms of reference for in- example, through an implementation pro-
stallations and conduct the procurement gramme under the IRP, in partnership with
process. the IPP office, where municipal RE projects
could be supported (refer to Scenario Two).
A LCOE is recommended as it takes into account • Dedicated support from NERSA to assist
the financing, operational and maintenance municipal RE projects through the licens-
costs, as well as other costs, over the entire lifes- ing process.
pan of the project. This will provide an accurate • Work with National Treasury and other finan-
‘best value’ assessment with comparison to oth- cial institutions to unlock funding support and/
er sources of electricity, such as Eskom. It will or surety for the investment in RE projects.
also assist in securing financing for the project if
required. There is currently a debate about how
to include the co-benefits of renewable energy
installations in LCOE assessments.
12Renewable Energy Scenarios for Municipalities in South Africa
5. Facilitating Additional Electricity Services
The third broad area of transition linked to re-
newable electricity is where the municipality
plays a facilitator role in the sector. The munici-
pality could grant non-discriminatory third-par-
ty access to the grid to create an enabling envi-
ronment for new generation capacity, promote
alternative uses of energy as a service delivery
option or even develop electricity storage ca-
pacity as an economic driver.
5.1 Scenario Five: Wheeling of
Private Sector Electricity
Wheeling refers to the transport of electricity on
a grid. To better understand wheeling electricity,
it is useful to think of a road network analogy. If
a road network is well run and allows for several
types of vehicles, there is increased potential for
economic development and social upliftment Credit: GIZ/Glenn McCreath
opportunities. However, it is also important that
there is budget for the maintenance of the road by stating there should be ‘non-discriminatory
network. network access to all users of the transmission
or distribution system’. NERSA has developed
If this analogy is applied to the electricity grid guidelines and ‘Rules on network charges for
it would make sense to allow other entities to third-party transportation of energy’, which out-
make use of the grid. This would stimulate eco- line the process for calculating ‘use-of-system
nomic opportunities and social development by charges’. Significant issues have been raised
allowing for new users of the network. However, by municipalities and the sector regarding
users help to pay for the ongoing maintenance these rules and, as a result, NERSA is current-
of the grid. ly undergoing a consultation process to review
the rules and regulations.
What is the Scenario?
An opportunity may arise where an IPP wants Another risk with wheeling is that the munici-
to sell electricity to a customer who is connect- pality may lose the customer who is buying
ed to the municipal grid. In this scenario, the electricity through a wheeling process. This
IPP requests access from the municipality to can be partly managed if the tariff for grid
‘wheel’, or transport, electricity through the grid usage is properly set, which should enable
to another entity or customer. the municipality to recover a large portion of
the costs of managing the grid. However, the
What are the Key Challenges? loss of cross-subsidisation from this customer
The main risk with wheeling is that it is difficult would require a revision of the municipal reve-
to determine how much to charge users of the nue model to identify other areas of income for
grid. The ERA makes provision for wheeling cross-subsidisation.
13Renewable Energy Scenarios for Municipalities in South Africa
A final challenge with wheeling is the increased grid, and support and capacity building to
administration burden associated with new develop and analyse the cost-of-supply
types of customers. For example, the billing studies in municipalities.
system would need to be revised to accom- • Finalisation of NERSA rules and guide-
modate wheeling charges and to differentiate lines and ‘Rules on network charges for
between electricity provided as municipal elec- third-party transportation of energy’.
tricity and electricity provided by a third party. • Greater understanding of the impact on
municipal revenue (through the cost-of-
supply study) and on the municipality’s ca-
Resource Tip
Nelson Mandela Bay Metropolitan Municipality pacity to cross-subsidise electricity from
(NMBM) has initiated a wheeling agreement other revenue streams.
process for green power trading. The Metro initially set
a grid usage charge of 7% of the value of the electricity 5.2 Scenario Six: Increasing
sold. This was later revised to 20% following a detailed
cost-of-supply study. See: http://www.cityenergy.org.
Energy Access and Reducing
za/uploads/resource_341.pdf Energy Poverty
The final scenario relates to additional elec-
tricity services where municipalities provide
What Should You Do? alternative energy services to households to in-
Currently, there is uncertainty over estimating crease energy access and fight energy poverty.
costs for the grid ‘system charges’. It is critical
for municipalities to ensure that a cost-reflec- What is the Scenario?
tive tariff for wheeling is charged so that the Opportunities exist for municipalities to provide
municipality can recover all the costs associat- a basket of renewable and alternative energy
ed with the grid. services to households that do not have access
to grid-connected electricity. This could be
The steps that a municipality could follow to fa- mainly in areas, such as informal settlements,
cilitate wheeling include the following: where this is no grid infrastructure. It could
• Conduct a detailed cost-of-supply study also be relevant in grid-connected areas where
to determine the cost of the grid usage, supply is constrained, or where households are
following the methodology from NERSA. energy-poor.
• Establish an overall strategy for wheeling,
including the aims and long-term implica- The basket of energy services may include a
tions of wheeling. combination of gas stoves, solar water heat-
• Draft a generic connection and use-of- ers, solar chargers and energy efficient light-
system agreement. ing. These can be used instead of fuel sources,
• Revise the billing system to accommodate such as paraffin, that contribute to the risk of
wheeling charges and third-party sales. fires and air pollution.
What Should You Not Do? Other benefits include reduced peak electricity
Municipalities should not allow service provid- consumption, reduced theft of electricity, and
ers to use the grid for wheeling without paying opportunities for small business development.
for this usage.
Resource Tip
What Is the Way Forward? For information on effective solar water heating
These are some of the requirements: programs see ‘Review of best practise solar
water heating implementation by local government’.
• A clear methodology and process for de-
http://www.cityenergy.org.za/uploads/resource_351.pdf
termining cost of supply for the electricity
14Renewable Energy Scenarios for Municipalities in South Africa
Municipalities could also consider setting up ipality and the user. These include operational
micro- or mini-grids. Mini-grids are smaller, de- and maintenance costs, as well as other factors
centralised grids that often have renewable en- such as safety, levels of services and practica-
ergy components and provide basic electricity bility for the users.
needs to communities. A mini-grid pilot project
is under development in Raymond Mhlaba Lo- What should you do?
cal Municipality in the Eastern Cape. An appropriate basket of alternative energy
technologies depends on the existing energy
Resource Tip requirements of beneficiaries and communities.
For more information on mini-grids, see ‘Energy Typically, this varies from community to com-
Access in South Africa a toolkit for developing munity. Planning and research are, therefore,
successful green mini-grids’:
important parts of the process. The steps to
http://www.cityenergy.org.za/uploads/resource_426.pdf
For more information on alternative household energy follow could include:
access, see the chapter on household energy access ŦŦ Step 1 – Conduct community surveys to
in the ‘Sustainable energy solutions for South African gain an understanding of existing energy
local government – A practical guide’: http://www. behaviour and financial affordability within
sustainable.org.za/userfiles/household%20energy.pdf
a particular community.
ŦŦ Step 2 – Select a sub-set of alternative
What are the Key Challenges? technologies that are appropriate for the
The key risk with offering alternative energy ser- community.
vices is push-back from community members ŦŦ Step 3 – Conduct stakeholder consulta-
who see it as a sub-standard service. It is import- tion processes that clearly communicate
ant to manage the stakeholder consultation pro- the intention of the programme and ex-
cess when initiating programmes of this nature. plain the technology.
ŦŦ Step 4 - Pilot different combinations of the
There also needs to be careful consideration of alternative technology in different areas.
the long-term implications, for both the munic-
15Renewable Energy Scenarios for Municipalities in South Africa
What is the way forward? required to ensure investment is made in appro-
These are some of the requirements: priate technology.
• Assistance with assessing and developing
baskets of alternative energy options. What should you do?
• Assistance with communicating the via- The steps to follow with storage facilities are
bility of alternative energy technologies, the same as those for generation facilities (see
particularly in communities that cannot be Section 4.2). It should be re-emphasised that
electrified. storage options are currently very expensive for
• Share learnings from the mini-grid pilot municipalities, despite this being a rapidly de-
project in Raymond Mhlaba Local Munici- veloping field. Implementing time-of-use tariffs
pality to enable further development if and could assist in making these storage options
where found feasible. slightly more feasible.
5.3 Scenario Seven: Operating What should you not do?
a Storage Facility Municipalities should be cautious about invest-
Energy storage facilities store excess electricity ing in storage facilities as some technologies
generated in times of lower demand for use at a can be prohibitively expensive. However, it is
later stage when demand is high. In South Africa also worth noting that there is currently signif-
the most common storage facilities are hydro- icant international investment and local studies
electric pumped-storage schemes that make in electricity storage technologies. In future
use of potential energy, and solar water heaters these technologies may be a much more viable
and concentrated solar power plants that store option for consideration.
heat energy. Batteries are another way to store
electricity for later use, and could be used to
provide storage where renewable energy instal-
lations produce electricity intermittently.
What is the Scenario?
A municipality may consider investing in elec-
tricity storage facilities, such as large-scale
batteries and pump-storage schemes, to store
excess electricity for use at times of peak de-
mand or in the event of load shedding. In some
instances, storage technologies can also be
used in place of grid upgrades.
At this stage, storage technology is a very
expensive option for municipalities. However,
electricity storage is seen as a key component
of long-term renewable energy base load op-
tions. The field is evolving rapidly, with contin-
uous technological innovation and investment.
What are the Key Challenges?
As with electricity generation systems, the key
risk is the capital cost associated with installa-
tions of this nature. Careful planning is therefore
16Renewable Energy Scenarios for Municipalities in South Africa
Notes
17For further information please contact
SALGA energy unit
Nhlanhla Ngidi: nngidi@salga.org.za
Lungile Manzini: lmanzini@salga.org.za
012 369 8000
For additional resources see:
www.cityenergy.org.za
Head Office Physical Address: Menlyn Corporate Park,
Telephone: (012) 369 8000 Block B, 175 Corobay Avenue, Cnr Garsfontein
Fax: (012) 369 8001 and Corobay, Waterkloof Glen ext11, Pretoria
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