Cape Town recently announced a feed-in tariff for net-producing households and businesses that produce excess energy. People must have compliant systems that are registered with the City and connected to a meter that will measure contributions and protect city infrastructure from two-way flows.
In this regard, ensuring a safe grid, a reliable supply, and predictable pricing have now become core competencies of the City, which has an even stronger role in regulation and governancea now than it did previously. It must not only maintain infrastructure pro-actively, but also manage rules about a system in the best interests of us all.
The SSEG feed-in program forges a new operating model for City's energy department by decentralising energy production. In addition, they are also looking into procuring from larger independent power producers.
Positively, it alleviates grid pressure, reduces loadshedding, and has many benefits for society as well as the economy.
This has also taken a long time for many reasons. Some of them are technical - related to how energy is "wheeled" across infrastructure and the design of our substations. Others concern Eskom's and our municipalities' financial models.
I’ll deal more with the later.
It is common for municipalities to earn a margin on Eskom sales that they use to cover their distribution grid maintenance operational expenses, provide free or subsidised energy to those on lifeline tariffs or receiving subsidies under any locally relevant indigent or economic incentive policies, and sometimes also to contribute to savings for local municipalities that then cover unfunded mandates or other needs.
A decline in revenues has occurred in cities like Cape Town for several years due to consumers of energy practicing efficiency (turning off geysers, using better appliances and lightbulbs, etc.); and a decline in consumption by consumers who had installed solar panels previously. Revenues are negatively affected by this.
It is either necessary to increase the margin on the NERSA approved Eskom tariff, in which case those who continue to consume, e.g. those who cannot afford solar or fancy light bulbs will be required to pay even more; or to impose a "fixed connection fee", or some combination of these two. In addition, municipalities can increase rates or charge other fees as part of their total municipal bill. In general, too much change too quickly upsets the apple cart, and it is difficult to do without disproportionately affecting one group over another.
When we begin to allow feed-ins and add IPPs, our local budgets could shift in a variety of ways, and it all depends on how many people, of what former consumption level, switch to solar, add to the grid, as well as what tariffs are available to IPPs. It's likely we'll see some ups and downs until a new market settles, since there are many variables involved.
In the event that a large number of people practice energy efficiency and another group adds solar power, but does not add to the grid, we may see a period of lower revenue than usual (scenario 2). In light of frequent load shedding, and a number of analysts stating that the incentive to add to the grid does not currently stack up, this is not an unrealistic scenario. A meter costs just over R1/kwh, and an upfront cost of R11k to install (although the City is seeking a cheaper option).
In scenario (3), the tariff is perfectly set. The City has yet to announce what its margin will be on the 18% Eskom hike (holding fees constant for consumers would be great, but would mean losses to the City, raising them more would be hard on consumers, but keep revenues up and mitigate any losses due to lower consumption levels). The other variable is the number of people (or the size of their set-up) that are connected to the grid - with +_R1kwh that the City will purchase from them, the City stands to profit from the re-sale. Revenue targets will be met if these two prices are perfectly balanced.
Ultimately, the aim - and perhaps these are less “scenarios”, as they are phases that we might move through, is 4. As a result of the introduction of IPPs, bulk energy prices will reduce - not so much from Eskom, but from the average of what it purchases from Eskom and from other IPPs. There may be some choices available to the City - they could offer a higher tariff to those who feed into the grid, creating even more decentralization; make energy a new profit center and fund any number of services we can imagine; or offer price relief to net consumers.
In navigating an untested change in our context - the "collective we" should adhere to some principles.
1. It is important for the metro to maintain financial stability. Residents and businesses benefit from its services. Citizens must be informed about the full impact of the current energy landscape - not just loadshedding, which is easily politicized, but also the changes occurring around it, from efficiency to solar to backlogs and demands - both for informal and illegal connections, and for those on lifeline tariffs.
2. It is important to consider the impact on residents' costs of living. It is imperative to apply progressive principles when introducing new tariff structures, including new margins on bulk purchases, incentives to supply the grid, and fixed fees. Rather than focusing only on the cost of services, the total cost of a municipal bill must also be considered in relation to the affordability of households and businesses. With significant levels of inequality, we must be wary of empowering those with more resources, while entrenching those without into lifelong consumption. A truly just transition would include green finance or other mechanisms to support lower income households to also install solar, or at least address energy poverty by making energy more affordable overall.
3. In addition, our collective goal should be to increase service quality, access to service, and service reliability. It requires new technical capabilities as well as new regulatory competencies (e.g. the introduction of SSEG meters).
Experts who are better than me can speak to each of these. Many of these people work for or with the City. Let's now open up to the rest of society about the balance of issues, how they will be monitored and decided, and how citizens can participate.
*This blog does not deal with the issue of Eskom supplied areas within the metro. To avoid inequality in access or pricing, a single-service model should be prioritised, so long as these consumers do not experience higher prices or worse energy poverty as a result.
Thank you for starting this conversation, Jodi. I understand that the city needs to keep its revenue stream from the profits it makes by selling electricity to us. I'm sure we all agree that Cape Townians using electricity generated by the sun in the city is also better than importing it from coal burning power stations far away. Now why am I being charged by the city for feeding my excess solar generated electricity into the grid on a summer day? I haven't found the answer in your communique.