Western Cape leads green revolution
Municipalities in the province allow businesses and residences to generate their own electricity and are buying what they do not use
Western Cape municipalities are leading the way for households and businesses to generate their own green energy using solar photovoltaic panels and to sell it back into the grid.
Municipalities in the Western Cape are leading the way for households and businesses to generate their own green energy using solar photovoltaic (PV) panels and to sell it back into the grid.
Twenty-three of the 25 municipalities in the province have enabling by-laws to allow embedded generation of between 0 and 1MW in volume, and 19 offer a feed-in tariff to customers, which allows them to feed back what they do not use into the grid.
Only another six municipalities in the rest of the country have a feed-in tariff, which puts the Western Cape far ahead in the renewable energy stakes.
This will make the province a more competitive location in which to do business, say provincial officials, as electricity prices and security of supply are among the top risks faced by investors.
The City of Cape Town, for instance, buys back electricity from 342 households, 120 small businesses and 35 large industrial users, paying customers the same average rate at which it buys bulk electricity from Eskom. Potential is much higher as about 3,000 customers have registered panels and another 3,000 have installed PV solar without registering.
To connect to the grid, however, requires certain technical requirements to be met such as the installation of an inverter which necessitates a larger capital outlay, making it a fairly expensive investment for households.
Hoosain Essop, Cape Town’s electricity retail manager, says most customers who put up solar PV panels want to remain connected to the grid as this allows them to use municipal electricity when they have no solar energy available.
“They push out what they generate during the day and we give them a fixed rate for that and credit their account. Then they still get a bill from us for what they use, which is offset by what they have provided. One of the rules, though, is that over a 12-month period, they are a net loser,” he says.
While customers get credits for what they supply, the city also charges a flat fee for repairs and maintenance to the network, at a similar level to the flat fee of 25% charged to ordinary municipal customers and included in the electricity tariff.
Cape Town’s success stands out compared with Johannesburg, with a budget that is 30% bigger, where 26 residential customers and 107 commercial and industrial customers feed into the grid.
The Western Cape’s green energy focus arose from former premier Helen Zille’s determination to increase energy diversity and decrease dependence on Eskom.
Zille, through the department of economic development, ran a programme in which officials visited each municipality at least twice over the past three years to popularise the programme and dispel the myth that embedded generation is necessarily financially detrimental to municipalities.
The department also drew up draft policies and by-laws to assist municipalities and walked them through the application process to apply for a feed-in tariff at the National Energy Regulator of SA (Nersa). Installations of 0-1MW require registration by Nersa.
But what are the financial implications for municipal revenue? The tariff for electricity levied by most municipalities includes a 10% levy or tax, which is used to fund other municipal services. In Cape Town, 25% of the tariff is made up of a flat fee for repairs and maintenance to the distribution network.
Ian Neilson, Cape Town’s deputy mayor and MMC for finance, says that the shift to renewable energy by municipal customers is not the enormous threat to municipal finances that many believe. “Over time the city will get less income from electricity. That has already been happening with sales decreasing 1%-2% a year since 2009. But the rate of change has been fairly small, which gives us time to adapt,” he says.
Electricity sales amount to R10bn a year and the city raises R1bn a year from the markup, Neilson says. In this amount of revenue there is an annual decline of 1%-2% a year.
“I don’t believe that allowing embedded generation will collapse municipalities, as it is actually quite a small number compared to overall electricity sales and it is something we can adjust to. If there was a sudden large drop say 10% then we would have to raise property taxes by around 16%,” he says.
But as most customers will stay on the grid, that is a very unlikely scenario. It is also still a quite expensive undertaking for a household to set itself up with a grid connection.
“We are not yet in a place where it is cheaper for households to generate their own electricity; it is more viable on a bigger installation,” says Neilson.
“This is a change that is taking place over decades, so it is not a train smash at all.”