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Municipalities to bypass Eskom to buy own renewable energy

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Mineral resources and energy minister Gwede Mantashe.
Mineral resources and energy minister Gwede Mantashe.

Mineral resources and energy minister Gwede Mantashe has gazetted amendments to Electricity Regulations on New Generation Capacity, to enable municipal power generation.

This is an important move that takes municipalities a step closer to by-passing troubled power utility Eskom and procuring their own cheaper and clean electricity from renewable energy sources.

Over the past several years, Eskom, which provides over 90% of SA’s energy need, has been struggling to keep the lights on and had to resort to load-shedding.

Published on Friday, the regulations give effect to president Cyril Ramaphosa’s commitment during the State of the Nation Address that government will enable municipalities in good financial standing to develop their own power generation projects.

Mantashe said the amendments to the regulations clarify the regime applicable to municipalities when requesting determinations under Section 34 of the Electricity Amendment Act.

“This will ensure an orderly development that is in line with the applicable Integrated Resource Plan and municipal Integrated Development Plans,” Mantashe said.

“Furthermore, the amendments will ensure that Section 34 Determination requests are from municipalities that are in good financial standing with feasible project proposals.”

The department has also put in place an internal standard operating procedure to ensure the requests for Section 34 Determinations are attended to, in the shortest possible time.

Deidré Baartman, DA Western Cape spokesperson on finance, economic opportunities and tourism.
Deidré Baartman, DA Western Cape spokesperson on finance, economic opportunities and tourism.

Western Cape celebrates

Municipalities like the City of Cape Town have been at the forefront of calling on the Department of Mineral Resources and Energy to allow them to buy electricity from renewable energy independent power producers (IPPs).

Following Mantashe’s Friday announcement, the Democratic Alliance (DA) in the Western Cape issued a statement saying it welcomes the gazetting of the criteria for approving the Section 34 Ministerial Determinations by the energy minister.

“The DA has long called on national government to allow municipalities to produce and buy their own power,” says Deidré Baartman, DA Western Cape spokesperson on finance, economic opportunities and tourism.

“Load-shedding has shaken investor confidence and put strain on businesses, particularly SMMEs which are tremendous job-generators. For our economy to be saved, we urgently need uninterrupted power supply.”

Baartman says the amendments gazetted by the minister is an important step in ensuring energy security in the province.

“The Western Cape has consistently recorded the highest number of municipalities in the country with clean bills of financial health, and these municipalities now have the opportunity to support independent power producers,” she notes.

“We, therefore, call the minister to accept the applications of municipalities in the Western Cape who have proven that they are in good financial standing.”

According to Baartman, this announcement further offers the renewable energy sector a boost in investment and development prospects which may stimulate growth and create jobs.

This is critical in an economy which has already seen more than 2.2 million jobs lost in the last quarter, she adds.

SAWEA CEO Ntombifuthi Ntuli.
SAWEA CEO Ntombifuthi Ntuli.

Getting the final nod

However, Ntombifuthi Ntuli, CEO of renewable energy industry body, the South African Wind Energy Association (SAWEA), comments: “While this amendment to the regulations paves the way for municipalities, with good financial standing, to be able to either develop or obtain their own power-generation capacity from IPPs, which will by and large be renewable energy, the regulation still requires the minister to give the final nod.

SAWEA believes that although the current uptake may be greatly restricted, this decentralised way of procuring power is a step closer to a broader energy transition that the country needs to increase its power generation and the Available Energy Factor, which will sustain local economic activity.

Speaking specifically in relation to the role of the wind energy sector, Ntuli says in the distributed generation space, experts show that distributed generation wind energy projects could be viable at a minimum size of 10MW with a power purchase agreement length of 15 to 20 years.

“This works even better if the smaller projects are built alongside other big projects and they source turbines simultaneously to minimise costs. The opportunity for IPPs to pair up smaller and bigger wind projects will be easier once the Renewable Energy Independent Power Producer Procurement Programmes gets under way again,” adds Ntuli.

The renewable energy industry body says there are various ways that IPPs can transact with municipalities with the idea of selling power that will need to be explored.

It notes that the first option is for IPPs to be selling directly to municipalities, in which case the consumer could connect directly to the municipality.

The second option is that IPPs could be the municipalities’ virtual supplier from another point on the Eskom network, it says, adding that thirdly, IPPs could 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.

According to the organisation, any of these off-take arrangements could work, particularly if the National Energy Regulator of South Africa allows municipalities to establish a wheeling tariff.

“We still have several emerging questions that need to be addressed as the regulatory environment becomes more conducive for municipalities to procure power directly from IPPs, specifically around whether this additional procurement capacity will be derived from the existing ministerial determination, or if the minister will issue a separate determination for municipalities,” says Ntuli.

Greenpeace Africa’s senior climate and energy campaign manager, Happy Khambule, notes: “It’s about time that a decision like this is made, which will lead to decentralisation and better penetration of renewable energy.

“It is key that the power generation projects undertaken by municipalities are focused entirely on renewable energy.

“To make a decision like this and allow for new investments in fossil fuels will be another foolish waste on the government’s part as the climate crisis looms in the background and South Africans are still subject to breathing toxic air,” Khambule concludes.

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