Electricity: Municipalities, grid constraint top 2025 to-do list

Solutions for the “disastrous” state of electricity supply at municipal level, as the Association of South African Chambers (Asac) puts it, and the grid constraints that are at the heart of the failure of government’s procurement of renewable energy from a wind perspective, must be top of the agenda for 2025.

These issues are still outstanding after much progress in the reform of the local electricity supply industry in 2024 and the implementation of the Electricity Regulation Amendment (ERA) Act on 1 January, save for two definitions relating to the role of municipalities.

While the ERA Act provides the framework for a competitive market and opens new frontiers in the reform process, Chris Yelland, managing director of EE Business Intelligence, has warned of increasing resistance from Eskom, which may lead to delays as functionaries try to frustrate the process.

Minister of Electricity and Energy Kgosientsho Ramokgopa, in his last media briefing of 2024, promised to announce interventions regarding municipal debt to Eskom – which at the end of November stood at R95 billion.

Their debt to Eskom is, however, not even close to being the only headache that municipalities must cope with on the electricity front.

ALSO READ: Eskom owed R81.6 billion by municipalities: Who owes the most?

Eskom tariff decision

Local authorities are, like the rest of the country, still waiting for energy regulator Nersa to decide on Eskom’s tariff application for the next three financial years, the first of which is a key input in municipal budgets that kick in on 1 July.

The budget process is already at an advanced stage. Budgets must be tabled in each council by the end of March, after which they must be published for public comment, ahead of being adopted by the end of May.

Nersa failed to announce Eskom’s revenue allowance by 20 December as planned, but indicated that it will do so later this month.

Once Eskom knows how much revenue it will be allowed to recover from electricity sales, it still has to allocate that revenue to each customer category and submit detailed tariffs to Nersa for approval.

This must be tabled in parliament by 15 March.

Only once Eskom’s tariffs have been set will municipalities be able to calculate their own electricity tariffs.

ALSO READ: Midvaal to replace Eskom electricity supply with private company

Cost-of-supply studies

Things, however, become even more complex as more than 100 municipalities are still at risk of having to refund customers for tariff increases in the current financial year, following a high court ruling that tariffs that are not based on a cost-of-supply study are unlawful.

Nersa is, however, appealing the ruling obtained by AfriForum, and the appeal is still pending.

It is not clear whether the affected municipalities have since done the outstanding cost studies and, if not, how Nersa will treat their tariff applications this year.

Eskom applied for an increase of 36% on 1 April last year – and if it succeeds in getting a substantial portion of that, municipalities may see a further increase in the rampant electricity theft and non-payment they are already battling. This also leaves them without money for maintenance, which impacts the quality of electricity supply.

Ramokgopa emphasised that the debt municipalities owe Eskom is largely not recoverable, because councils are increasingly struggling to collect outstanding amounts from their customers as tariffs become increasingly unaffordable.

ALSO READ: Proposed Eskom tariff increase could sink municipalities – report

Role of municipalities

All of this comes against the background of uncertainty about the fundamental role municipalities play in the electricity supply industry.

Municipalities – under the leadership of the South African Local Government Association (Salga) – maintain that in terms of the Constitution of the Republic, electricity distribution, including trading, is an exclusive municipal function.

Nersa is however granting more and more trading licences to private companies that will compete with Eskom and municipal distributors countrywide.

President Cyril Ramaphosa kicked the can down the road late last year, when he announced that the definitions in the ERA Act that limit the exclusive role of municipalities to managing distribution networks would not be implemented on 1 January with the rest of the act.

Eskom, with the support of Salga, is heading to court about the recent approval of five trading licences and the matters remain unresolved.

ALSO READ: Potential challenge looms over municipal electricity tariff hikes

Grid access

In terms of grid capacity, two crucial matters are outstanding – approval of a curtailment framework and finalisation of grid access rules.

These will bring certainty to independent power producers (IPPs) about the compensation they will receive when their production is curtailed at certain times (to free up about 3 600MW of grid capacity), and who will get preference in the allocation of grid capacity.

Late last year not a single wind project was awarded preferred bidder status in the seventh bid window (BW7) of government’s Renewable Energy Independent Power Producer Procurement Programme (Reipppp). It was the same story in BW6, when 23 wind projects were left stranded.

Nersa is expected to finalise the curtailment framework soon, but the grid access rules remain outstanding and it is not clear what progress is being made in this regard.

Nersa previously rejected an Eskom plan to reserve grid connections for publicly procured projects before making them available for privately procured ones.

ALSO READ: Service delivery warning: Residents owe most of municipalities’ R347bn debt bill

Resistance from Eskom

Yelland warns that as the electricity supply industry opens up to private sector players, Eskom and forces within Eskom are increasingly being obstructive.

Eskom denied this in relation to its challenge to new trading licences, but Yelland is convinced that a desire to protect its territory is alive and well within Eskom.

He says this may delay access to the grid and further progress in the democratising of the industry.

With the ERA Act in place, the National Transmission Company of South Africa (NTCSA) will apply for a market operator licence and set up the central purchasing agency for a competitive wholesale electricity market that is expected to become operational in the next two to three years.

This article was republished from Moneyweb. Read the original here.