Metros should lead the way with renewable, IPPs – Silas Zimu

This was the message of Silas Zimu, energy advisor to President Jacob Zuma, at the 100^th annual convention of the Association of Municipal Electricity Utilities (AMEU) in Sandton on Monday. Zimu participated in a panel discussion about renewable energy at municipal level.

He said municipal revenue will come under pressure as consumers switch to renewable energy and move off the grid. The flipside of this is, however, that municipal power purchases and associated cost will also reduce. This will have a bigger impact on Eskom and coal producers than on municipalities, he said.

There are many opportunities for municipalities to replace this revenue by, for example, selling electricity generated from its own waste sources, he said.

Managing director of EON Consulting Bertha Dlamini said that municipalities have to create an enabling environment for renewable energy and the regulatory framework has to develop fast. She said customers won’t wait for the regulatory framework. They are moving off the grid and municipalities have to be part of the solution in order to protect their revenue.

There is currently no regulatory framework for customers to sell energy from their own renewable sources, especially solar, back into the grid and the grid is not designed for such a system, she said. “As soon as the commercial incentive is there, it will spike.”

Chief Operating Officer of the South African Chamber of Commerce and Industry (Sacci) Peggy Drotsky, said the retail industry is moving to renewable energy by installing solar panels on the roofs of shopping malls, but that is really just an effort to preserve itself in the face of the devastating effect of load shedding on business. Only the larger industrial businesses really have the capacity and appetite to really switch to renewables.

She said, however, that business needs more regulatory certainty before it will invest in these projects.

Dlamini agreed, saying projects are not bankable without regulatory certainty and as long as that remains unclear, foreign direct investment in alternative energy will be deferred.

Managing director of EE Publishers Chris Yelland said the drastic reduction in the prices of coal, oil and gas can change the trajectory of renewable energy. He warned that people who think the time for coal and other fossil fuels is over, might be mistaken.

He said in Germany tariffs at which customers sold renewable energy back into the grid were highly subsidised. Municipalities should consider utility-size renewable projects close to cities. That will exlude long distance transmission with accompanying energy losses, he said. Many commercial customers operate from eight to five and that profile is a good match for solar power, for example.

He said municipalities used to generate their own electricity in the past and they should consider doing it again. In this light, renewables offer an opportunitiy, rather than a threat.

Energy representative of Business Unity South Africa (Busa) Dave Long, said municipalities are not making the necessary strides with regard to renewable energy. He said the opportunities are there, but not well understood.

It has been determined that 5 500MW of co-generation capacity is readily available, mostly from industrial entitites, but the regulatory framework is not conducive to the realisation of this potential, he said.

He listed several regulatory stumbling blocks that hinder municipalities from concluding agreements with IPPs. “Municipalities have many opportunities and are keen and desirous to take them, but they cannot,” he said.

Long said private developers of renewable projects also need the right tariffs. He said it should be understood the benchmark for tariffs for new renewable projects should be at the level of Eskom’s new power stations, Medupi and Kusile, rather that its average tariffs that include older power stations. “That is more than R1.20/kWh. The peaker plants run at R3.50-R4.00/kWh. That is what developers are looking for and need to be successful. That together with acceptable risk.”

Yelland warned against a renewable bubble as new market entrants chase market share. He said this leads to tariffs that are too low and unsustainable and can result in project failures in future. In the long run, the future of renewables remains bright, he said.

Zimu said there is nothing in the Municipal Finance Management Act (MFMA) that prevents municipalities from going forward with renewable energy projects through IPPs. “Just do it. Take the risk. We will support you. Joburg has a power purchase agreement with Kelvin power station. A precedent has been set. The metros must take the lead.”