Renewable energy surge posing financial challenges for municipalities, says Gordhan

Although the increase in reliance on renewable energy is a welcome development for the environment, it poses a “significant challenge” to municipalities which rely heavily on electricity sales for survival.

Public Enterprises Minister Pravin Gordhan revealed this in a recent parliamentary reply to DA MP Ghaleb Cachalia.

Cachalia had asked Gordhan about the impact of small-scale embedded generation growth on municipalities’ electricity sales.

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Data by Eskom revealed that from March 2022 until the first quarter of 2023, the amount of electricity generated by Small-scale Embedded Generation (SSEGs) in the form of solar panels rose by 350%.

“This increase in reliance on renewable energy is a welcome development for the environment, but poses a significant challenge to municipalities, which derive the majority of their income from electricity sales.”

According to Gordhan, SSEGs have cost the Buffalo City Metropolitan Municipality R350 million in electricity sales.

“The uptake of small-scale embedded generators (SSEGs) has resulted in the displacement of traditional grid-supplied energy volumes. The Eskom Transmission System Operator has established models that estimate the installed capacity of PV on the national grid (i.e. include the SSEGs but exclude government independent power producer programmes) to be 4 841 MW at the end of August 2023, which is estimated to be 2 500 MW more than the previous 12 months window,” said the minister.

“This translates into an erosion of 2.3% (4.5TWh) of the sales base and 1% (R3.3bn) erosion in the margins (i.e. retail revenue less wholesale purchases) in the window period.”

Gauteng is the largest adopter of SSEGs in the country.

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The primary reason for the increase in embedded generators, including small-scale systems like rooftop photo voltaic (PV) systems, is the need for alternative energy sources amid the country’s load shedding crisis.

Others opt for these as a pushback against the annual electricity tariff increases, said the minister.

Incentive programmes like the SARS tax rebates and the National Treasury’s energy bounce-back loan guarantee scheme, making funding more accessible, have also helped accelerate the move to SSEGs.

Eskom vs municipalities

Staying on the grid is not helping matters either, according to Tshwane mayor Cilliers Brink, who last week complained that load shedding was wreaking havoc on the municipality’s finances.

Last week, Eskom announced that the City of Tshwane and Ekurhuleni municipalities owed the power utility a combined R4.7 billion as of 31 August 2023.

Due to erratic payments, Tshwane owes Eskom about R3.2 billion, accumulated over July and August 2023.

In response, Brink said it was not a secret that the city was in a financial crisis and behind on its payments to Eskom.

The mayor said that one of the reasons for the city’s financial crisis was the loss it was making on the sale of electricity due to load shedding.

“This year, the country has had more load shedding days than ever before. This wreaks havoc, not just on the maintenance of our network, leading to heightened wear and tear, but also affects our funding model,” he said.

Electricity Minister Kgosientsho Ramokgopa has told South Africans to anticipate less load shedding this festive season as the demand for electricity decreases and planned maintenance of lost units increases.

READ MORE: Brighter festive season: Load shedding improvements are ‘permanent’