How have municipalities responded to this most serious threat to their existence? By introducing high fixed tariffs or wheeling charges — in effect making solar PV systems financially unattractive. This impasse is clearly unsustainable and poses a clear and present danger to the SA economy and security of energy supply.
South Africans should not be left at the mercy of Eskom, which has stumbled from one crisis to another over the last 20 years, bereft of ideas, seemingly unable to resolve the problems it has encountered and for which it is responsible through mismanagement, corruption and lack of foresight, planning and action.
Self-generation by the domestic, agricultural and industrial sectors, as well as by electricity customers and municipalities, represents a significant short-term opportunity to meet the needs for new generation capacity in SA, and should therefore be grasped with both hands.
Given this parlous situation, what is to be done? Both sides — more affluent South Africans (including businesses) and municipalities — need to cede ground. Those who can afford to invest in solar PV systems need to accept that at present, and for several years to come, they will not realise their return on investment. SA has the world’s worst Gini coefficient (an aggregation of the gaps between people’s incomes into a single measure). The difference in income between the top and bottom earners is huge. A farmworker can earn as little as R100 a day, while a high-level professional might earn more than R3,000 a day. Ten percent of South Africans earn more than 50% of the household income in the country. The poorest 40% account for less than 7% of household income.
Instead of killing the goose that lays the golden egg, municipalities should pursue a revenue-neutral model rather than one that is revenue positive. This means that instead of levying high tariffs, making solar PV unattractive, they need to find the “sweet spot” between what they charge the energy generators and what they make. Given that this is SA, where finding middle ground is often impossible, is this feasible? According to Sustainable Energy Africa, the answer is yes.
Its modelling shows that both too-high and too-low tariffs are unfavourable — and unsustainable — in the long run, and that while small-scale energy generation leads to a reduction in electricity sales (and a concomitant reduction in revenue), it also results in a reduction in the amount of electricity bought from Eskom. Because the electricity does not have to travel as far, it also leads to a reduction in technical losses.
As electricity the council buys from small-scale energy generators is furthermore generally cheaper than that from Eskom, they spend less buying electricity. By setting their tariffs correctly, the impact of small-scale energy generation on a municipality can therefore be neutral.
From a lose-lose position for both municipalities and those who want to generate their own electricity, setting reasonable tariffs, coupled with an acceptance that cross-subsidisation is unavoidable, can move SA into a win-win position.
For this to happen, the government should be more transparent about the tax it imposes for cross-subsidisation. And it needs to move swiftly to address and remove the legal, policy, regulatory and bureaucratic constraints in place regarding electricity supply and distribution, to allow customers and municipalities to become part of the solution.
• Yelland, an energy analyst, consultant and electrical engineer, is founder of EE Business Intelligence. He is partnering with the EU-SA Partners for Growth Programme.