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The rapid uptake of alternative power solutions as South Africans seek to lessen the impact of electricity price increases and load-shedding on their daily lives and household budgets is starting to erode the revenue Eskom and municipalities earn from electricity sales.

In response to a parliamentary question from DA MP Ghaleb Cachalia, public enterprises minister Pravin Gordhan said data released by Eskom showed that from March 2022 until the first quarter of 2023 the amount of electricity generated by small-scale embedded generation (SSEGs) — typically small rooftop solar installations by households and businesses — rose 350%.

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

As an example, Gordhan referred to figures from Buffalo City Metropolitan Municipality in the Eastern Cape, which includes East London. The figures show the use of rooftop solar by households and businesses has cost the municipality R350m in lost electricity sales.

“The uptake for embedded generators, including small-scale systems like rooftop photovoltaic systems, has been driven largely by customers seeking alternative energy sources due to load-shedding, followed by those wanting to buffer against the upward annual electricity tariff trends and those that are pursuing greener options aligned with climate change objectives,” Gordhan said.

The steep rise in uptake in 2023 has also been driven by incentive schemes such as the tax rebates from the SA Revenue Service (Sars), attractive distributor feed-in tariffs in places such as Cape Town, and the National Treasury’s energy bounce-back loan guarantee scheme making funding more accessible, he said.

The minister said that according to the Eskom transmission system operator, installed capacity of solar panels (excluding the government independent power producer programmes) is estimated at 4,841MW at the end of August, about double the installed capacity recorded in August 2022.

This has translated into an erosion of 2.3% of the electricity sales base and a 1% (R3.3bn) erosion in Eskom’s margins (total retail revenue from households and industrial users less wholesale purchases) in the window period.

Electricity minister Kgosientsho Ramokgopa said the government is aware of the risk an “aggressive rollout” of rooftop solar poses to Eskom’s and municipalities’ finances.

However, the successful implementation of the Energy Action Plan, which provides a road map for resolving SA’s energy crisis and ending load-shedding, requires an escalation in the uptake of rooftop solar by households and businesses. This, he said, is supported by the incentives Treasury has put in place.

The government is also hoping to create a financing facility to ensure “equitable access to renewables”.

Addressing the media on Monday, Ramokgopa said that to benefit from the incentives offered by the Treasury, individuals need upfront capital, meaning those without access to sufficient capital will be left out. This is why the government is looking into introducing a facility to make it possible for all households and businesses to access solutions such as rooftop solar.

There are other benefits to increasing rooftop solar capacity: for example, it contributes to the decarbonisation of SA’s energy mix and adds to total generation capacity in the country, lessening the demand on Eskom.

Broad implementation of feed-in tariffs will present an additional financial benefit to households and businesses that are able to feed excess electricity back into the grid.

The downside of this is that the revenue of municipalities and Eskom will reduce. This is especially so as “the first people likely [to invest in rooftop solar] are your good payers” who are up to date with electricity payments to Eskom or their municipality, Ramokgopa said.

“Municipalities will struggle to perform their constitutional function because their revenue streams are being reduced. The last thing we want is to solve one problem only to create a bigger one, which would essentially be the liquidation of municipalities and them not having the ability to meet their constitutional obligations.”

Ramokgopa said his ministry is working with the SA Local Government Association (Salga), the department of co-operative governance and others to find a “balanced solution”.

In response, Gordhan said on an individual household basis customers with rooftop solar installations typically see a reduction of about 39% in their overall electricity bill. This would translate into a 21% effect on Eskom’s margin (retail revenue from households less wholesale purchases).

However, this effect on margins could improve from a 21% decline to an 18% decline through grid services revenue, which Eskom or municipalities could generate from administration fees such as charging customers for using their own systems.

Gordhan said Cape Town is at the “forefront of exploiting this situation for maximum public benefit” by implementing feed-in tariffs, which pay private owners of SSEGs for electricity redirected into the grid. This electricity can then be sold by the municipality to other consumers at a profit.

The City of Joburg has published its plan to implement a feed-in tariff for City Power customers.

“Energy experts suggest that feed-in tariffs, along with the installation of smart meters, are the most feasible strategy to overcome the potential losses to municipal income,” Gordhan said.

To enable wider implementation, Eskom’s distribution system operator will need “more dynamic capabilities” enabling it to manage electricity supply and demand, and the trading of electricity, in real time. By developing such “trading capabilities”, Eskom and municipalities could offset the revenue losses stemming from private power generation.

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