The unexpected gift of unsuccessful renewable projects

SA’s energy crisis is perhaps felt most acutely by local government, with load-shedding damaging distribution infrastructure and sapping municipalities of their single biggest source of revenue — which places other services at even greater risk.

Those problems must be dealt with if SA is to achieve a just energy transition that envisions improvements across society. Before the recent Just Energy Transition Investment Plan was published, the fallout from the energy crisis at local government level had been largely ignored in the public discourse. Still, there may be opportunities in unexpected places, and despite challenges such as the case of Mafube Municipality, Frankfort and Rural Maintenance, they must be explored. 

At the end of 2022 the preferred bidders for the REIPPPP bid window 6 were announced. It left 50 renewable energy projects, mostly between 100MW and 240MW of potential generation, without a guaranteed future, despite them having been prepared at significant cost to the bidders. The removal of the unlicensed generation limit has absorbed all the capacity on Eskom’s transmission grid, meaning there is none in the areas most of these projects were prepared for. Some of them could be re-orientated towards municipal grids or industrial off-takers, or both, in partnership. That will depend on the demand of the towns and industry in municipalities, but pooling the demand of several municipalities, within districts, could assist in that regard.

The legal capacity of municipalities to respond to the energy crisis in the unlicensed generation era has been a source of much debate. SA’s constitution grants municipalities the function of electricity reticulation, defined in the Electricity Regulation Act (ERA) as “trading or distribution of electricity and includes services associated therewith” (trading is “buying or selling of electricity as a commercial activity”).

In local government legislation two aspects are evident: first, the Municipal Structures Act distributes the constitutional powers and functions of local government between district and local municipalities and makes “bulk supply of electricity, which includes for the purposes of such supply, the transmission, distribution and, where applicable, the generation of electricity” a function of district municipalities (that can be devolved to local municipalities). This clearly gives district municipalities the authority, subject to electricity sector regulations, to generate or buy and sell electricity.

Second, the Municipal Systems Act requires municipalities to support the progressive realisation of fundamental constitutional rights. Those rights cannot be realised without electricity, and that creates a responsibility for municipalities to consider alternatives such as electricity generated by IPPs, when Eskom fails to provide sufficient power. The Systems Act states that, through its integrated development plan, a municipality can identify electricity provision as a priority for its development needs and make long-term plans to improve its provision. Local government legislation and the ERA create the possibility for municipalities to either generate electricity or buy electricity from IPPs.

There are already municipalities and provinces that have taken on that responsibility. Metros are running processes to procure power from IPPs, and the Western Cape government has begun exploring the possibilities that pooling demand represents for municipal economies. Unsuccessful bid window 6 projects create room for similar initiatives by provincial governments and district municipalities in the Northern Cape, the Free State, the North West and Limpopo. 

Despite the opportunities created by local government legislation, municipal electricity activities are still subject to the ERA. There has been disagreement among municipal role players whether a Section 34 determination is still required from the minister for municipalities to proceed with electricity projects. Municipalities already leading the charge on electricity procurement do not believe this is required; neither does the Western Cape government according to presentations it has made. Municipalities also need to meet the conditions set out in the ERA regulations to generate or procure electricity.

So, what should municipalities be doing? 

• Having conversations with their district municipalities and other local municipalities in their district to pool demand to make an IPP viable, particularly where bid window 6 projects have been declined.
• They should be looking at the requirements to enable connection of these IPPs into their distribution networks and the networks of other municipalities in the district and preparing for this investment, getting the technical requirements and finance in place with National Treasury and the Development Bank of Southern Africa. 
• Municipalities should begin engagement with industries in their jurisdiction regarding the shared procurement of power.
• Municipalities should initiate the procurement processes required for power purchasing agreements with IPPs, to ensure these projects have a possible lifeline with National Treasury’s assistance.

These proposals will probably only work for a handful of municipalities, given widespread capacity constraints. But the process, even for a few municipalities, will be critical in building economic resilience in municipalities, supporting the possibility of a just transition and countering load-shedding — and operating clearly within the grid codes to avoid the problems faced in Frankfort.   

• Foster is a PhD researcher at Stellenbosch University’s Centre for Sustainability Transition. He is attached to the Reset project, which explores social equity in the energy transition across SA, India, Germany and the Netherlands. Moyo is a Researcher under the SA research chair: cities, law & environmental sustainability at North-West University. They write in their personal capacities.