Are municipalities ready to flip the switch?
The current electricity supply and distribution industry does not serve as a viable option for local government and society as a whole. The electricity sector is undergoing changes worldwide and it is evident that the traditional model is not sufficient to handle this transition.
Embracing change is vital if the energy sector is to survive within South Africa and continue as a global player. This and many other notable challenges emerged during the three-day Salga Energy Summit held at the Sandton Convention Centre from March 7-9 2018.
The South African Local Government Association (Salga) summit comes on the back of the energy crisis unfolding in the country. The transitions and disruptions occurring within the energy sector have raised many alarms. The theme “Defining the Energy Future for Local Government in South Africa” served to focus the topics of discussion. Current energy landscapes were outlined as well as challenges that exist.
Government, industry experts and civil society attended the three-day summit with the aim of working towards practical solutions for all. The summit aimed to facilitate important conversations around the energy future for local governments in South Africa.
Gauteng Premier David Makhura, Minister of Co-operative Governance and Traditional Affairs Zweli Mkhize and Thandi Modise, Chairperson of the National Council of Provinces made keynote addresses, stating that national and provincial government are willing to work alongside other stakeholders and engage in the outcomes of what was discussed at the summit to ensure a smoother transition for all.
Salga president Parks Tau said: “The expectation of the summit was that we would be able to come out of here with an action plan of what needs to be done by ourselves as local government. But also, what are the critical policy issues that require attention from national and provincial governments? Those expectations have been met.”
The summit focused on three themes that invoked lengthy discussions by energy sector leaders. The themes were: megatrends within the sector that will serve as catalysts for change; reviewing the sector’s legislative framework and policies; and lastly, the opportunities arising in the sector that may benefit everyone in the future.
“The reality is that local government and the energy sector have been going through a transition for some time. We are not talking about a sustainable energy transition, but it has been ongoing and we need to be responsive to the realities of the transition, and that transition means more decentralised distribution systems for electricity,” noted Tau.
Various breakaways sessions were held over the three days to address areas of concern, with industry experts providing their views and analysis. The Grand Political Debate served as the starting point for discussions that unfolded at the summit, with a panel comprising: Thembi Nkadimeng, executive mayor of Polokwane; Xola Pakati, executive mayor of Buffalo City, Eskom board member Jacky Molisane and Kumi Naidoo, secretary general of Amnesty International.
The South African energy sector landscape was unpacked by Nelisiwe Magubane, former director general of the department of energy and Eskom board member. Her address provided an overview of the South African energy sector landscape: the status quo, complexities, challenges and opportunities.
It emerged during the summit that transformation of the industry must be inclusive and drive economic growth, social development and innovation. New opportunities were highlighted, including alternative renewable energy services, power trading, the installation of smart and prepaid meters and encouraging small-scale embedded power generation in households and municipalities.
Hilton Trollip from the the Energy Research Centre at the University of Cape Town unpacked resisting or embracing energy transitions and what the implications would be for South Africa. Examining the rapid trends occurring globally as well as within South Africa, some critical implications have emerged. He explained that if South Africa decides to resist the changes and maintain the status quo, it would lose out badly. On the other hand, embracing the change could see radical new business ventures emerge.
Municipalities continue to bear the majority of the weight regarding challenges faced within the energy sector. With the introduction of renewable energy options, current operating business models will have to be remodeled to stay abreast of global trends. The traditional use of kilowatt-per-hour sales will not work, and will severely affect income generation. New ways of cost and tariff determination were eventually proposed as a solution, with a key focus on infrastructure maintenance and electricity distribution.
It emerged that constant threats to the energy supply also dampen investor confidence. Eskom, the country’s major power utility, has managed to stabilise the capacity of electricity generation through the introduction of its additional Independent Power Plant Producers as well as building two new coal plants to meet the current demand and prevent load shedding.
This has, however, created its own set of woes. Eskom has been criticised for being responsible for the majority of power generation and transmission, and not sharing distribution among municipalities. The monopoly Eskom has within the energy sector leaves many disgruntled players along the value chain, directly affecting municipalities and their ability to provide effective services.
The need to re-examine at the role of the national power utility on the value chain saw Eskom come under fire from some of those attending the summit. The need for collaboration between all stakeholders was the general consensus arrived at.
“We need to rethink the way we work. People are thinking of really innovative solutions that we can introduce that will still ensure that municipalities play their role, and that they continue to generate enough revenue for them to maintain their other responsibilities,” said Tau.
Trollip highlighted some of the global trends emerging within the energy sector. These include renewable energy, disgitisation and the use of internet technology, which will all play key roles in transforming power grids. There are also logistical changes, including how electricity is transported as the process of demand and supply occurs. Digitisation will support decentralisation and managing interactive electricity systems.
The shift from centralised generation and distribution monopolies to more distributed, user-engaged digitally integrated energy systems needs to be managed and implemented as smoothly as possible. The way in which the energy sector functions will inevitably have to change and government will have to assist on various levels. Many questioned government’s ability to do so.
Rethinking the game plan
Trollip also noted that the role of new technological advancements will have to be integrated, which changes the model of how energy is obtained, sold and distributed at large. The global competitiveness surrounding technology and its usage also emerged as a factor for South Africa to consider, as solar photovoltaic (PV) and wind technology prices have reduced by over 60%, according to global studies. This forces South Africa to rethink its game plan as it continues to solidify its position as a global player with more competitors providing cheaper alternative energy sources.
Tau added: “It means engaging property owners, both commercial and households, about generating their own energy. At some point someone was calling it a virtual energy system, like a virtual power station. These opportunities are quite exciting for all of us.”
The question of the environmental impact strongly comes into focus as the world transitions to newer technologies, and the need to sustain environmentally friendly conditions continues to challenge stakeholders and government.
Other challenges that pose a threat to the energy sector include keeping up with service delivery demands as more people migrate into cities. This has resulted in an increase of informal settlements and places a strain on the current infrastructure. This results in local government struggling to deliver services effectively and inevitably being under resourced.
Preserving natural resources amid this crisis was also on the agenda, to ensure future generations are secured.
In “Defining the Energy Future of Local Government”, key outcomes from the sessions included: The need to facilitate collaborative leadership among all stakeholders, provide an enabling environment with efficient operation models and explore new opportunities which arise out of the challenges that currently exist as well as through the transition is pivotal.
Customer-centricity was also a key component which emerged, focusing on adequate services for the poor.
The proposed enabling environment consists of constitutional and legislative clarity with redesigned policy framework, increases in funding as well re-examining the structure of the industry.
The summit aimed to reaffirm Salga’s commitment to a more efficient climate action plan on the 2030 Agenda for Sustainable Development goals, in line with the Paris Agreement on Climate Change and the National Development Plan.
Tau said that the outcomes of the summit will be reported to the Salga national executive committee: “We need to relay and incorporate the performance plans of our senior managers and the working groups of our organisation. We have agreed with the minister of Cogta (Co-operative Governance and Traditional Affairs) that we will be presenting the outcomes of this summit to him so that through him we are able to engage with the rest of government on issues of policy legislation, regulations and systems that require review, so that this is not just a talkshow.
“This is our experience, this is what needs to change and this is what all the experts are saying is in the best interest of the South African consumer. Ultimately, with access to energy — reliable, cheap and greener energy — this is what is in the interest of our local authorities.
“Let us work together to ensure this happens. I’m quite excited by the fact that the minister said he is keen that we come out of this with action plans that he can take to government.”
The success of Salga summit will be measured in the coming months, as an action plan is developed and implemented. The summit was inspired by the spirit of Hugh Masekela’s Thuma Mina, as a sustainable energy future for all is created maintained. The one certainty is that things are bound to change. This needs to be reflected in all levels as government delivers on its promise of a better life for all.
Energy summit: The way forward
New business models needed to:
1. Diversify income streams present in population
2. Develop service charges which include cross-subsidisation costs that are cost-reflective
3. Improve credit control systems and management of debt
4. Address technical and non-technical challenges
5. Efficiently utilise assets and infrastructure
5. Operational costs to be reduced through workable systems
Themes that emerged from energy summit
1. An enabling environment
- Constitutional and legislative clarity, industry structure and market review/unbundling
- Redesigned policy framework
- Tariff determination.
- Focus on cost-effective services
- Social compact stance
- Implement municipal authority
- Improve on services for the poor
- Small-scale embedded electricity generation to improve the number of players in sector.
3. Efficient operations
- Benchmarking and reliable data to be collected
- Changing the business model for effective execution
- Revenue realisation to materialise, as determined by findings
- Effective asset management and control
- Cost containment
4. Collaborative leadership
- There is a need for collaboration throughout the value chain
- Cogta, departments of energy, public enterprises and finance must hold discussions at highest level
- followed by Eskom and municipalities involved in collaborative efforts
- followed by SMMEs’ participation and innovative contributions
- followed by municipalities, Eskom, decision-makers and the National Energy Regulator to capacitate
- followed by transformation for black industrialists, entrepreneurs and small businesses.
5. New opportunities
- Renewable energy services
- Power-trading among players
- Mini-grids: solar photovoltaic/wind
- Surcharge energy-related activities
- Charging stations
- Smart and prepaid meters
- Small-scale embedded power generation
- Waste to energy conversion
- Using infrastructure for other revenue generation
- Servitudes and wayleaves to be paid by Eskom.
Key regulatory challenges that emerged
1. Centralisation of Policy Development: the energy plan is completed on a national scale with minimal input from local government.
2. Lack of horizontal policy alignment.
Current policies and regulations are not 100% aligned, thus limiting progress with no clear stance, as they are driven by many entities and there is no clear understanding.
3. Lack of vertical policy alignment
National level policies do not always integrate well with local functioning and regulations and objectives.
4. Lack of legal and regulatory procedures
Adequate policies and procedures do not exist
5. Lack of innovation in policy development
The centralised policy needs to have a foundation which can be used to benchmark a large audience so that local level can be included.