South African city kisses R350 million goodbye

[Nat Quinn]

Many South African municipalities and metros generate a significant portion of their revenue by selling electricity to residents.

As home solar takes over, these local governments will have to look elsewhere to plug the holes in their budgets — and fibre networks are an easy target.

Public enterprises minister Pravin Gordhan recently revealed that Buffalo City Metropolitan Municipality, which includes East London, has lost out on R350 million in electricity sales due to Small-scale Embedded Generation (SSEG).

Responding to a Parliamentary question about the issue, Gordhan said Eskom data showed that electricity generated from solar panels since March 2022 until the first quarter of 2023 had increased 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,” Gordhan said.

Local and metropolitan municipalities operate distribution networks that deliver electricity from Eskom power plants to individual homes and businesses.

Essentially, they buy electricity in bulk from Eskom and deliver it to residents at a reasonable profit margin.

“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.

He said Cape Town is currently at the forefront of exploiting this situation for maximum public benefit by implementing feed-in tariffs, which pays small-scale generators for electricity redirected into the grid.

This may then be sold to other consumers at a profit.

However, several municipalities have already started looking elsewhere to try and make up the revenue shortfall caused by load-shedding.

South Africa’s capital city, Pretoria, part of the Tshwane metro, introduced a new set of tariffs in 2019 allowing it to charge network operators an annual fee for every kilometre of cable in the road reserve.

Both cellular and fibre network providers lay cable along municipal roads.

Therefore, these tariffs affect every network provider in South Africa — from the smallest new entrant in the fibre connectivity space to MTN, Vodacom, Telkom, and Vumatel.

Tshwane has increased these tariffs annually.

For the 2023/24 financial year, the road reserve fee was increased to R251 per kilometre per annum, while the sewer and stormwater fee was increased to R1,138.

Municipalities are introducing punitive measures for network operators who cause infrastructure damage while working on cables

A local municipality that has taken a similar approach is Kouga, which includes Jeffreys Bay.

MyBroadband previously spoke to a senior Kouga official who said local governments like theirs came under pressure to find additional revenue streams as load-shedding ate into their electricity distribution income.

In Jeffreys Bay, in particular, municipal revenues from traditional utilities like electricity and water are not growing in line with their population.

While rates do form a sizeable chunk of this revenue, the Kouga official explained that the primary source of money for the municipality is electricity sales.

Essentially, they were faced with a choice: significantly hike rates or find another source of revenue.

The official explained that municipalities like Kouga are less dependent on government grants as they generate most of their own revenue. In places like Jeffreys Bay and St Francis Bay, they generate 84% of their own revenue.

For this reason, Kouga has considered a system similar to Tshwane’s, where network operators pay a recurring fee to use municipal infrastructure, such as the road reserve and stormwater drains.

In addition to shoring up the budget of the local municipality, the official said that the money would also be put towards fixing up their infrastructure when network operators damage roads and paving while rolling out fibre.

 

source:South African city kisses R350 million goodbye (mybroadband.co.za)

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