As Eskom’s load-shedding crisis dent South Africans’ faith in the electricity system, municipalities are scrambling for solutions as their most reliable electricity customers — high-income households and businesses — reduce their reliance on the grid.
This comes as the power utility struggles to get distressed municipalities to pay over money for electricity and municipalities battle with revenue collection for services they provide to residents.
According to the South African Local Government Association, municipalities owe Eskom R56.3bn and municipalities are owed R306bn as of December. Losing out on revenue from households and businesses installing solar spells disaster for councils.
Isaac Mangena, spokesperson for City Power, which purchases and distributes electricity on behalf of the City of Johannesburg, said he expected a fall in revenue due to solar photovoltaic (PV) installations by customers.
“The migration is real, no doubt about that. However, it is not yet intensive given the high cost of PV installation relative to the cost of electricity. A PV system without storage keeps the customer very grid dependent, especially when considering that storage cost is still very much out of the reach of even the middle class,” Mangena said.
He said City Power had seen more large power users installing PV systems. “The significant drop in energy sales from this customer category is expected. However, the drop in electricity sales also means a drop in bulk purchases from Eskom.”
City Power will continue to receive revenue from these customers as they will still pay the fixed network and demand charges. City Power’s average mark-up on Eskom power is about 70c per kilowatt-hour, and it has authorised about 80MW of private PV installations on its networks. He said this translated to a reduction in surplus of R72m a year, less than 0.3% of City Power’s annual turnover of R21bn.
He said the economic contribution that private solar systems made towards reducing the cost of load-shedding during business hours on sunny days in Johannesburg may be up to R7bn a year.
“This means that while City Power does see a small reduction in ‘profit’ from lost energy sales in Joburg, and even if we only consider half of the potential benefit of private solar systems helping to reduce load-shedding across South Africa, the benefit to the economy as a whole is far greater than the loss that City Power sees as an individual company.”
Eskom acknowledged the role solar installations played in alleviating demand on the grid, but downplayed the effect on its revenue, saying in an e-mail to Business Times: “It has been estimated that the cost of getting off-grid and being completely self-sufficient will be relatively expensive. Thus, there has not been significant uptake. Eskom has not assessed any effect of the use of solar and battery power on its revenue as yet. It should be noted that any customer, including municipalities, will get billed … for energy used.”
Chris Yelland, independent energy analyst and MD of EE Business Intelligence, said: “When people install rooftop PV systems, they are saving municipalities a lot of money because they don’t need to buy from Eskom anymore and don’t pay demand charges. You are actually saving the municipality a lot of money.”
Mohamed Madhi, the South African country director at renewable energy provider Yellow Door Energy, said businesses were increasingly reducing their dependency on Eskom to seek cleaner, more affordable alternatives and price stability.
“As this trend accelerates, the implications for Eskom are significant as it will have to deal with an eroding customer base, escalating input costs, high debt service requirements and diminishing coal-fired power station competencies,” he said.
The rush to solar is not only being fuelled by stage 6 load-shedding — with expectations of higher levels in winter — but also the increasing cost of electricity
Several companies have installed alternative energy sources, including Gold Fields, at its South Deep mine outside Johannesburg, which is expected to save the mine 24% in Eskom-supplied power. Sven Lunsche, vice-president for corporate affairs at Gold Fields, said: “It would be more if we had battery storage availability — since solar is available only during daytime — but that is not economically feasible as the technology is still in its early stages.”
Lunsche said the company had run its estimates early last year and expected savings of R124m a year. “Given the higher-than-expected tariff increases, we estimate that this year’s savings could be more than R150m.”
Sibanye-Stillwater is investing R12bn in renewable energy projects to reduce its reliance on Eskom and in line with its climate change ambitions.
Spokesperson James Wellsted said the investment would alleviate the impact of load-shedding on production.
“With stage 6 load-shedding we are getting asked to reduce our demand by 10%-20%. That hits production, and is a very significant cost to the business”, Wellsted said.
Heineken South Africa has installed a 6.5MW solar plant at its brewery in Sedibeng, Midvaal. Tiger Brands is installing solar at its plants in the Free State, North West and Gauteng. Premier Foods said it invested in alternative energy where possible, for business continuity, but the power required to continue production exceeded the capabilities of alternative energy sources, affecting the ability continually to meet the demand on all products.
Premier CEO Kobus Gertenbach said: “Food safety and security remains a priority for Premier. Premier remains committed to building the local economy by working with local business and government to ensure business continuity.”
The rush to solar is not only being fuelled by stage 6 load-shedding — with expectations of higher levels in winter — but also the increasing cost of electricity.
Earlier this year, the National Energy Regulator of South Africa (Nersa) approved a tariff increase of 18.65% in the 2023/2024 financial year, and 12.74% in the 2024/2025 financial year.
The Nersa determination adds up to revenue of R318bn for 2024 and R352bn for 2025.
Eskom chair Mpho Makwana said the utility’s dilemma was that its revenue model was regulated and tariff-based. Eskom interim CEO Calib Cassim said the Nersa determination for 2024/2025 and debt relief had put Eskom in a better financial position.
“We are able now, for the first time in about six years, to release capital expenditure for the next three years for generation, transmission and distribution. In our corporate plan approved by the board in March, we made the assumption that Eskom will not only not borrow for three years, but we even extended that to a five-year horizon,” said Cassim.
Cassim said management could now focus on dealing with load-shedding. He said Nersa had substantially complied with the determination methodology and that Eskom would not be reviewing the decision, though the utility believed the tariff structure needed a comprehensive review.
Replying to questions in parliament last week, Deputy President Paul Mashatile said sustainably providing essential services such as water, electricity and sanitation must be the hallmark of developmental local government.
“As a government, we recognise that debt relief alone will not return Eskom to financial sustainability. A key assumption considered in the debt-relief determination is the implementation of the recent tariff increase approved by the regulator. Without these increases, the debt-relief arrangement is not sustainable,” said Mashatile.
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