Salga’s Nhlanhla Ngidi on Eskom andmunicipalities
Municipalities are in a death spiral and the only way out is to cut their dependence on Eskom, says Nhlanhla Ngidi, head of energy and electricity for the South African Local Government Association (Salga).
But in spite of pleas from Salga, the policy and regulatory environment doesn't allow it.
Changes enabling municipalities to purchase electricity directly from independent power producers should have been made "yesterday" already, says Ngidi.
Their biggest source of revenue is the margin they make from on-selling the electricity they get from Eskom. But with insecurity of supply and spiralling tariffs, the customers they rely on selling to for their survival are making their own plans.
"Municipalities are dependent on large industrial and commercial customers who are developing initiatives to have their own generation," he says.
"That could be very catastrophic for the revenues of these municipalities if they're unable to respond to retain these customers as part of a new business model where other revenue streams could be produced."
For three years, Salga has been lobbying the government to make the necessary regulatory changes, and now "it is a matter of urgency", he says.
Without these changes, municipalities are locked into an unsustainable business model that no longer reflects the reality they're facing.
"The business model needs to catch up with the changes and technological advances taking place in the energy space."
Municipalities buy 45% of Eskom's electricity. Ngidi says Salga appreciates the dilemma this creates for the government, which is how to allow these changes to happen without killing Eskom.
"Eskom's an important strategic asset, but the sustainability of municipalities must be equally important. And it is under serious threat right now."
It need not be if the policy and regulatory environment were flexible enough to allow municipalities to review their business model and pursue other options.
But as things are, "it is going to be catastrophic for municipalities. Because at this point in time, most affluent customers are actually going off the grid. They're buying their own generation and municipalities are experiencing a reduction in sales."
Their business model can no longer just be about selling electricity to customers, says Ngidi. "It could be about a whole lot of things. It could be about selling the infrastructure they have in place - charging customers for making infrastructure available to use when the sun is no longer shining or wind not blowing, which would provide an alternative revenue stream."
Even if municipalities bought directly from private energy suppliers, they'd still depend on Eskom for base load, but this could change.
"If policy allowed an opening up to private players, they could provide base load at a local level to municipalities. In this case, less and less dependence on Eskom will take place at municipal level."
Although Salga doesn't want "drastic changes that will promote a total collapse of the industry as we know it", municipalities can't afford to miss out on new opportunities. They need to be able to take advantage of the "decentralised initiatives" happening in the energy space.
The City of Cape Town has gone to court to force the department of energy to allow it to procure its own energy directly from private suppliers.
Salga is supporting the city's move.
"We support that municipalities must procure their own generation, and that includes the City of Cape Town. But it is not just Cape Town that wants to do this."
How many other municipalities have the capacity and skills to develop and manage new business models?
"All the metropolitan municipalities are ready to do this, and a few secondary cities."
Smaller, mostly rural municipalities will have to "upskill considerably", says Ngidi.
"They're really suffering because of a lack of capable engineers to do this work."
He says Salga's efforts to lobby the government have not been entirely ineffectual.
"Salga has been invited to be part of the final discussion around the final draft of the [updated] integrated resource plan."
In spite of Salga's input, though, the plan doesn't go nearly far enough.
"We cautioned the department of energy that the IRP's pronouncement on small-scale generation that must be implemented is a very small fraction of what the minister still needs to do based on the applications from the City of Cape Town and other municipalities."
Though grateful that the government "is making us a bigger part of the conversation on the IRP, it could do more and do better. Because our position has been clear. We've been three years pushing the same position, so government knows our position."
Ngidi, 39, who has been at Salga for four years, is an electrical engineer with a master's degree in business leadership. He was previously with the national energy regulator, Nersa.
He says the tariff increases granted by Nersa have exacerbated the plight of municipalities, which already owe Eskom more than R17bn and are suffering "rolling blackouts" for nonpayment.
"Now municipalities must increase their tariffs. The poor will not be able to pay the municipality and the municipality will not be able to pay Eskom."
The big customers that municipalities rely on to subsidise the poor will respond to the increases by leaving the grid in ever larger numbers, thus further reducing their ability to deliver services.
In short, it's a crisis - and it's only going to get worse. "Government needs to see the bigger picture," says Ngidi.
"The energy industry as we know it right now is no longer sustainable and it needs to be restructured."
President Cyril Ramaphosa has promised to restructure Eskom, "but the restructuring needs to go beyond that, not just Eskom.
"You can have a best model for Eskom, but if you don't have a best model for the whole distribution industry, including at municipalities, you're not going to get sustainability.
"We are concerned that there is no pronouncement around what should happen about the energy industry because we've all realised it is not going in the direction it should be in terms of its sustainability.
"So we are concerned that there is no pronouncement around how the industry should be restructured, and what it should look like in the near future."