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Craig Kesson, PwC South Africa advisory partner and cities leader, says: “Resolving the energy shortfall requires a collective effort across private and public sectors, including, and especially, by municipalities who play a key role in the development of sustainable energy strategies. By playing a key role in resolving the energy supply gap, municipalities will be able to contribute to local economic development and job creation.”

In its newly released report, “The cities’ role in managing the energy supply challenges”, PwC outlines what can be done in the municipal sphere to help fix the country’s energy shortage and discusses how these solutions can have potential revenue benefits for municipalities.

A Vicious Cycle

South African municipalities have a constitutional mandate to distribute electricity to citizens. They predominantly purchase power directly from state-owned energy utility Eskom, and distribute and sell power to consumers or reimburse Eskom for direct distribution to them. The on-sell of electricity is a key source of revenue for municipalities and has accounted for almost 30% of municipal revenues in recent years. Without this revenue stream, which often leaves municipalities with surplus funds, many are not able to crosssubsidise other debt and expenditure items.

Nasreen Mosam, PwC South Africa international development partner, says: “This culminates in a cycle where the rising cost of electricity leads to rising prices for consumers. This in turn results in more people being unable to pay service charges. This further increases costs and reduces revenue for municipalities, increasing the negative impact on municipal finances. This means that providing key services such as public security, housing and maintaining public spaces is also affected.”

What Cities Can Do

Despite the country’s current power challenges, municipalities can help resolve the energy supply gap. “Cities’ energy strategies will play a key role in achieving sustainability and energy stability in the long run,” Kesson says. “The ideal scenario would be for municipalities to purchase electricity from different suppliers in a competitive market at competitive prices, which will allow for resale at a surplus and transmission at lower cost to consumers. Efforts are underway to achieve this through the unbundling of Eskom and opening up of the energy market to competition from the private sector,” he says.

In the report, PwC outlines seven immediate measures to help bridge the energy supply gap and end loadshedding in the short run. These solutions include municipalities:

• Enabling wheeling of energy generation (both the infrastructure and the policy framework to deliver energy from generator to end-user through existing distribution or transmission).

• Supporting the installation of microgrids and small-scale embedded generation.

• Supporting the purchase of power from Independent Power Producers (IPPs).

• Prioritising spending on repairs and maintenance of infrastructure, as well as protecting it.

Mosam says municipal efforts to close the energy supply gap and bring down energy prices can also set the course for sustainable municipal revenue sources to finance spending.

Kesson says: “Ideally, we would see the private sector generate renewable energy and distribute it more cost-effectively to consumers through municipalities. Municipalities would have longterm contracts with private IPPs to purchase renewable electricity at guaranteed prices that are lower in a competitive market, and municipalities would win because they would obtain revenue for their role in distribution.

“Consumers would win because electricity prices would likely come down in a competitive system. The lower cost of electricity and higher certainty of supply would contribute to a virtuous cycle of economic growth, rising property values, more customers paying accounts, more employment and greater socioeconomic development outcomes.”

He says municipalities need to act now to mitigate supply gaps in the short run by putting in place the necessary policy frameworks, mobilising resources that will enable wheeling as well as re-entering small and medium scale generation into the municipal grid. Crucially, municipalities will also need to establish a long-term strategy regarding their own role in electricity provision going forward. This will include modelling the optimal mix of different energy sources needed to enhance supply and meet demand, as well as attracting and retaining strong, capable teams to accommodate the new skill sets required to operate in this market.

This way, municipalities will be able to retain their role in energy generation and to be part of a sustainable energy solution that works for producers and consumers. S