Impact of Energy Efficiency and Renewable Energy on Municipal Revenue

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1 Impact of Energy Efficiency and Renewable Energy on Municipal Revenue 18 March

2 2 SALGA MANDATE SALGA Mandate Lobby, Advocate & Represent Employer Body Capacity Building Support & Advice Strategic Profiling Knowledge & Information Sharing Transform local government to enable it to fulfil its development al mandate. Lobby, advocate, protect and represent the interest of local government at relevant structures and platforms. Act as an employer body representing all municipal members and, by agreement, associate members. Build the capacity of the municipality as an institution as well as leadership and technical capacity of both Councillors and Officials. Support and advise our members on a range of issues to assist effective execution of their mandate. Build the profile and image of local government within South Africa as well as outside the country. Serve as the main hub of local government knowledge and intelligence and to facilitate peer learning within the sector The Voice of Local Government The Voice of Local Government

3 Disclaimer and credits This presentation is NOT a SALGA position but The results of discussion with some individual municipalities and other stakeholders and The result of a model developed by SEA and financed by REEEP and And it reflects personal opinions More questions than answers

4 What I have heard on the street? It is more complicated than that

5 What is EE and RE and the impact on revenue? Different types of EE and RE activities Own EE EE in the residential commercial and industrial sectors Solar Water Heaters (High pressure) Municipal own generation (landfill gas, biogas in water treatments, from waste) Embedded generation / net-metering (RE by consumers) Willing buyer Willing seller / wheeling of electricity Have different impact on revenue

6 Why can t municipalities loose too much of their revenue? Revenue used to maintain and operate grid Used to cross subsidise tariffs between consumers (e.g. from industries to residents) Utilise to subsidise indigent tariffs (and the double whammy and potential death spiral effect 1 ) Used to finance other service deliver which do not generate revenue But EE and RE will and must happen 1: concept developed by AMEU and SEA in September 2012

7 And EE / RE have benefits for municipalities We need more electricity (load shedding and suppressed demand). At the moment, what municipalities save will be sold anyway Less technical losses Peak management Potential savings on distribution network management and upgrades Job creation and localisation opportunities More disposal income for households / companies Carbon mitigation

8 Some results of the SEA model Assumptions Planning over 10 years from 2013, applied to 3 metros Another model determined potential uptake 50 85% for EE interventions 2 15% for rooftop PV for residents 15 50% rooftop PV for commercial and industrial The results of a model always depends on the assumptions

9 Some results of the SEA model Results loss of the city electricity revenue in 10 years time are between 3 and 15 % of overall electricity revenue Main impact comes from SWH and EE. Rooftop PV will probably have limited impact, expect maybe in the commercial sector

10 YOU CAN'T MANAGE WHAT YOU DON'T MEASURE DATA AVAILABILITY???

11 What is EE and RE and the impact on revenue? Own Energy Efficiency (EE) + What is it? What is happening? Impact on municipal revenue Possible mitigation strategies Municipality invests in energy saving in its own operation (street and traffic lights, buildings, water sector) EEDSM grant (DoRA) + donor funded but still limited investment Low hanging fruit potential SAVINGS on operating budget But municipal own is tiny compared to overall electricity consumption Encourage own EE, increase EEDSM allocations and spending Promote Energy Performance Contracting

12 What is EE and RE and the impact on revenue? What is it? --- Consumers invest to save on their electricity bill EE in the residential commercial and industrial sectors What is happening? Impact on municipal revenue Consumers try to save as much as possible due to increased tariffs Some municipalities actively encourage it IMPORTANT LOSSES on revenue due to high penetration But also other benefits Possible mitigation strategies???? to discuss

13 What is EE and RE and the impact on revenue? Solar Water Heaters (high pressure) --- What is it? What is happening? Impact on municipal revenue Possible mitigation strategies Consumers invest in their own SWH to reduce electricity geysers Rebate (but on hold or in transition) Low pressure SWH do not clearly save electricity (may but may not) Some municipalities (CCT) actively promotes HP SWH High national targets IMPORTANT LOSSES on revenue due to high penetration But also benefits, particularly since electricity savings take place during peak???? to discuss

14 What is it? What is happening? Impact on municipal revenue Possible mitigation strategies What is EE and RE and the impact on revenue? - Consumers install generation unit (mainly solar panels) to generate their own electricity (own use) and possibly feed excess electricity into the grid Small Scale Embedded Generation / net-billing Nersa consultation documents Municipalities push for feeding to be allowed Illegal installations endangers safety of staff and security on the grid Potentially limited due to slow uptake (linked to tariff design) But negative impact Tariff design with fixed charge (but this should not be too onerous to consumers) National compensation scheme (NetFIT)??

15 What is EE and RE and the impact on revenue? What is it? What is happening? +- A private generator of electricity sells electricity to a private buyer and use the municipal grid to transport electricity Willing buyer Willing seller / wheeling of electricity Regulation allows it, but not much awareness and uptake Impact on municipal revenue Possible mitigation strategies A wheeling fee is payable to the municipality (but how to calculate it?) Loss of consumption (and negative impact if consumer is municipal consumer) Define ways to calculate wheeling fees to reflect cost of grid operation Use freed electricity for new consumption (electrification or supressed demand)

16 What is EE and RE and the impact on revenue? Municipal own generation + What is it? What is happening? Impact on municipal revenue Possible mitigation strategies Municipalities generate revenue from own RE projects (landfill gas, biogas in water treatments, from waste) More complicated projects. Take time to develop. Business case dependent on each projects. Possible regulatory complications.? Projects to be designed for positive impact Less reliance on Eskom s tariffs and supply Assist in project development

17 Some mitigation strategies? Decoupling of tariffs (fixed charge + energy charge). But incentive to invest in EE/RE decreases More efficient business models to save on operating costs, billing, cable theft, non technical losses, etc. A national scheme to compensate municipalities (for rooftop PV) Review of funding model of municipalities for less reliance on electricity revenue Other?????

18 Knowledge Sharing Products AVAILABLE ON And other studies including impact of EERE on revenue

19 Conclusion Impact on revenue is a concern but municipalities are not saying that we should not do EE and RE. EE and RE must be encouraged There are multiple benefits to EE and RE. The impact on revenue must be mitigated to ensure sustainable service delivery, or other ways to finance LG must be explored Models and tools must be used to calculate potential impact. This helps planning Need to communicate better what is being done and the constraints (SALGA s role)

20 Questions What is needed to assist municipalities AND encourage EE and RE? How to assist secondary cities and smaller municipalities, using metros knowledge? What are the mitigation strategies? Who should be involved? What approach? (per technology? Nationally? At LG level?)

21 Thank you Contact: Aurelie Ferry +27 (0)