Finance and Economic Opportunities

With regard to the government’s plan to allow municipalities to purchase electricity from different sources, the “government’s plan” refers to the amendments to the electricity regulations on new generation capacity, gazetted on 16 October 2020, by the Minister of Department of Mineral Resources and Energy (DMRE), to enable municipal power generation projects.

(1)    What are the details of the municipalities that have indicated readiness to purchase electricity from independent power producers (IPPs);

The amended regulations were published on 16 October 2020. The DMRE indicated in its media release that it has put in place an internal standard operating procedure to ensure that the requests for Section 34 Determinations (requests for generation capacity according to the IRP2019) are attended to in the shortest possible time. If new generation determinations are approved by the minister, it will be followed by a registration or licensing application process for the new generation, as is applicable, to NERSA, the national energy regulator.

The metropolitan municipality in the Western Cape Province, the City of Cape Town (CoCT), has been seeking to procure energy from IPPs since 2015 and through a court case been referred to engage with the DMRE through the intergovernmental framework. Additionally, CoCT after the gazetting of the amended regulations by the DMRE in October 2020 has been seeking clarification on the practical requirements and submission process to pursue electricity purchase & projects from IPPs.  The City of Cape Town has also been engaging in the Cities Support Programme (CSP) of the National Treasury together with other metropolitan municipalities in South Africa to explore how purchasing of electricity from IPPs by municipalities would work.

(2)    (a) what are the details of the IPPs that are operational in the province and (b) what is the (i) electricity generating capacity of each and (ii) source of energy used for electricity generation by each;
The Independent Power Producers Procurement Programme (IPPPP) of the DMRE, which is a partnership with National Treasury and DBSA, publishes reports of the REIPPPP (Renewable Energy Independent Power Producer Programme) per province. The report “REIPPPP focus on the Western Cape” provincial report, Volume 3, June 2020 reports the 9 IPPs that have reached commercial operation date (COD) in the province between November 2013 to June 2020. Subsequently, another REIPPPP project became operational in October 2020, therefore a total of 10 operational REIPPPP projects in Western Cape .

(3)    whether there are any IPPs that have been identified to supply municipalities with electricity; if not, why not; if so, what are the relevant details;
At this stage, no specific IPPs have been identified, to supply municipalities with electricity. The amended new generation regulations were gazetted by the DMRE on 16 October 2020. The compliance with the new generation application process will precede the procurement process for municipalities to source and secure supply contracts with IPPs in a fair, transparent and value for money basis. Furthermore, the procurement of energy at utility scale and distribution scale (i.e. bulk energy from IPPs), under conditions of newly gazetted regulations is a complex and challenging task that has not yet been tested. The Municipal Energy Resilience project, spearheaded by the Department of Economic Development and Tourism, which seeks to improve energy resilience of municipalities will amongst other components look to test and develop the path to procurement of electricity from IPPs, following applicable governing Municipal legislation.

(4)    (a) how will this decision by the national government help to boost economic growth in the province, (b) what will the benefit of this move be for the ratepayers and indigents in municipalities and (c) how much electricity capacity will municipalities be allowed to procure directly from IPPs?
(a) The decision will boost economic growth in the province in a similar way as the REIPPPP programme over the past 7 years by increasing energy security and diversifying sources of electricity supply while improving environmental sustainability, by replacing the dominant fossil fuel base supply of Eskom, to renewable energy sources from IPPs. More secure electricity supply will the mitigate the effects of loadshedding and environmental impact in the province and in the country and debilitating impact of rotational blackouts. Jobs and local sourcing and manufacturing of renewable energy components created by new IPPs will increase economic development, growth and jobs in the province.
REIPPPP economic, enegy and environmental statistics to date:
•    The Western Cape has been allocated 9% of total IPPPP projects procured in SA to date.
o    606 MW of renewable energy contracted in the Western Cape,
o    565 MW operational from 10 projects
o    431 MW is Wind
o    134 MW of Solar.
•    The average lead time for these 9 projects to complete has been 1.8 years.
•    Once all 606 MW has been completed, the province will produce around 8% of its own electrical power needs from renewable energy sources (supplied into the national grid for distribution)
•    6,047 GWh produced by IPP’s in the Western Cape, of which 4,804 GWh is Wind and 1,243 GWh is Solar
•    6.1 Million tons of CO₂ emissions reduction achieved in the Western Cape to date
•    Local content achieved in the Western Cape was 50% of Total Project Value
•    Local communities hold 6% equity in the IPPs
•    Employment for South African citizens and persons from local communities in the Western Cape stood at 4 580 job years to date (where 1 job year is equivalent to one fulltime job for one person for one year) of the estimated 11 068 job years due to be created for SA citizens over the construction and projected operational life of the plants.
•    The total procurement spend in the Western Cape during both construction and production amounts to R 10.4 billion or 7% of the total committed procurement spend of the programme. Of this, R6.9 billion (65%) has already been spent.
•    45% of the total project value in the Western Cape has been allocated for local procurement, totalling 5.1 billion rand of which 85% has already been spent to date.
•    Socio-economic development commitments of R1.3 billion over the 20 year planned project operational life have been made by IPP’s in the Western Cape, of which R900 million has been committed to local communities located within the vicinity of the IPP projects. R130 million of this commitments have already been invested.
•    Socio-economic development commitments in the Western Cape are focused on five categories:
o    education and skills development,
o    social welfare,
o    healthcare,
o    general administration,
o    and enterprise development

(b) The benefit to ratepayers and indigents in municipalities has not been quantified. However, it is expected to be the benefit of the difference between the rapidly rising cost and tariffs of Eskom supply (based mostly on fossil fuels) and the declining prices of renewable energy sources. CSIR studies show the most recent bid window (BW 4.5) of REIPPPP, the actual average tariffs for Solar PV and for wind was R0.62/kWh in 2016 and international auction prices are lower currently. Baseload coal generation tariff was R1.03/kWh. Eskom average retail tariff is R1.16/kWh.

(c) The electricity capacity that municipalities will be permitted to procure directly from IPPs will depend on several factors, including a feasibility (including but not limited to technical, economic, financial feasibility) of the electricity procurement by a municipality from an IPP and/or other sources, technical feasibility of renewable energy projects, incorporation of the energy projects into the IDP of respective municipality as well as council approval and processes for application for ministerial approval and regulator’s concurrence.