Finance and Economic Opportunities

1. 1. 1. (a) (i) The table below provides the summary of expenditure on energy from 2020/2021 to date:

 

Financial Year	Expenditure	Details of expenditure
2019/20	Part of R5 186 673 R3 900 000	Green economy ecosystem support Energy Security Game Changer, including COE
2020/2021	R 14,197,893.10	Project development services and strategic advisory costs - Municipal IPP procurement Green economy ecosystem support (contract not only energy - some expenditure for water)
2021/2022	R17,037,132.30	Municipal IPP procurement project development services MER Fund grants to municipalities for foundational energy studies (Mini Integrated Resource Plan (IRP), Electricity Master Plans (EMP) and Cost of Supply Study (CoSS) Green economy ecosystem support - expanded to include wheeling framework and tariff support (contract not only energy - some expenditure for water) Municipal IPP procurement project development support
2022/2023 Not yet Audited	R 7,334,288.80	Further expenditure through the MER Fund Municipal wheeling revenue impact assessment Use of systems agreements Future energy demand of private sector high electricity users Pooled buying Green hydrogen national event

 

Financial year 2019/20:

In the 2019/20 financial year (i.e., prior the MER initiative), DEDAT spent an amount of R5 186 673 on the Green Economy Ecosystem Support. The contract covered water, waste and electric vehicles, utility scale energy, energy services and green economy finance. The energy focus included the development of the energy services and renewable energy market intelligent reports, the provision of an energy sector desk, the development and distribution of industry briefs, case studies and awareness materials, industry events, inputs into regulatory matters, technical advisory support to businesses around the installation of solar PV, and support to municipalities (primarily related to small scale embedded generation (SSEG) i.e. rooftop PV). In the same year, R3 900 000 was spent on the energy security game changer, including COE, which collated efforts between WCG departments and the City of Cape Town and ran awareness campaigns related to energy.

Financial year 2020/21 - 2022/23:

In order to achieve energy resilience, the Municipal Energy Resilience (MER) Initiative has been providing project development support and capacity building to municipalities, while working closely with national government and others to explore how the Electricity Regulations on New Generation Capacity could lead to an increased penetration of the renewable energy generation projects in the Western Cape. This initiative started in 2020/2021and has been subsumed into the Western Cape Energy Resilience Programme as of January 2023.

 

Phase 1 of the MER initiative included the development of business cases study for different technologies and sizes of projects, a municipal readiness evaluation for municipal IPP procurement, a request for information (RFI) to identify mature energy projects in the market, an energy projects report (the pre-feasibility studies for four pioneering projects and a fifth pooled buying project), and a pioneering projects roadmap study.

 

Phase 2 included pioneering projects implementation at candidate municipalities. This involve multiple engagements with the four candidate municipalities with pioneering projects (Drakenstein, Mossel Bay, Saldanha Bay and Stellenbosch) through the MER Municipal Forum, which included all candidate municipalities (and subsequently those supported through the MER Fun) and which were aimed at supporting the municipalities in understanding the pioneering projects studies and gaining their buy-in to proceed to the next stage of the project development process. Out of the four candidate municipalities with pioneering projects, only Stellenbosch and Drakenstein had adopted Council resolutions supporting the next steps toward the implementation of the pioneering projects based on the completed pre-feasibility studies. Out of the two, Stellenbosch Municipality committed to co-fund the required human resource capacity and provide limited capacity through their Project Management Unit (PMU). Given this, DEDAT moved to focus initially on Stellenbosch Municipality as a building block for alternative municipal IPP procurement structuring and evaluation. The support to Stellenbosch includes access to Transaction Advisory (TA) support in order to implement the Municipal Independent Power Producer Procurement (MIPPP) pioneering project, which will be up to 50 MW. This is one of the more complex and first-of-its-kind undertakings (in terms of municipal IPP procurement (MIPPP) in South Africa). Due to limited internal capacity and / or expertise to properly address the intricacies involved, the scoping of the human resource capacity which advanced into developing a job brief was completed, leading to the process to procure Project Officer support for the municipality to act as the interface between the municipality and the transaction advisory services. The call for transaction advisory services to the MER panel of service providers was unsuccessful and the project was subsequently flagged to be moved out of DEDAT. The project has therefore been paused, with the TOR to be reissued to the market once this is taken on by the new Department of Infrastructure.

 

Green economy ecosystem support was provided through contract in 2020/21 and 2021/22. This work included the provision of an energy and water sector desk, the development and distribution of energy and water related industry briefs, case studies and awareness materials, energy and water related industry events, inputs into energy and water related regulatory matters, technical advisory support to businesses around the installation of solar PV, support to municipalities (primarily related to small scale embedded generation (SSEG) i.e. rooftop PV and wheeling), and collation of 1^st level evaluation of municipal readiness for municipal IPP procurement.

 

The MER Fund provided grants to eight municipalities for 13 foundational energy studies (Mini Integrated Resource Plan (IRP), Electricity Master Plans (EMP) and Cost of Supply Study (CoSS).

 

2. The provincial government does not collate information on municipal spend on the generation of alternative electricity, except for the foundational studies supported through the MER Fund. The member will need to enquire directly with each municipality for further information.

 

 

2.  The findings from the DEDAT-funded studies developed as part of Phase 1 of the MER initiative included the following:

 

• Municipal readiness evaluation:
  • Using several criteria identified the candidate municipalities of Drakenstein, Mossel Bay, Overstrand, Saldanha Bay, Stellenbosch, and Swartland.

 

• Key findings from the business cases with respect to regulatory review:
  • Municipalities have Constitutional authority to procure electricity.
  • Section 34 determination is not required for MIPPP (Advisory team view).
  • Feasibility Study may be required in terms of NewGen Regulations – linked to licencing.
  • Section 33 process for long-term contracts is required.

 

Key findings relating to the costs of different energy options (table extracted from the business case report):

 

• • On the basis that the municipal IPP programme will only procure utility scale projects which are above 10MW, the finding showed that it was likely that only onshore wind and solar photovoltaic projects would be considered for this procurement programme.

 

• Key findings relating to the Request for Information from the market:
  • Information was solicited from the public sector (municipalities) and private sector developers across all power generation technologies. Total capacity amounted to 7 631 MW with 4 851 MW initially potentially viable.
  • 4 600 MW for large projects >50MW, 250 MW for Small projects <50MW, 964 MW Potentially viable capacity identified with 876 MW for Large projects >50MW and 88 MW for Small projects <50MW.
  • Assessed the ‘most ready’ projects that were submitted by private sector developers. The outcome of assessment identified the locations of the highest level of interest (technologies and location) from developers.
  • The outcomes of the RFI were used to recommend 5 pioneering projects: Drakenstein (wind and PV), Mossel Bay (PV), Saldanha Bay (PV), Stellenbosch (PV) and Multi-Jurisdictional SPV comprising these 4 municipalities:

 

 

• Key findings from the energy projects report (please note that this also included amalgamation of business case outputs with municipal readiness evaluation):
  • The pre-feasibility assessments of the five pioneering projects (i.e., Stellenbosch solar PV, Saldanha solar PV, Mossel Bay Solar PV, Drakenstein Solar PV/Wind and the Multijurisdictional entity), noted that none of the projects are absolutely constrained resulting in such a project being excluded from further consideration for implementation. However, the study further indicated that there are significant constraints on the spare capacity available at the substations, limiting the overall capacity to procure new electricity generation by the Candidate Municipalities.

The following is a table that shows the location of the five pioneering projects:

Pioneering project group	Municipality/location	RE generation technology	Grid Capacity
Project 1	Drakenstein	Solar PV &/or Onshore Wind	81 MW & 54MW
Project 2	Stellenbosch	Solar PV	51 MW
Project 3	Mossel Bay	Solar PV	37 MW
Project 4	Saldanha Bay	Solar PV	28 MW
Project 5	On Eskom transmission network where evacuation capacity is sufficient at eh substation and transformer limit  - thus in Renewable Energy Development Zone or any REEA (Renewable Energy Environmental Authorisation location)	Solar PV (can be expanded to incorporate/combine with Onshore Wind)	198 MW (excluding Cape Town)

 

 

• • The table below indicates that all pioneering projects would decrease the current cost of supply (decrease ranges between 5% and 9%) with pioneering project 5 slightly better than Pioneering Project 1 – 4 (including estimated wheeling charges) due to better energy yields, economies of scale (lower capex) and better funding terms.

 

 

 

• Key findings from the pioneering projects roadmap report based on the assessment of institutional and human resources capacity within the selected Candidate Municipalities:

• At an institutional level, municipalities did not have any relevant comparable experience.
• At a project champion level, there were individuals with sufficient experience and level of seniority.
• At a project team level, very capable individual team members proposed by the municipalities, but with no relevant comparable experience
• Individuals were proposed to work on the project on a part-time basis only.

 

• Key findings from the foundational studies (MER Fund):

 

• The Western Cape MER Fund provided financial aid through a grant to qualifying Western Cape municipalities to support the implementation of renewable energy and energy resilience projects in the province. The grant specifically focused on the foundational and preparatory studies required to enable renewable energy readiness in municipalities and provided support to municipalities to undertake preparatory studies in the following four categories:

A.   Updating of electricity master plans to accommodate renewable energy supply (e.g., in the form of a Grid Capacity Connection Assessment) to assess grid capacity availability and the state of the grid

B.    Development / updating / review of Cost of Supply studies for NERSA approval - to enable municipalities to set appropriate tariffs for SSEG, wheeling and other

C.   Mini-Integrated Resource Plans (IRPs) / Energy Master Plans for the municipality to plan for their optimal energy mix

D.   Other renewable energy project development or preparatory activities which would further the goals of the MER Initiative (only for very mature projects i.e., within 12 - 18 months from Commercial Operations Date)

 

 

• The outcome of the of the MER Fund, resulted in 13 energy studies being funded in eight municipalities, with a total amount of R9, 961 million awarded:

Study	Progress
Mossel Bay
Cost of Supply Study	Completed
Swartland
Updating of EMP	Completed
Overstrand
New Cost of Supply Study	Completed
George
Updating of EMP	Completed
Witzenberg
Cost of supply study	Completed
Updating of EMP	Completed
Stellenbosch
Mini IRP/Energy Master Plan	Completed
Updating EMP	Currently underway
Cost of Supply Study	Currently underway
Bitou
Cost of supply study	Completed
Updating of EMP	Completed
Cape Agulhas
Cost of supply study	Currently underway
Updating of EMP	Currently underway

 

• The fund enables municipalities to prepare for renewable energy procurement, whether from Eskom, independent power producers (IPPs) or through a mechanism such as small-scale embedded generation (SSEG) or electricity wheeling. The resultant work provides a guide to municipalities in the sizing and scoping of their own energy procurement, an understanding the future energy requirements of the electricity network, and to inform municipalities of potential revenue impacts and how these can be mitigated. The following are the key findings from the studies that have been completed:
  • • • The Mini IRP study for Stellenbosch: The study showed that by procuring alternatives and diversifying the energy mix, the cumulative cost of electricity could be reduced by 20%. With the addition of low-cost renewables, the unit cost of electricity could be significantly lower than the business as usual (BAU) scenario. Stellenbosch Municipality has the opportunity to lower their demands on the struggling national network, reduce electricity costs and lower their environmental impact.
      • The Cost of Supply Studies for municipalities: The Cost of Supply studies have assisted municipalities in developing cost-reflective electricity tariffs which will determine the current cost to supply electricity and the anticipated cost of service for the next financial year in order for the municipalities to move towards cost-reflective tariffs within the subsidised model so as to be in a better financial position to render the services as required by a municipality while taking into account renewable energy penetration.
      • The Electrical Master Plans for Municipalities: Electrical master plans have formed the foundation for municipal capital expenditure planning.  This informs the Integrated Development Plans (IDPs) to be adopted by the Council to inform future infrastructure investment and budgetary considerations.

 

3. Service providers awarded contracts by DEDAT:

 

• MIPPP project development services: J Maynard, Bowmans and Royal Haskoning DHV - included the development of the Business Cases, Energy Projects Report and Roadmap Reports.
• MIPPP strategic advisory services: Vally Padayachee
• Green economy ecosystem support: GreenCape Sector Development Agency.
• Municipal wheeling revenue impact assessment – Sustainable Energy Africa (SEA)
• Use of systems agreements – Pegasys
• Future energy demand of private sector high electricity users – Sustainable Energy Africa (SEA)
• Pooled buying – Price Waterhouse Cooper (PWC)
• Mini IRP/Energy Master Plan (EMP), Stellenbosch Municipality – CSIR*
• Updating EMP, Stellenbosch Municipality – GLS Consulting*
• Cost of Supply Study, Stellenbosch Municipality -  Neil Lyners and Associates and BBE Energy*
• Cost of Supply Study, Mossel Bay Municipality -  CVW Consulting Engineers*
• Updating EMP, Swartland Municipality - De Villiers & Moore*
• New Cost of Supply Study, Overstrand Municipality – Neil Lyners and Associates*
• Cost of Supply Study, Bitou Municipality – GLS Consulting*
• Updating EMP, Bitou Municipality - GLS Consulting and Neil Lyners and Associates*
• Updating EMP, George Municipality - CVW Consulting Engineers*
• Updating EMP, Witzenberg Municipality - Neil Lyners and Associates*
• Cost of Supply Study, Witzenberg Municipality – CVW Consulting Engineers*
• Updating EMP, Cape Agulhas Municipality - Motla Consulting Engineers*
• Cost of Supply Study, Cape Agulhas Municipality - Motla Consulting Engineers*

 

* Companies appointed by the municipalities to develop the studies through the MER Fund. 

 

(2)(a) The MER Initiative (subsumed into the Western Cape Energy Resilience Programme as of January 2023), is broken down into various projects at various stages of implementation:

 

• Stellenbosch Municipality (STM) MIPPP Pioneering Project – Transaction Advisory Services (TA) and Project Officer.
  • A Job brief for transaction advisory services was issued to the MER panel of service providers unsuccessfully.
  • A revised TOR is to be issued to the open market following the move of the municipal IPP procurement work to the Department of Infrastructure.

• Municipal pooled buying mechanism project
  • Options analysis draft for comment due at the end of March.
  • The business case analysis (end July). 
  • Municipal consultations (end August).
• MER Fund project
  • The foundational studies for Mossel Bay, Overstrand, George, Swartland and Bitou are completed.
  • There is continued support to projects completion for Stellenbosch, Witzenberg and Cape Agulhas Municipalities to finalise the CoSS and EMPs.
• Profiling the future energy demand of private sector high electricity users.
  • Report developed that includes the identification of highest electricity users in each municipality, their current and future electricity requirements and current and planned alternative energy implementation plans, and recommendations for potential barrier removal.
  • Finalised the model for future energy need trends.
• Wheeling use-of-system agreements
  • Standardized Use-of-Systems agreements for electricity wheeling at municipal level developed with George Municipality as the focus.
  • Suite of use of system agreements in the process of being finalised.
• Municipal wheeling revenue impact assessments
  • Municipal wheeling revenue impact model developed based on George Municipality and Overstrand Municipality.
• Enabling infrastructure
  • Grid Assessment report including multiple engagements with Eskom on transmission infrastructure.
  • Review of battery energy storage system (BESS) models.
  • Resolving how to ramp up interactions with DEADP and others on wayleave/servitude related matters.
  • Scoping revision as part of energy resilience programme strategic realignment – to increase focus on municipal networks infrastructure (vs/Eskom) & on particular municipalities (criteria to be defined).
• Municipal revenue and financing
  • World Bank to submit draft report being done for National Treasury (NT) to Provincial Treasury (PT) & Department of Economic Development and Tourism (DEDAT) for review and PT & DEDAT to identify if additional research required.
  • Following quarterly municipal CFO Forum meetings, which the energy team has provided inputs into, PT is scoping a sub-stream for municipal CFOs that will focus on energy finance related matters including municipality revenue , municipality IPP Procurement, financial incentives of SSEG etc.
  • Deeply involved in NT led, World Bank funded development of green economy financing and funding mapping.
• Green Hydrogen (GH2)
  • WCG GH2 position paper endorsed by Cabinet.
  • MOU signed with the Northern Cape.
  • Continual engagements with multiple investors, Infrastructure SA and industry players.
  • Facilitation of a GH2 Coordination Workgroup to define and detail project concept.
  • Working to access Spanish funding.
  • Procurement of services for green hydrogen strategy development.
  • Sasol and AMSA workshops: Stakeholder mapping and spatial footprint.
• Communications
  • Quarterly MER forum including 10 municipalities and the City of Cape Town - capacity building on alternative energy.
  • 110% Green website to share industry updates, strategic updates, events, etc.
  • Multiple presentations and engagements at District Coordinating Forums, PT TIME sessions, Premier’s Coordinating Forums, Minmay, Minmay Techs etc. - updates on the energy situation, communication on work underway, updates from municipalities
  • Strategic engagements with multiple external organisations.

 

1.  

Project	Municipality	Accomplished action steps
MER Communication	All district municipalities	Unpacked the MER initiative and recommend solutions with municipalities through the District Coordination Forums/Technical Forums (DCFs/Techs)
Municipal wheeling revenue impact assessment	Initially George and Overstrand – to be distributed to all municipalities	Municipal wheeling revenue impact model developed
Wheeling use of systems agreement	Initially George – to be distributed to all municipalities	Standardized Use-of-Systems agreements for electricity wheeling at municipal level developed, and suits of system agreements in the process of being finalised
Profiling the future energy demand of private sector high electricity users	All municipalities – to be distributed	Report developed that includes the identification of highest electricity users in each municipality, their current and future electricity requirements and current and planned alternative energy implementation plans, and recommendations for potential barrier removal
SSEG framework & tariff support	All WC municipalities	Support for SSEG frameworks and tariffs
Pooled buying project	Drakenstein, Stellenbosch, Mossel Bay, Saldanha and Stellenbosch municipalities and the City of Cape Town	Draft option analysis report that will be tabled to the municipalities by the end of March
MER Fund	Mossel Bay, Swartland, Overstrand, George, Witzenberg, Stellenbosch, Bitou and Cape Argulus	Refer to the MER Fund status table under 1(b) above
MIPPP pioneering project   Pioneering project pre-feasibility work done for 4 municipalities, TA support only being provided to Stellenbosch at this stage.	Stellenbosch Municipality	Support towards adoption of Council resolution Job brief for Transaction Advisory services Draft Job Brief for the Project Officer
	Drakenstein	Support towards adoption of a Council resolution
Green Hydrogen	Saldanha Bay	Sasol opening their offices in Freeport Saldanha's Access Complex

 

 

2. (i) The funding allocated to the municipalities for the MER Fund are broken down as follows:

 

Municipality	Foundational Study	TPA Funding	Revised TPA Funding	Expenditure  to date
Stellenbosch	Mini IRP/Energy Master Plan	R900,000		R900,000
	Updating EMP	R300,000		R300,000
	Cost of Supply Study	R1,200,000	R 938 126	R 450,000
Mossel Bay	Cost of Supply Study	R500,000		R500,000
Swartland	Updating of EMP	R 400,000		R 400,000
Overstrand	New Cost of Supply Study	R650,000		R650,000
Bitou	Cost of supply study	R650,000		R650,000
	Updating EMP	R700,000		R700,000
George	Updating of EMP	R400,000		R400,000
Witzenberg	Updating EMP	R747,500		R460 000
	Cost of Supply Study	R1,014,000		R494 0000
Cape Agulhas	Updating of EMP	R 1,000,000	R 340 199.17	R 287 269.59
	Cost of Supply Study	R 1,500,000	R 322 150.42	R 322 150.42

 

• Wheeling use of system agreements: George Municipality: R1 499 945.
• The other projects are for multiple municipalities and cannot be broken down per municipality.

 

(ii) The City of Cape Town has its own energy resilience strategy in place, with several substantial projects implemented. The WCG energy team works closely with the City of Cape Town energy team to enable alignment and to strengthen each other’s work. The City of Cape Town would need to be contacted directly for detail on their projects and expenditure.