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eThekwini’s electricity unit ‘needs drastic action to be financially sustainable’

eThekwini’s electricity unit ‘needs drastic action to be financially sustainable’
High-voltage electricity transmission pylons. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | A view of Durban. (Photo: Leila Dougan)

Over the past five years, the city’s electricity unit collected R6bn less than expected on sales in terms of the regulated increases.

A day before the eThekwini Energy Transformation Summit, a full council meeting heard that the city’s electricity unit would, unless drastic action was taken, no longer be financially sustainable — as it continues to face mounting competition from alternative energy supply sources and has a rapidly diminishing customer base.

According to a report tabled before the council by the Governance and Human Resources Committee on Tuesday: “It goes without saying that the unit is no longer a monopoly. There are more Independent Power Producers (IPPs) out there competing in that space.”

Over the past five years, the city’s electricity unit had collected R6-billion less than expected on sales in terms of the regulated increases. “This means that the demand for electricity has decreased drastically, and the revenue will continue to decline despite tariff increases being applied yearly. The electricity unit is facing an unsustainable position to maintain itself moving forward,” read the report.

Rolling blackouts toll

The city’s electrical infrastructure, as in other municipalities across the country, has come under severe pressure due to rolling blackouts, as South Africa grapples with a severe energy crisis.

In February, President Cyril Ramaphosa’s government controversially placed the country under a National State of Disaster due to the power crisis, which threatens the political future of the governing ANC, and empowers his Cabinet to avoid parliamentary oversight and override regulatory protections such as environmental authorisations.

At least two civil society organisations — Solidarity and the Organisation Undoing Tax Abuse — as well as the official political opposition, the Democratic Alliance, are set to challenge the proclamation of the State of Disaster in court.

‘Sustainable energy component’

At the full council meeting, the Governance and Human Resources Committee asked the council, via its report, for the authority to support the creation of a “sustainable energy component” within the electricity department’s organogram, and the immediate creation of three new positions — a strategic executive post and two specialist engineering positions — focusing on grid integration management and energy generation and trading, respectively.

The move, according to the report, would allow the electricity unit to make strategic decisions to secure its sustainability. The unit is experiencing dwindling consumption that has been driven by the floods, 2021 riots and Covid-19 lockdowns, with consumption levels last seen in 2004.

Durban’s electrical grid has not been able to function optimally since the April 2022 floods due to the damage to many of its high-voltage and medium-voltage substations. This means those residents only begin to experience any form of load shedding from Stage 4.

Read more in Daily Maverick: “Durban’s recent misfortunes count in its favour when it comes to rolling blackouts” 

The report further said that the recent amendment bill to the Electricity Regulation Act, which allows for greater private participation in the trading, generation, transmission and distribution of electricity, would further disrupt the electricity unit’s current revenue generation model.

“These [regulatory] changes bring about major disruptions in the sector resulting in changes in the manner in which the electricity industry operates. These have now been evident in the day-to-day business operations, including amongst others, reduction in electricity demand, decline in the revenue collection ratio and migration of consumers away from the grid due to available alternative sources of supply.”

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The report continued that the electricity unit needs “to review its current business model in a quest to ensure acclimatisation and future stabilisation of its revenue-generating business”.

There was a need for the electricity unit to shift its business model to green energy, which would include the amendment of bylaws governing electricity to align the city with national policy and regulatory changes.

The report said that should the city continue to increase electricity tariffs, it would only hasten the electricity unit’s financial decline as more businesses and individual residents migrate to alternative and cheaper energy solutions.

eThekwini has about 850,000 electricity customers, of which 65% are business and industrial, and the remaining 35% residential clients.

‘There must be a drastic shift’

“To avoid such a scenario and strengthen the municipal financial position, there must be a drastic shift in the business and the way things are done. The sustainable energy component is envisaged to lead the business model change and to ensure that financial contribution to the city is managed and better sustained.”

The report noted seven key challenges to the sustainability of the electricity unit:

  • Ongoing load shedding;
  • Major customers opting for other energy sources;
  • The organisational structure of the unit is no longer suited to the current trends;
  • Non-payment of electricity and theft of distribution infrastructure;
  • IPPs pushing the eThekwini electricity unit out of business;
  • The continuing increase in electricity tariffs; and
  • Ageing infrastructure.

The unit confirmed that funding for the structure would be made available through reprioritising the existing budget in the 2022/2023 fiscal year.

According to the report, the electricity unit would fund the new positions by reprioritising its overtime budget. “The overtime budget for the unit will be cut by 55% (about R100-million). These funds would be used to fund critical vacancies and the establishment of the Sustainable Energy Component.”

The council widely accepted the report.

Energy Transformation Summit

The decision was probably timed to coincide with the city’s hosting of the Energy Transformation Summit, which will be held at the Durban International Convention Centre on 1 and 2 March.

According to the city, “the summit aims to deliberate on the energy transformation agenda within the context of eThekwini Municipality”.

Among the areas of discussion will be the positioning of eThekwini in the hydrogen market, the procurement of generation capacity from independent power producers and electrical grid management.

In a statement released in early February, Mayor Mxolisi Kaunda said the municipal government “wants to assure investors that the economic climate of Durban is changing dramatically and the city remains open for business partnerships in its energy future”.

The Energy Transformation Summit has drawn speakers from various levels of government, including KwaZulu-Natal Premier Nomusa Dube-Ncube and the MEC for Economic Development, Tourism and Environmental Affairs, Siboniso Duma. Duma is also chairman of the ANC in KwaZulu-Natal.

There will also be speakers representing the BRICS (Brazil, Russia, India, China, South Africa) economic bloc, diplomats, representatives from local, provincial, national and pan-African business chambers, the renewable energy sector, South African banks and state-owned entities.

The two-day event has 10 high-level panel discussions scheduled, with topics ranging from opening the city’s market for the development of the energy industry, the role of microgrids in rural communities, and attracting private investment for energy infrastructure projects using public-private partnerships. DM

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