The Importance of Municipalities in the Energy Transition

South Africa is on the cusp of a major energy transition, and municipalities are in the midst of navigating their role. As the primary distributors of electricity to consumers across the country, municipalities are critical players in the energy transition. They manage the infrastructure that delivers power to homes, businesses and industry, making them uniquely positioned to integrate renewable energy sources and shape a more decentralised and sustainable energy landscape. 

Urban Energy Network Workshops

To empower local governments in this shift, Sustainable Energy Africa (SEA), the South African Local Government Association (SALGA), and the South African Cities Network (SACN) annually host the Urban Energy Network (UEN) Meetings. These meetings bring together municipal leaders and stakeholders to engage in critical energy discussions including but not limited to the adoption of energy efficiency measures and the uptake of renewable energy.  They also provide a useful platform to delve into the opportunities and complexities associated with the transforming energy sector, enhancing knowledge sharing, collaboration, and strategy development. 

The 2024 UEN Meeting, themed “Green Cities”, was hosted on 12 September at Irene Country Lodge in Pretoria. The event was held in partnership with C40 Cities under the South African Clean Energy Program.  Over 40 participants from seven municipalities, two universities, the Department of Minerals Resources and Energy (DMRE) and several renewable energy organisations were in attendance and engaged on municipal own renewable energy generation and Independent Power Producer (IPP) procurement.  

Session Highlights

Dr Silas K. Mulaudzi from SALGA kicked off the event by acknowledging the myriad of challenges currently facing municipalities, both within and out of their control. Standing out is the inadequate maintenance of infrastructure and mismanagement of municipal resources, the shortage of generation capacity, loss of revenue from unregistered embedded generators or the absence of embedded generation tariffs , and illegal power connections. Various mitigation measures were discussed, which included a diversification of municipal business models, setting appropriate tariffs and use of system costs to stabilise municipal finances.

The procurement of renewable energy assets for municipal own generation was discussed with learnings from a UK PACT funded, SALGA led and SEA implemented project. With the role of municipalities in harnessing renewable energy being increasingly explored, the Municipal Own Generation Programme aims to identify the challenges preventing uptake, demystify municipal own generation, and ultimately increase readiness for successful procurement through capacity building. This is also in response to the emerging “energy democracy” – a more decentralised and participatory approach to energy management where municipalities are empowered to make key decisions about their energy future. The biggest emerging challenge is the lack of funding available to support the development and implementation of own generation projects in municipalities. A Public Procurement Framework (PPF) Guide will be developed, highlighting the institutional, technical and financial building blocks to ensure readiness for municipal own generation, guided by international best practice. Also to be developed are a set of contracting templates for the procurement process specific to renewable systems. The outputs will be made available to all South African municipalities.        

To facilitate the procurement of renewable energy through IPPs, the UK PACT program has appointed a consortium of advisors led by the University of Pretoria to provide technical and legal support to SALGA and selected municipalities. This initiative recognizes the crucial role of the private sector in expanding renewable energy generation, as IPPs can assume the financial and operational responsibilities that might be overly challenging for some municipalities. However, it’s equally important to ensure municipal readiness for IPP procurement, whether through self-generation or partnering with IPPs. This entails strengthening municipal finances, minimising energy losses, reducing Eskom debt, and developing staff expertise to effectively integrate renewable energy sources. This initiative includes creating template contracts for municipal energy procurement, a crucial tool for navigating the legal complexities of renewable energy projects. 

The Meeting also shed light on innovative approaches to renewable energy access. Case studies by Mareka Mokwatlo from Nelson Mandela University (NMU) showcased the concept of social ownership in energy services, where communities actively participate in the development and ownership of renewable energy infrastructure. This approach not only empowers communities but also ensures that the benefits of the energy transition are shared equitably.

Financing 

Financing renewable energy projects is a major hurdle for many municipalities, and SALGA addressed this head-on by unpacking the Municipal Just Energy Transition Investment Plan (JET IP). This plan outlines various funding avenues,including grants and loans from local and international bodies, providing a roadmap for municipalities to secure the necessary capital for their projects. However, SALGA emphasised that municipalities must improve their financial readiness by strengthening revenue collection and billing systems to ensure the long-term viability of renewable energy investments.

• • JET Investment Needs: South Africa’s Just Energy Transition requires an estimated ZAR 1.48 trillion in funding across sectors such as electricity, new energy vehicles (NEV), green hydrogen, and skills development, with municipal capacity accounting for a significant portion.
  • JET IP Financing Status: Over USD 11.5 billion in international financing has been pledged for the JET IP to date, excluding USD 330 million to be mobilised from local DFIs, reflecting strong global support for South Africa’s energy transition.

Proposals Moving Forward

Robust discussions throughout the workshop highlighted the need for a balanced approach, combining municipal own generation with strategic IPP procurement. While municipalities can leverage renewable energy for cost savings and increased resilience, the private sector remains better equipped to handle large-scale projects due to its financial capacity and operational expertise. However, several challenges were identified, including the complexity of municipal procurement processes, a skills deficit within municipalities, funding constraints, and infrastructure issues like grid capacity limitations and theft.

To address these challenges, the workshop concluded with a discussion on mitigation measures and avenues available for municipalities going forward. These include the release of the upcoming Municipal Own Generation PPF Guide, the development of standardised contract templates for both municipal generation and IPP procurement, and the potential establishment of a Municipal Renewable Energy IPP Office to streamline processes and provide strategic support. Additionally, municipalities were encouraged to explore partnerships with energy traders as an alternative to traditional IPP procurement.

These initiatives demonstrate the growing momentum behind South Africa’s renewable energy transition. By providing municipalities with the necessary tools, resources, and support, the country can unlock the full potential of renewable energy, creating a more sustainable, equitable, and prosperous future for all.

Municipalities looking for resources and guides can visit the following websites:

• • Urban Energy Support Website – 
  • Small-Scale Embedded Generation (SSEG) website 
  • Municipal Power Procurement Learning Guide 
  • Best practice in setting up municipal PPAs