South African municipalities in deep trouble

South Africans continue to invest in solar and other off-grid energy solutions, which is becoming an alarming risk to municipalities’ sustainability.

This is according to Cooperative Governance and Traditional Affairs Minister Velenkosini Hlabisa in response to a Parliamentary question. 

ANC MP Nombiselo Suzan Sompa-Masiu asked the minister about his department’s plans to replace the potential loss of a significant component of municipalities’ electricity revenue.

This comes as South African households and industries are increasingly developing off-grid generation capacity, with rooftop solar particularly popular.

While this trend started as a way for South Africans to stave off the impact of load-shedding, it has continued to grow due to Eskom’s high electricity tariffs.

South Africans are paying five times more for electricity in 2024 than in 2010 due to repeated above-inflation increases from Eskom. 

Eskom’s latest financial results, revealed in a performance update to Parliament’s Standing Committee on Public Accounts (Scopa) in October this year, showed the impact of this trend.

While the utility’s revenue for the first quarter rose by 15% compared to the same period last year, its sales volumes were 1 TWh lower. 

This means its increased revenue largely came from higher electricity tariffs on consumers. 

Many businesses and households are trying to mitigate the effects of these increases by using alternative energy options, particularly rooftop solar, to avoid tariff hikes. 

This significantly impacts Eskom and municipalities’ income, as they largely depend on revenue from selling electricity.

In his response, Hlabisa said the risk to municipalities’ revenue from South Africans switching to off-grid alternatives has become alarming.

“The Department of Cooperative Governance and Traditional Affairs (CoGTA) acknowledges the impact of off-grid generation on municipal revenue,” he said. 

“To address this, we’re developing strategies to diversify and enhance municipal revenue streams.” 

In the short term, the department will encourage municipalities to review their tariffs to ensure they remain competitive, improve revenue collection, and reduce debt. 

“We’re also supporting municipalities in exploring alternative revenue streams, such as waste management, water services, and property rates,” he said. 

Long-term measures include developing a Municipal Energy Reform Strategy to enable municipalities to adapt to changing energy landscapes and promoting the integration of renewable energy sources into the municipal energy mix. 

“We are considering collaboratively investing in smart grid infrastructure and supporting research into new energy technologies and innovative revenue models,” he said. 

“Our department will continue to work with the National Energy Regulator (NERSA) to ensure regulatory frameworks support municipal energy generation and distribution.”

“We are committed to ensuring municipalities remain financially sustainable and resilient in the face of changing energy landscapes.”

Municipalities’ financial struggles significantly impact the country, not only because they lead to diminished public service delivery but also because they have consequences for Eskom’s finances.

Earlier this year, Eskom said it had to ask for a 36% increase in electricity prices, partly because the government was unable to rein in delinquent municipalities.

Municipalities, including those governing some of the country’s biggest cities, owe the utility R85 billion, which could rise to R200 billion in the 2028 financial year.

“This is unsustainable,” Eskom CFO Calib Cassim said. “Government needs to address this.”

In the Medium Term Budget Policy Statement (MTBPS) in November last year, Finance Minister Enoch Godongwana introduced support to relieve municipalities of the debt they owe to Eskom. 

The minister said it would be counterproductive to try and address the problems at Eskom without dealing with chronic municipal non-payment and historical debt owed to the utility. 

Therefore, the municipal debt relief was introduced, whereby, on application, the debt owed to Eskom up to 31 March 2023 will be written off over three years in equal annual tranches.