The City of Cape Town has recently published a two part tariff for small scale embedded generation. On this tariff customers are paid R0.52 for each unit (kWh) of energy fed into the grid, are charged R1.01 for each unit consumed, and are required to pay a daily service charge of R12.08 for the service. This tariff has caused controversy and dispute between local government and the private sector.
On the one side, the solar photovoltaic industry made the following arguments: The set daily service charge is too high, where in fact there should be no service charge. Customers would have to install large systems to benefit from the tariff and the daily charge would result in excessively long payback periods. That system owners are entitled to be paid the same amount for energy fed into the grid as they are charged for electricity consumed (also known as net metering). Net metering is used in cities in the global North and should thus be applied in Cape Town. That the PV industry is playing its role in pursuing low carbon development and is assisting local government in achieving these objectives. As such local government should create an incentive to solar PV deployment which entails a reasonable pay-back period and an attractive return on investment. In short, industry argued that the current tariff creates a disincentive to invest in solar PV systems.
On the other side, the City of Cape Town made the following arguments: That a tariff has to reflect the cost of delivering a service. During the time-of-day solar PV generates local government buys electricity from Eskom at a cheap rate; paying PV owners R1.42 (the domestic consumption tariff) per unit (when it is bought for only R0.46 per unit) is not cost reflective. Conversely, during peak times (when solar PV does not generate) the City of Cape Town buys from Eskom at an expensive rate (approximately R2.50 per unit). Net metering would not promote load shifting and charging solar PV owners R1.42 per unit consumed during peaks would likewise not be cost reflective. Furthermore, local governments raise significant revenue from electricity sales to mid-high income households. This revenue is used to cross-subsidise electricity for poor households and other general municipal services. Net metering would create an overwhelming incentive for mid-high income households to invest in solar PV which would threaten the revenue model of local government and its capacity to subsidise the poor. In short, local government argued that net metering would threaten entrenched tariff principles such as cost reflectivity, financial sustainability and cross-subsidies. The City concedes that existing tariffs such as the Inclining Block Tariff do contravene some tariff principles, but that this is to achieve social and economic goals.
The establishment of a feed in tariff in Cape Town brings a number of critical questions to the fore. Is it viable and justifiable for cities in the global South, where transfers from the rich to the poor are necessary for a fair and just society, to follow developed city models for facilitating renewable energy uptake? Is it fair to re-allocate electricity subsidies targeted to the poor as a subsidy to mid-high income households for renewable energy uptake? Is it possible for local government to promote renewable energy if their financial sustainability depends on the continued sale of electricity? Is the national government level more appropriate for provision of funding for small scale embedded generation? Can government and private sector rationales and interests be aligned or in the very least can they understand each other’s priorities?
Finally, is it possible for local governments to balance pro-poor and low carbon interests or are certain trade-offs inescapable?
Read Saul’s previous post “Smart Electricity for South Africa – a civil society response.”
Saul holds a Bachelor of Laws (LLB) and a Master of Environmental Studies (MEnv). He is part of the Mistra Urban Futures Programme (MUF), a programme which aims to create new capacities through co-production of knowledge as a partnership between local government and universities. Saul’s research area is local government energy governance. He is embedded in the City of Cape Town’s Energy and Climate Change Unit where he is assisting with the development of various sustainable energy policies. He is currently conducting research, for a Ph.D., on local government led sustainable energy development, particularly looking at regulation and socio-technical systems.
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