EMBEDDED GENERATION: PERSPECTIVES FROM NELSON MANDELA BAY MUNICIPALITY

• Peter Neilson

• Acting Executive Director

• Electricity and Energy Directorate

• Nelson Mandela Bay Municipality

• Eastern Cape, South Africa

Waste... Rubbish... or Energy?

The NMBM Experience

kW hours or wires?

Embedded or centralized generation?

Discussion

• The service delivery and governance mandate of the Municipality

in legal terms

• Municipal revenue at a glace

– Budgets

– Income

– Expenditure

– Profit

• Embedded generation impact

– Reduced kWh sales

• The Crystal Ball

Legal aspects:

The Constitution in Section 152 states that:

The Objects of local government are

(a) to provide democracy and accountable government for local

communities

(b) to ensure the provision of services to communities in a

sustainable manner

(c) to promote social and economic development

(d) to encourage the involvement of communities and community

organisations in the matters of “local government”

Why we are able to restructure the business

Legal aspects (cont.)

• The Constitution in Section 156 deals with powers and functions of

municipalities

“(1) A municipality has executive authority in respect of, and has

the right to administer the local government matters listed in Part

B of Schedule 4 and Part B of Schedule 5; and any other matter

assigned to it by national or provincial legislation.

(2) A municipality may make and administer by-laws for

the effective administration of the matters which it

has the right to administer.

Legal aspects (cont.)

(3) Subject to section 151(4), a by-law that conflicts with national or

provincial legislation is invalid. If there is a conflict between a by-law

and national or provincial legislation that is inoperative because of a

conflict referred to in section 149, the by-law must be regarded as valid

for as long as that legislation is inoperative.

(4) The national government and provincial governments must assign

to a municipality, by agreement and subject to any conditions, the

administration of a matter listed in Part A of Schedule 4 or Part A of

Schedule 5 which necessarily relates to local government, if that

matter would most effectively be administered locally; and the

municipality has the capacity to administer it.

Legal aspects (cont.)

(5) A municipality has the right to exercise any power

concerning a matter reasonably necessary for, or

incidental to, the effective performance of its functions.

Local Government: Municipal Systems Act (32 of 2000) (MSA) S8

(2) of the Local Government: Municipal Systems Act (32 of 2000)

(MSA) states that “A municipality has the right to do anything

reasonable necessary for, or incidental to, the effective

performance of its functions and the exercise of its powers”

S 11 of the MSA deals with executive and legislative authority and

S11(3) records that a municipality exercises its legislative and

executive authority by inter alia “promoting and undertaking

development, providing municipal services to its local

community and promoting a safe and healthy environment”

It follows that a municipality has the responsibility, and the

powers to ensure that services are provided in a financially and

environmentally sustainable manner.

Legal aspects (cont.)

Revenue Contribution

Financial Yr Sales Bulk Purchases Gross Profit % Gross Profit Contribution % Contribution

2006/2007 -1,119,758,699.36 611,923,001.77 -507,835,697.59 45% 139,969,837.42 12.5%

2007/2008 -1,196,274,998.66 663,170,083.73 -533,104,914.93 45% 149,534,374.83 12.5%

2008/2009 -1,502,322,088.00 901,060,864.00 -601,261,224.00 40% 187,790,261.00 12.5%

2009/2010 -1,807,750,905.00 1,184,203,683.00 -623,547,222.00 34% 225,968,863.13 12.5%

2010/2011 -2,185,993,075.00 1,511,442,011.00 -674,551,064.00 31% 273,249,134.38 12.5%

2011/2012 -2,711,116,309.00 1,915,652,397.00 -795,463,912.00 29% 338,889,538.63 12.5%

2012/2013 -2,819,881,230.00 2,109,854,326.00 -710,026,904.00 25% 352,300,260.00 12.5%

2013/2014 -2,963,172,710.00 2,168,503,520.00 -794,669,190.00 27% 265,451,600.00 9.0%

2014/2015 -3,077,951,065.00 -2,362,484,236.00 -715,466,829.00 23 % 254,572,100 8.3 %

2013/2014 expenditure at a glance

• Total expenditure R3,015Bn ZAR

• Total Eskom R2,168Bn ZAR

• Sub total less Eskom * R847M ZAR

– Man power R200M

– Contribution to CRR for refurbishment R20M

– Repairs and Maintenance R42M

– Depreciation R82M

– Financial interest on loans R65M

– General expenses R88M

– Contribution to rates and general 9% R265M

*

2013/2014 income at a glance

• Income electricity sales R3 010Bn ZAR

• Other income R73,8M ZAR

• Total income R3 083Bn ZAR

– Total kWh forecast 3 169Gwh

– Revised income requirement (excluding Eskom) R850M ZAR

• Based on the above, the average income required by the

Municipality to cover all its expenses amounts to R0.27 ZAR per kWh

Embedded Generation investment and it’s

impact on the Municipal revenue

NMBM Modeling: Impact of embedded generation

• Eskom purchase decrease by 60 %

• Sales decrease by 59 %

• Nett profit reduction of 49 %

• Wires charge previously calculated at 27c/kWh increases to

29,1c/kWh with a 200M Eskom surplus (ZAR)

Domestic Consumption kW Peak installed

350-600 (480 kWh Average) 2 kW

600-900 (780 kWh Average) 3 kW

900-1500 (1200 kWh Average) 4 kW

1500-2000 (1800 kWh Average) 5 kW

2000+ (2200 kWh Average) 6 kW

Modeling outcome

• GWh purchase from Eskom reduced from 3169 GWh/annum to

2921 GWh/annum

• Eskom account reduced by 200 M ZAR

• Sales reduced by 312 M ZAR

• Estimated loss of 36 %

• Total installed kWh peak = 156 MW

• Additional 2.1 c/kWh ZAR required as wires charge to maintain

revenue needs.

• Average of 2.64 kW peak and 59 6000 installations.

The future with a simple wires based tariff

• Renewable and non-renewable base load suppliers, renewable

energy non base load suppliers = R1.05 / R1.09c ZAR

• Wires charge for municipal income needs = 29.1c to 36c ZAR

• Profit for the system operator = 5c to 9c ZAR

• Investment tariff = ± R1.40 to R1.55 ZAR/kWh

• Up to 25% cheaper than some customer categories’ present tariffs.

• Time of Use (ToU) tariff OR

Why promote and develop a NMBM embedded

generation station and our own tariff?

• Cost comparisons – “brown power “ vs “green power”

• REIPPP bid window 1 – R2.25-R3.00 per kWh versus Bid window

now of R0.85/kWh for Solar PV generation. – Parity with Eskom.

• Brown power – NMBM tariff commercial and domestic (3 and 4 block)

average ±R1.30 to R1.61

• Clearly the renewable energy has reached parity for the end user.

• It is actually viable to borrow money to invest in embedded generation

– this opens the market and further disadvantages the future

sustainability of the NMBM electricity revenue stream.

• A localized green investment renewable energy market to stimulate

local economy/job creation with an immediate R2.5 BN investment.

The Crystal Ball

• How much of the kWh business can Eskom afford to lose before its

tariff swings and leans towards a wires tariff and tariff structure

change?

• Balance the customer investment against the Municipal revenue

loss through tariff modeling and application. – Unknown accuracy

• Remove the IBT and replace with a more realistic and properly

managed ToU tariff, thereby allowing load shifting and embedded

generation. – Benefits of saving accrue to customer and NMBM

• Technical loss reduction very positive while long term network

impacts not really known.

The Crystal Ball – Meaningful reflection

• 160 MW of embedded generation will attract an investment of in

excess of R2.5 BN, which on its own is a game changer in the

NMBM and Eastern Cape economy.

• As a country, we missed out on the industrial revolution and we lost

on the ICT boom – let us ensure we take an educated, planned and

innovative approach to this opportunity, thereby ensuring energy

security and economic development .