I. Introduction
Rising bulk supply costs of electricity are a significant concern for South African municipalities, as they directly impact the cost of distributed electricity for their consumers. The author chose to simplify the concept of sustainable municipal electricity distribution by equating it with a state where electricity within the municipal distribution ambit is always available and affordable. With the overall cost of living placing considerable financial stress on all consumer groups within municipalities, it has become important to look at how sustainable electricity trading, focused on the supply of affordable electricity, can help lower costs and provide fair access for all. The main point is that municipalities must move towards a new and innovative alternative electricity trading status quo that optimally leverages alternative electricity resources and lessens reliance on expensive national grid-only-supplied electricity. By taking an inclusive approach to energy trading, municipalities can involve the community, attract private investments, and create flexible pricing that matches consumers’ economic realities. This shift not only tackles the urgent problem of high electricity costs but also supports environmental sustainability, helping South Africa’s municipal distribution electricity sector become more resilient and consumer-centric over time as well as maintain its relevance as an electricity distribution licenseholder.
II. A high-level overview of the current distribution electricity pricing landscape in South Africa and the significance of affordability in relation to the Consumer Price Index
The Consumer Price Index (CPI) plays a crucial role in monitoring living costs, and alterations in municipal distribution electricity rates significantly influence the final amount that individuals can afford to spend on electricity. South African municipalities that hold NERSA electricity distribution licenses still use the Cost-Plus method to set cost-reflective electricity distribution tariffs. This implies that an increase in the bulk supplied cost of electricity leads to a linear increase in the consumer-facing electricity distribution tariffs. So, making sure that distribution electricity rates are affordable is hard because even if Eskom raises their bulk supply rates by, say, 43.55%, the municipality still has to figure out a way to fully pay the bill for the electricity they bought from Eskom and still make a close-to-NERSA compliance electricity price margin, all while raising their electricity prices as close as possible to the relevant CPI. Thus, affordable municipal distribution electricity tariffs are certainly a desired state but also a complex objective to achieve.
III. Examination of how sustainable electricity trading, focused on affodable distribution electricity trading, can possibly be achieved within SA municipalities.
A critical review of South African municipalities’ approach to setting final municipal electricity distribution tariffs is warranted, given the direct correlation between affordable municipal electricity and sustainable electricity trading. Utility Consulting Solutions (UtCS) developed a framework that enables the municipality to trade sustainably, considering existing laws, various electricity production and storage technologies, and institutionalization pre-requisites. This framework guarantees a tariff increase that closely aligns with the Consumer Price Index (CPI), providing a buffer against any excessive increases in Eskom’s bulk supply tariff. By buying important electricity resources in a way that doesn’t affect the company’s balance sheet, we were able to make the most of Eskom’s existing bulk tariff options and set up a strict AI-driven, what-we-can-afford-based daily purchase (and collection-ringfenced) fiscal management system. We have extensively interrogated this framework across a few municipalities in South Africa over the last few months, and after various amendments, we have finally achieved a workable solution for the intended outcome of future-proof, affordable municipal distribution electricity tariffs. This sets up a second phase focused on testing the scalability and robustness of the framework.
IV. Conclusion
A recent article in the Engineering News (https://m.engineeringnews.co.za/article/dr-beyers-naude-local-municipality-progresses-electricity-programme-2024-12-03) reports on some of the progress already achieved within the quest for affordable municipal distribution electricity tariffs. However, we still need to complete the testing of the framework to the full spectrum of robustness metrics suitable for a national rollout. Nonetheless, despite rising Eskom bulk supply tariffs and municipalities with low working-capital ratios, we now know (for the first time) that achieving future-proof, affordable municipal distribution electricity tariffs is an absolute reality.