Impact of small-scale power generation on municipal revenues

Project name:
​Financial impact and business case modelling for the assessment of Small-Scale Embedded Generation (SSEG) tariffs on municipal finances Energy

Service:
Regulatory economics and accounting

Sector:
Energy
Public and Social

Area of Expertise:
Tariff design and determination

Client:
South African Local Government Association (SALGA) and German development Agency GIZ

Date:
2016 - 2017

Country:
South Africa


There has been increasing interest in small-scale embedded generation (SSEG), defined as power generation under 1 megawatt (MW), from solar photo-voltaic (PV) sources.

The SSEG can be located on residential, commercial or industrial sites where the electricity generated is also consumed. The increased interest in SSEG is due to increases in the cost of grid electricity and steady falls in the cost of solar PV technology.

The adoption of SSEG has various benefits, including cost savings for consumers and contributing to the reduction of greenhouse gas emissions. A strong factor affecting how SSEG is viewed and accommodated in municipalities, however, is that for many municipalities electricity sales are a large source of revenue and are used to cross-subsidise other services. Any developments that threaten this revenue often meet strong resistance. To encourage SSEG adoption by municipalities it is imperative that a balance be struck between the costs and benefits of SSEG. 

Genesis used its sector expertise to develop a customisable spreadsheet-based model and guidelines on behalf of the South African Local Government Association (SALGA) and the German development agency GIZ. This model can quantify the revenue impact of SSEG on municipal revenues and assist municipalities in their design of sustainable SSEG tariffs.

Genesis’s model assists municipalities to minimise adverse impacts on municipal revenues while ensuring a positive business case for customers deciding on whether to install solar rooftop PV or not. Genesis was able to map a path to value for large and small municipalities who, through the model, were able to not only understand the business case for SSEG but also implement optimal tariff levels.

Genesis’s model has assisted a number of municipalities in the SSEG tariff design process and their applications to NERSA. The City of Tshwane municipality, home to capital city Pretoria, used the model to undertake a revenue impact modelling exercise to help it decide on an appropriate approach to SSEG policy and tariffs. The model results were used in the City of Tshwane’s SSEG tariff setting for its submission to NERSA in early 2017.

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