After a five-month investigation, Moneyweb can now disclose the details.
In August last year, during one of his regular media briefings, Minister of Electricity and Energy Dr Kgosientsho Ramokgopa mentioned a new pilot project to resolve the overwhelming municipal debt to Eskom.
By the end of November municipal arrears stood at R95 billion, with Eskom projecting an increase to R110 billion by the end of March.
There is wide consensus that this is the single biggest threat to Eskom’s sustainability and could negate the impact of government’s R254 billion debt relief package, which was supposed to end the frequent government bailouts and see Eskom stand on its own feet financially.
Ramokgopa said the programme is being piloted in three municipalities – Dr Beyers Naudé in the Eastern Cape (Graaff-Reinet), and Nama Khoi (Springbok) and Kamiesberg (Garies) in the Northern Cape. It is being done in conjunction with a private company and will be extended to two municipalities per province prior to being rolled out nationally.
“It is possible for the municipalities to do two things as a result of this intervention: the first one is to pay your debts and the second one is to ensure that you pay your current account without diminishing the financial viability of the municipality.”
Ramokgopa did not provide any more detail, but Moneyweb was able to identify the service provider as Utility Consulting Solutions, led by Stellenbosch electrical engineer Christo Nicholls.
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Bold assertions
Early in December, Deputy Electricity Minister Samantha Graham-Maré issued a statement describing in glowing terms the success of the “municipality’s innovative electricity programme” in Dr Beyers Naudé municipality.
“This programme has the goal of providing affordable electricity to residents while securing revenue so that the municipality can pay off its Eskom debt and keep up to date with monthly current Eskom payments,” according to the statement. “To date the municipality has been able to achieve all of these goals.”
Also in the statement is the promise of a 40% saving on electricity tariffs for consumers, keeping increases to CPI plus 1% from 1 July, and maintaining the volume of bulk purchases from Eskom.
Moneyweb tried to get more information from the relevant municipalities. Beyers Naudé and Kamiesberg failed to arrange the requested interviews or answer detailed questions, save for telling us about the huge success of the programmes.
Sources in Nama Khoi told us the programme has been halted after the municipality required an independent review of the algorithms to be used.
Utility Consulting Solutions allegedly refused, citing the need to protect its own intellectual property.
Checking with Eskom, Moneyweb established that both Kamiesberg and Beyers Naudé made only one payment for bulk purchases from March to November last year, and that was in July in both cases.
The two municipalities’ arrear debt ballooned over the period, while Nama Khoi made regular payments and more or less maintained its debt level.
Interviews with both Ramokgopa and Graham-Maré did not provide much more clarity, but in follow-up questions Ramokgopa confirmed that he is awaiting the results of the pilot projects, which will inform the further roll-out.
“At this stage, the anticipated pilot will commence by April 2025,” Ramokgopa’s office said.
It was clear that several of the claims in Graham-Maré’s press release were not exactly accurate.
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In search of more detail …
Moneyweb then spoke to Nicholls earlier this week. He explained the project as follows: The pilots are ongoing in the three municipalities, as well as the Richtersveld municipality based in Port Nolloth in the Northern Cape. Utility Consulting Solutions was appointed in each after a competitive tender process.
The project typically has two phases. In the first phase, the municipality buys electricity from prosumers (parties that both consume and produce electricity) – houses and businesses with rooftop solar.
In Beyers Naudé, this started a year ago at R1.00/kWh, which is much cheaper than Eskom’s bulk sales at R2.10/kWh and compares with the City of Cape Town’s 112c/kWh. If the panels (some large installations are in the pipeline) were erected specifically for supplying the municipality, that tariff increases to R1.25/kWh.
In Beyers Naudé, about 19% of the municipality’s purchases in the past year came from this source. The target is 45% by the end of June and 78% by December.
In the long run, the volume of bulk purchases from Eskom will be reduced drastically – contrary to the statement in the press release.
The second phase consists of the installation of batteries.
The municipality will then buy from Eskom in off-peak timeslots when electricity is cheap (77c/kWh), store it in the batteries, and sell it to consumers in peak timeslots at higher prices (R3.00/kWh). This will increase the gross profit from 90c/kWh to more than R2/kWh and gives enough room to pay for the battery usage and increase the gross profit, Nicholls says.
The first 30MWh battery will be connected in April/May, with a further 55MWh connected by the end of July.
Nicholls says the solar side of the project has been tested with 26 prosumers so far.
The battery component will be tested after installation, with two months of data being available by July, when the new tariffs kick in in municipalities.
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Tariffs and savings
According to Nicholls, the municipality will follow the conventional methodology to set its tariffs, which is based on historic costs. Based on the data from the battery usage, it will then make a presentation to energy regulator Nersa to reduce tariffs to equate to an increase of CPI plus 1% from July.
Payments to Eskom commenced in December with a payment of R1 million, and will be ramped up as the savings materialise, he says.
He explains that the project is dependent on smart meters. It will not cost the municipality anything, because the installation of batteries, solar panels and all related hardware will be funded by private investors.
Nicholls would not disclose who these investors are, citing privacy concerns.
When Moneyweb insisted on transparency, this being a project in the public sphere, he stated that he is only a service provider and said he will request Dr Beyers Naudé municipality to provide a list to Moneyweb.
We will publish this when received.
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Business model
Utility Consulting Solutions does not require any upfront payment from the municipality, but will earn 12% of all new gross profit. Its contract is for three years.
Nicholls says his company provides software and services, and trains municipal technical and financial staff.
Further support will be given by his staff of about 15 from their offices in Stellenbosch. At a later stage support centres manned by municipal staff may be erected in the municipality.
In Kamiesberg and Richtersveld the pilot projects are not as advanced in terms of prosumers starting to come online. Nicholls confirms that the project is on hold in Nama Khoi, but says this is because of infrastructure problems.
He says Utility Consulting Solutions has the capacity to roll out similar projects in up to 100 municipalities.
“I don’t want to be known as the new Gupta of South Africa one day,” he says, but confirms that that will mean 12% of new gross profit in 100 municipalities. “It is not as if my second name is Mother Theresa,” he adds.
This article was republished from Moneyweb. Read the original here.
