Municipalities lose out as estates retain microgrids

As municipalities increase demands for development contributions, many developers are reconsidering earlier practices and are increasingly retaining internal electricity networks rather than transferring them at the end of a project to the municipality at no cost.

This has resulted in the development of a brand-new private sector microgrid industry, that provides an alternative market for suppliers who are no longer prepared to face the risk of doing business with the state.

As electricity tariffs rise, distributing and reselling electricity to residents has become a substantial additional income stream for such developers or related companies, but municipalities are losing out on growing one of their most important income streams.

In more and more instances, these developments also position themselves to become less dependent on Eskom for generation.

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Dawie Malan, director of Buffelsdrift Private Game and Nature Reserve, which developed an estate consisting of 106 smallholdings near Pretoria, says developers now have a choice whether to transfer the internal distribution network to the relevant municipality.

Buffelsdrift decided to retain it. It obtained a distribution licence from energy regulator Nersa and sells electricity at Nersa-approved tariffs. “We do the maintenance ourselves and arrive much faster to fix faults than the municipal teams would have.”

They buy electricity from Eskom at bulk tariffs and sell it at retail tariffs. The difference has become a substantial income stream for the company.

Enough demand

Ayal Rosenberg, managing director of metering company WeBill, says the company is no longer doing business in the public sector.

He says there is now more than enough demand from residential estates that want to generate, distribute, and bill electricity themselves.

“Apart from the corruption in municipalities and government institutions, they have also [fallen] behind with technology,” he says. “In addition, black economic empowerment [BEE] is driving up costs. The price of a meter that would have cost R3 000 is now R6 000 to provide for BEE.”

According to Rosenberg, microgrids were initially limited to industrial estates and then commercial but are now increasingly popular in residential estates, especially in Gauteng and the Western Cape and, to a lesser extent, KwaZulu-Natal.

“It’s an industry that has popped up in the last few years.”

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He says funding does not seem to be a problem. Investors are mostly from outside the country, looking for a stable long-term income. The debt is typically paid off within nine years, with the investor making their profit over the remaining 15 years of the power purchase agreement (PPA).

The model he mostly sees is an aggregator with funding from abroad, which constructs a generation plant within the estate. “They are technology agnostic.”

The estates also own the internal distribution network and meters, and the body corporate merely buys the electrons in terms of a 15-year PPA. Each household buys whatever they use from the body corporate.

Lower tariffs

The developments aim to generally provide all the electricity consumed, but remain connected to the Eskom grid for emergencies.

Others, like Orania, want to become completely self-sufficient.

They calculate their own tariffs, which can be 10% to 15% lower than Eskom’s and are measured according to time-of-use. “With solar, your generation cost is zero once you have the infrastructure,” he says.

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In Johannesburg alone, he knows of more than 10 estates that are busy with such projects. The advantage over wheeling energy from generators situated elsewhere is that wheeling relies on the national grid, which is subject to load shedding.

“It is however limited to more affluent areas where households’ electricity bills are R3 000 to 4 000 per month; otherwise, the investors won’t be able to recover their money.”

He says the industry is developing rapidly, with rules being created on the go. The formal regulatory framework cannot keep up. “It is borne out of necessity, and you can’t stop it.”

Midstream

In Midstream, a residential estate with 6 500 households in Midrand, electricity distribution and sales are done by Midstream Electrical Supplies (MES). The company is currently hard at work to eliminate load shedding. If all goes according to plan, MES hopes that within two to three months, it will be able to eliminate up to three stages, says MES director Jan Zeederberg.

He says the estate has the advantage of controlling its smart network with fibre optic communication to households. It already has smart meters with central geyser control and solar panels on commercial buildings. About 15% of residents also have solar panels or generators.

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MES is now building a 2.5-hectare solar farm to be used with battery storage, generators, and small-scale embedded generation.

MES works closely with Eskom and Nersa, says Zeederberg. It charges Nersa-approved tariffs and are working towards complying with all Eskom’s requirements to allow seamless switching from the Eskom system to their own when load shedding starts.

“It’s a lot more complex than I expected,” says Zeederberg. “Eskom’s staff are good at what they do, but they are slow.” It is, however, crucial for MES to do things the right way. “The project is too big to take any chances,” he says.

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