Small-Scale Embedded Generation (AMEU and its Work Group Input) Gerrit Teunissen 18 April 2013

Contents Who and what is the AMEU? Work group outcome on Impact on Revenue by Embedded Generation Closure 2

WHAT IS THE AMEU? The Association of Municipal Electricity Utilities (Southern Africa) It is an association of municipal electricity distributors as well as national, parastatal, commercial, academic and other organisations that have a direct interest in the electricity supply industry in Southern Africa 3

MISSION STATEMENT The mission of The Association of Municipal Electricity Utilities is to promote the pursuance of quality, service, management excellence and to facilitate communication between all its members and other stakeholders as well as to influence that environment. 4

OBJECTIVES of the ASSOCIATION The objectives of the ASSOCIATION are: To promote the interest of electricity utilities and to collaborate with other stakeholders in the pursuance thereof; To bring together municipal council or board representatives, electrical engineers and managers and all persons interested in the advancement and development of electricity utilities and to promote wider contact and the exchange of views; To arrange and hold Conventions and Technical Conventions for the reading of papers and the discussion of subjects pertaining to electricity utilities and to make recommendations on matters requiring joint action; To establish branches consisting of electricity utilities with joint interests; To take such lawful action as may be expedient for the protection and promotion of the rights and interests of member electricity utilities; 5

OBJECTIVES of the ASSOCIATION To affiliate with, or seek membership of such organisations as may be decided upon by theExecutive Council; To foster the establishment of organisations outside the boundaries of Southern Africa having objectives similar to those of the ASSOCIATION, and to assist them technically and financially in such fields as may be deemed desirable by the Executive Council; To organise or participate in international meetings of organisations having objectives similar to those of the ASSOCIATION, and in general to foster the exchange of information in the field of electricity supply; To actively promote training in the utilities environment; To promote quality service and management excellence amongst members so that their customers receive value for money; To provide an advisory service for its members, for the customers of its members and for the South African Local Government Association; 6

WORK GROUP on REVENUE IMPACT on EMBEDDED GENERATION Safety of the utility’s staff working on the network The impact on the revenue due to a loss of sales Procurement of energy Net-metering The tariff that should be applicable Legislative impact The quality of embedded generated energy A connection and use of system agreement with the embedded generator 7

IMPACT ON THE REVENUE There will be a net loss of revenue The actual loss will be determined by the amount of energy not sold That tariff charges would need to be designed in such a way to mitigate this potential loss of revenue That there is appropriate bi-directional meters that can measure the energy imported and exported The upside is that all distributors will be seen to be supporting customer participation in the energy solution in South Africa The revenue impact could be reduced by e.g. introducing a (fair) fixed network charge (net metering tariff) besides a separate energy charge 8

Legislative impact 9 LegislationQuotationImplications Constitution of South Africa 1996, Section 156 (1) “A municipality has executive authority in respect of, and has the right to administer […] electricity and gas reticulation.” Gives municipalities a competency only in terms of electricity reticulation. Generation is in effect classified as a national competency. Electricity Regulation Act (2006), Section 34 (1) “The Minister may, in consultation with the Regulator […] require that new generation capacity must- (i) be established through a tendering procedure which is fair, equitable, transparent, competitive and cost- effective; (ii) provide for private sector participation.” Minister of Energy to determine who will produce, generate, procure or buy RE; no specific involvement of Municipality in these processes. Electricity Regulation Act (2006), Section 35 (1) “The Regulator may, after consultation with […] municipalities that reticulate electricity […] make guidelines and publish codes of conduct and practice, or make rules by notice in the Gazette.” Defines partial involvement of municipalities into regulation activities.

Legislative impact 10 Electricity Regulation Act on New Generation Capacity (2009), Definition IPP “Independent Power Producer" or "IPP" means any undertaking by any person or entity, in which the government of South Africa does not hold a controlling ownership interest (whether direct or indirect) […]” Effectively implies that local government cannot hold a direct or indirect controlling interest in an IPP. Municipal Finance Management Act (2003), Section 33 (1) “A municipality may enter into a contract which will impose financial obligations on the municipality beyond a financial year, but if the contract will impose financial obligations on the municipality beyond the three years covered in the annual budget for that financial year, it may do so only if …(broad restrictions included)” Requirements for 3 year contract exemption might be difficult to fulfill, especially by smaller municipalities (category B).

Legislative impact 11 Municipal Finance Management Act (2003), Section 151 “Except as expressly provided for in this Part, nothing in this Chapter limits or affects - (a) the rights of any creditor or other person having a claim against a municipality; (b) any person’s access to ordinary legal process in accordance with the common law and relevant legislation; or (c) the rights of a municipality or municipal entity, or of the parties to a contract with a municipality or municipal entity, to alternative dispute resolution mechanisms, notice procedures and other remedies, processes or procedures.” Entrenches the core right of every municipality to govern its affairs at its own initiative.

Legislative impact Municipal Systems Act 2000, Section 85 (1) “A municipality may [...] establish a part of the municipality as an internal municipal service district to facilitate the provision of a municipal service in that part of the municipality.” Gives a right to municipality to exercise the authority vested in it by the Constitution by means of a private company established by the municipality. Municipal Structures Act 1998, Section 84 (1) “A district municipality has the following functions and powers: [...] Bulk supply of electricity that affects a significant proportion of municipalities in the district.” Bulk supply of electricity is contradictory with the reticulation of electricity set in the Constitution of South Africa 1996 Section 156 (1). Bulk supply of electricity meaning transmission, distribution and where applicable, generation electricity. 12

REQUEST FROM THE AMEU EXECUTIVE COMMITTEE Indicate the losses and recommend a way forward. Find ways to resolve the legal implications and make recommendations. 13

Closure Thank you for listening Any questions? 14