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    Fears of ripple effects of solar

    March 13, 2023 - Business Day


      Fears of ripple effects of solar

      Municipal revenue at risk if tax incentives for households take off Fears over solar plan

      Parliamentary CorrespondentIf the government’s solar tax incentive for households works well, it could strip municipalities of most of their paying customers, adding to the damage the power crisis is doing to their revenues, the SA Local Government Association (Salga) has warned parliament.

      Salga, which represents municipalities, said their revenue from the sale of electricity has already been harmed by the move of customers off the grid. Without measures to mitigate the effects of load-shedding, municipalities’ ability to deliver services would be compromised, the organisation said.

      Its officials were briefing parliament’s standing committee on appropriations on Friday on the allocations to local government in the national budget in February. These provide less than one-fifth of municipal revenue on average, and the sale of electricity constitutes a big part of the own revenue on which large and smaller cities depend.

      Salga chair Lesetja Dikgale said the R15,000 tax incentive for rooftop solar installations is concerning to local government.

      "If this incentive works well it may remove most of our paying customers [off the municipal electricity distribution network]. Most of the people who can afford solar rooftops are generally the paying customers who are subsidising the poor and those who are unable to pay.

      "So it is a double-edged sword for us. It reduces the issue of load-shedding but … it deals with our revenue. As local government we are saying that government and Treasury need to look into that and be careful not to put local government under the bus in this regard."

      Salga specialist in municipal infrastructure finance James Matsie noted the speed with which large energy users are going off-grid and said that the solar panel tax incentive only benefits middle-class, high-energy consumers, who are a big portion of municipal ratepayers. Their move off the grid would leave municipalities with poor customers and affect municipalities’ ability to cross-subsidise them.

      Matsie said load-shedding causes municipalities to lose revenue and adds expenditure due to damage to infrastructure, vandalism and theft as well as overtime costs.

      "Cities incur a loss of income due to unserved energy whereby the overall average direct loss ranges from between R3m to R6m per stage of load-shedding per day," Matsie said.

      During load-shedding there is an increase in the theft of infrastructure, while it also damages electricity distribution networks, especially substations, due to excessive switching.

      Cable faults are increasing due to high loads after restoring the supply of electricity and medium voltage switchgear failure. Water supply and wastewater treatment works do not function and are damaged. The use of backup power for these systems has huge financial implications.

      Overtime budgets are also abnormally high. Switching operators and control officers who perform network switching operations and restore supply after equipment damage or theft and vandalism cost R60,000-R80,000 per day of load-shedding.

      Matsie said that while the national budget acknowledged that reform of electricity supply is a growth priority, not much mention was made of the critical network of infrastructure, which municipalities are responsible for upholding but which is damaged by load-shedding.

      "Salga suggests that the medium-term budget surplus be used to allocate more money to local government," he said.

      Local government needs a greater share of nationally raised revenue than the 10% it was allocated as it is expected to be responsible for about 46% of the constitutional functions of the three spheres of government.

      The budget allocated R521.7bn to local government over the next three years. It was noted in the Budget Review that national transfers to municipalities account for a small part of local government revenues. Between 2017/2018 and 2021/2022 own revenues accounted for an average 82% of total municipal revenues, though small, financially weak rural municipalities depend to a much greater extent on national government allocations.



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