Major problem with Cape Town paying cash for extra solar power

Recently published rules around electricity net-billing could stop municipalities like the City of Cape Town from paying residents cash or allowing them to reduce their municipal account bills in exchange for extra solar power.

The National Energy Regulator of South Africa (Nersa) recently published its Net-Billing Rules for Licenced Distributors, which were approved at a meeting of the electricity subcommittee on 17 December 2024.

Under Section 7 of the rules, titled Compensation and Billing, Nersa states that energy exported to licenced distributors’ networks cannot be paid for in cash.

The rules also state that net-billing credits can only be used to offset variable energy charges, not fixed, basic, or demand charges. Furthermore, they can only be credited to the relevant monthly billing period.

Where export compensation exceeds the financial value of energy purchases in that billing period, the credits can be carried over to offset future electricity purchases from the distributor.

However, rolled over credits cannot extend into the new financial year of the distributor.

Therefore, any additional energy generated that is not used by the end of a particular financial year will effectively have been provided to the distributor for free.

These new rules stand in contrast to the practices of the Cape Town metropolitan municipality under its Cash-for-Power programme.

The City of Cape Town can pay households and businesses cash if the value of their net-billed credits exceeds their municipal accounts.

Registered feed-in sellers’ total municipal bills are first credited automatically down to zero.

That means the city can also deduct fixed network charges and fees for other non-electricity services like refuse removal.

After a bill reaches zero, participants can apply to be paid back in cash for further contributions.

According to the city, the initiative has been a huge success, with more than 1,800 small-scale embedded generators (SSEGs) joining the programme since it launched in the 2022/2023 financial year.

These participants have earned back over R55 million in credits and cash for supplying their extra power. That works out to an average of R30,555 per contributor.

The SSEGs selling back power currently have a combined 176MVA capacity, roughly the same capacity as one of Eskom’s older coal-fired units.

1,092 of the cash-for-programme participants are households, while the remaining 752 are commercial or industrial customers.

Cape Town mayor Geordin Hill-Lewis said the metro was on track to double the earnings from the first year of availability to the current year.

That would take the total earned credits to R64 million in two years.

In addition to making it possible to completely eradicate the customer’s municipal bill and even earn cash, the city offers among the best feed-in tariffs in the country.

MyBroadband asked the city what it made of Nersa’s rules and whether it would be dropping its cash-for-power programme as a consequence, but it did not provide feedback by the time of publication.

Eskom supported deduction of fixed charges for feed-in

In its published reasons for the Net-Billing Rules, Nersa reveals that Eskom was one of the parties that “firmly” asserted the export tariff should not exceed the avoided cost of energy and must guarantee revenue neutrality for the distributor.

“It is essential that the credits do not enable consumers to achieve a net credit position in Rand terms,” Eskom said.

However, the power utility also said net-billing credits should be allowed to offset monthly fixed network charges.

Another Nersa rule that could prove controversial is that distributors must implement a time-of-use (ToU) tariff structure for customers feeding back extra power.

ToU tariffs make it far more expensive to consume electricity from the grid during peak demand periods and significantly cheaper in off-peak hours.

This approach aims to discourage households with solar and backup power from charging their batteries with the grid during peak demand while incentivising charging at times when the grid has extra power to offer.

Cape Town does not currently apply a ToU tariff for SSEG customers, while Eskom makes its ToU tariff mandatory for all grid-tied users, regardless of whether they feed back into the grid.

The Organisation Undoing Tax Abuse (Outa) has argued that a ToU tariff should be optional rather than mandatory, and tariff options should provide clear economic benefits to incentivise responsible energy use.