South African

just urban transitions


South Africa’s energy transition encompasses two interrelated but discreet transformative processes: (T1) the coal transition, and (T2) the renewable energy transition, and economic reconfiguration that responds to risks and opportunities in both processes (T3). These processes, and their interactions, have significant implications for the energy-society interface, the points at which the energy system connects with other societal systems.  Examples of points of intersection are energy prices and implications for society, employment in value chains, business and residential energy needs and uses, and governance processes.

The energy-society interface is often experienced in the context of cities and towns, their infrastructure networks, service delivery, economies, governance structures, eco-systems, and people and social systems. Additionally, the energy-society interface is mediated by local governments through their revenue collection, service delivery (particularly electricity reticulation), infrastructure development, operation and governance, and local economic development functions. In South Africa, the energy transition(s) is playing out in different ways across the range of urban contexts.

The policy challenge is one of clarity, coherence, and collaboration, across various subnational, national and supranational frameworks and processes. 

Through a review of existing policy and literature, as well as ongoing consultation, we have developed a policy framework through which just urban transition challenges and opportunities can be viewed. We have identified five critical focus areas, which are all subject to further interrogation and development.

1. Coherent powers and functions

Problem statement: A lack of clarity on the definition of the role municipal governments in the national energy system has led to structural challenges, including examples of conflicts between municipalities and Eskom. Additionally, this role is not reflected in national policy

The Constitution of the Republic of South Africa creates, among several prescriptions, duties, powers and functions for local governments. It prescribes a clear service delivery role, creating authority for local governments over electricity reticulation, in particular. The interpretation of the scope of this latter role has been contested, and there is a lack of shared understanding between different important power sector stakeholders on what role municipalities can and should play in a fundamentally transforming energy sector and economy. This confusion has serious implications, not only for municipal operations but for municipal political autonomy and for local fiscal tools.

Within these unclear institutional arrangements, municipalities have a contested relationship with Eskom, in particular. Because of the historical development of the sector, Eskom distributes 60% of electricity to 40% of consumers, within municipal boundaries. Municipalities buy electricity from Eskom, at tariffs approved by the National Energy Regulator of South Africa (NERSA) and resell this to consumers connected to their distribution grids, at variable tariffs approved by NERSA. The role of municipalities in the energy sector has been challenged over several decades. In a 1998 White Paper on Energy Policy, electricity distribution industry reform was proposed. Following this White Paper, rounds of reform introducing and implementing Regional Electricity Distributors (REDs) were put forward, essentially usurping the municipal role. These proposals were ultimately rejected by 2011, through a constitutional challenge, seen as an encroachment on municipal authority. Currently, municipalities that do participate in the EDI must operate this service in parallel with Eskom, which operates its own distribution business within municipal boundaries, subject to different regulation than the municipalities.

In 2018, following rounds of stand-offs and suspension of services by Eskom to several municipalities, the Minister of CoGTA convened an Inter-Ministerial Task Team (IMTT) to review issues relating to Eskom billing, debt restructuring, revenue generation, and payment. However, early discussions led to this work being expanded to consider the full range of complexities that arise from the current lack of institutional clarity. These issues are being addressed in different forums but remain contested. An important change on the horizon is the work being undertaken within the National Treasury to create regulatory clarity for local government procurement of electricity from Independent Power Producers (IPPs).

2. Responsive and integrated policy

Problem statement: National energy policy and just transition planning does not adequately include and account for subnational challenges, opportunities, policy and planning, including energy subsidies, providing basic services, and resilient infrastructure planning. Additionally, the national Integrated Resource Plan (IRP) does not adequately account for local infrastructure planning.

There is a need for clearer accounting for and representation of diverse local concerns in just transition discourse and policy development, as well as in practical planning processes. Making sense of national and subnational (provincial or local government) priorities, governance, politics and economics will always involve tensions and tradeoffs. These trade-offs can only be made through robust political processes and transparent governance systems. Decentralisation, transferring (administrative, political, economic) power from national to local actors, is seen as critical to sustainable energy transitions by many theorists and influential development agencies. The detail, especially for developing countries, remains thin. What is clear is that national policy must, at the very least, account for and respond to local level innovation, risks and opportunities, some of which is driven by local governments.

In the South African energy sector, municipalities have limited influence over national policy direction, while playing a critical role in distribution, as well as mediating the relationship between the state (including Eskom), people and businesses. Rounds of South African Local Government Association (SALGA) input into national Integrated Resource Plans (IRPs) articulate several of the local issues that are not reflected in national planning processes. It is critical that different levels of government are sufficiently aligned so as to more efficiently allocate resources and avoid costly duplication or destructive contradictions.

When it comes to the adoption of distributed renewable energy generation, mostly rooftop solar photovoltaic (solar PV), local governments are currently navigating a range of bottom-up pressures. There is a range of positive and negative consequences of this trend, which, as it is still unfolding, are not all known. Local government requires a stable national policy framework, as well as adequate national support in this process if they are to facilitate equitable local solutions. Additionally, dynamics between municipal areas and governments must be managed and resolved at a national level. These include issues of inequality in resources and capacity, as well as unequal exposure to transition risks, between the (A) eight metropolitan (large city) governments, (B) 226 local municipalities, and (C) 44 district municipalities (covering several local municipalities).

The lack of policy integration misses the significant work and wisdom at a local level. Many city and town governments in South Africa have embraced climate adaptation and related concepts such as resilience frameworks for understanding local risk and vulnerabilities in the context of climate change and low-carbon development. Internationally, there is a growing recognition of the exposure of local governments to climate change risk, as well as uniquely local opportunities for the low-carbon transition. National policy can have direct and potentially devastating unintended impacts on local plans and risk profiles.  New approaches arising in literature and policy, including energy justice and energy democracy, could be drawn on to further understand these tensions and develop a robust local government policy agenda.

3. Sustainable and progressive municipal finance

Problem statement: Eskom’s governance and operational crisis increasing tariffs, together with behaviour changes and technology shifts are straining and will continue to challenge local government revenue generation and ability to finance service delivery, especially for the poorest and most vulnerable households.

Municipalities must be able to sustainably finance their electricity distribution function while adapting their infrastructure to be climate-resilient, resource-efficient, and support progressive development outcomes. What this means is that the current fiscal arrangements need to be interrogated to enable an Electricity Distribution Industry (EDI) as well as climate change risk management. One of the main challenges framing this work is to enable better developmental outcomes for all residents, with a focus on progressive redistribution strategies and outcomes.

Municipal governments in South Africa receive funds from National Treasury, with both unconditional and conditional terms, with the latter funds ring-fenced for specific expenditure. Local governments can raise their own revenues too, but they have limited instruments by which to do this. Two main options are property rates and taxes, and surcharges on service delivery. The latter includes charges added to electricity sales tariffs, which are approved by the National Energy Regulator of South Africa (NERSA). These electricity tariffs are meant to cover all the costs associated with buying and distributing energy, allow for cross-subsidisation of free electricity under the Free Basic Electricity Policy, as well as supporting other services. Municipalities structure their revenues differently, with some relying more heavily on electricity sales than others. Of those municipalities that do generate revenues from electricity, most struggle to get close to targeted levels of revenue collection. Eskom’s tariff increases, revenue collection challenges, and infrastructure maintenance costs are all putting pressure on margins. Similarly, Eskom’s operational failures and supply constraints have also affected the municipal distribution business directly, and indirectly.

There are three main issues regarding the municipal fiscal challenge:

1. The reliance of municipalities on electricity sales for revenue generation must be rethought within a transforming power sector and local electricity governance role. 

2. The direct and indirect fiscal implications of alternative (low-carbon) energy infrastructure must be modeled to inform decision-making.

3. Alternative revenues must be sought, with focus on progressive outcomes. There are already examples of green bonds being used to raise climate-compatible finance for infrastructure.

The fiscal challenges related to the electricity system are unfolding in a context of varying levels of institutional capacity and governance issues across municipalities. Looking to the future, demand-side management (energy efficiency), and the uptake of Small-Scale Embedded Generation (SSEG) are all necessitating a change in both the EDI business model and its role in local fiscal management. These changes will reconfigure municipal fiscal arrangements, demanding reframed or new fiscal tools. 

4. Appropriate distribution grid transformation

Problem statement: Municipally owned electricity distribution grids are not all maintained to the same standard, with widespread infrastructure investment backlogs; municipalities are also being challenged to upgrade to ‘smarter’ (digitised, automated) grids to manage maintenance better and enable of a greater share of distributed energy generation.

Municipalities have fallen far behind with scheduled distribution grid maintenance. Given prevalent governance challenges, multiple mandates and fiscal constraints experienced at a local government level, it is unlikely that all municipalities will be able to manage themselves out of this backlog. National support will be necessary, both financially, and, in some cases, with the administration and spending of that finance. Questions regarding the upgrading of electricity distribution grids must take this serious backlog into account when planning for the future of the electricity distribution industry (EDI) infrastructure investment.

Internationally, the concept of a ‘smart grid’ has been gaining traction for some time. Although there is no standard definition, it is understood that smart grids are grids that include advanced sensing, communication and control that allows for efficient, automated (transmission and distribution) grid management and protection. One of the primary benefits is improved maintenance. Over the past decade, however, the smart distribution grid has also been positioned as necessary to balance more dynamic supply and demand from distributed energy sources. This latter design can include ‘prosumers’, actors that produce and consume electricity, as required, through distributed electricity generation.

In South Africa, smart grids have been investigated for some time. Smart grids have received additional attention as part of a broader push to include renewable energy and green economy as part of a COVID recovery strategy. Not all municipalities are equally positioned to navigate this socio-technical transformation. This includes successfully navigating the distributional effects and managing the inequality arising from this system reconfiguration. 

5. Resilient and inclusive local economies

Problem statement: The energy transition presents opportunities for local economic development, some of which have been arrested by a lack of clarity at a national level, as well as Eskom’s operational crisis. There remain significant green economic opportunities made possible by sustainable energy transitions, all of which can speak to post-COVID green economic stimulus. 

A central concern in the just transition, and for just urban transitions within this transformation, is a change in the availability and character of work across different sectors, including the energy sector. South Africa’s energy transition encompasses a coal transition, a decline in the coal sector and related employment, and well as growing sustainable sectors as prioritized through national and local policies. For regions that are directly reliant on coal mining, job losses and other socio-economic consequences of associated value chains are already a significant issue. As Eskom’s coal-powered fleet is decommissioned over time, this problem will be compounded. These problems will not be contained, however, to these regions if left unmanaged.

As carbon-intensive industries decline, green industries must be actively enabled so that new value chains and employment opportunities can grow. There are a number of issues to keep in mind in this regard. Firstly, the appropriateness of local planning for green economic development will depend on the local context, resources, risks and opportunities. Secondly, local economies are open systems, which are affected by the decisions of other local governments and other levels of government. Thirdly, the creation of employment opportunities and the nature of newly available jobs may not match the location, duration, consistency, or other characteristics of jobs lost in the transition. A conversation about job opportunities in this transition requires the integrated consideration of several different sectors, mobility of workers, and, critically, safety nets that compensate for the inconsistency of employment and income.

While welfare measures will have to be planned and administered through national processes to ensure just and fair outcomes across regions, local governments have a central role in managing economic vulnerability. One of the main challenges and opportunities is in the delivery of affordable and accessible sustainable service delivery at levels adequate to support desired developmental outcomes.