Empowering communities: Generating electricity and reducing costs

Communities in South Africa are legally allowed to form energy cooperatives that can generate and sell electricity, but need clear, practical steps to turn this right into reality, an expert says.

This is after an increase in Independent Power Producers (IPPs) who sell energy directly to mines and factories. At the same time, Eskom’s significant electricity price hikes have forced struggling communities, according to civic organisations, to choose between buying food and purchasing electricity.

The public is also facing another increase following a R54 billion calculation mistake by the National Energy Regulator of South Africa (Nersa) in its assessment of Eskom’s review application.

Nersa’s public consultations to rectify the miscalculation closed last month. If approved, the R54 billion settlement could result in significantly higher electricity tariff increases of 8.76%, compared to the initially projected 5.36% for April 2026. For 2027, it would be 8.83%, up from 6.19%.

Shahil Singh, legal advisor at The Green Connection, an energy Non-Governmental Organisation, said that communities should first register a member-owned cooperative (under the Cooperative Act) to legally own and operate renewable energy infrastructure such as a shared solar installation.

He added that the cooperative structure is important because it ensures local control, democratic decision-making, and the ability for benefits to stay within the community rather than flowing out to external investors.

“Once a cooperative exists, the next practical step is to decide who the electricity will be sold to, as this determines the regulatory pathway. If power is sold to a municipality or fed into the local grid, the project must comply with the Electricity Regulation Act and be registered or licensed with the National Energy Regulator of South Africa (Nersa). This involves showing that the project is technically sound, financially viable, and compliant with grid standards,” Singh said.

He added that while this process is often presented as complex, it is already being used by private Independent Power Producers (IPPs) and can also be used by community projects if municipalities and regulators actively support smaller-scale, local generation rather than treating it as an exception.

“A critical practical step is securing a power purchase agreement (PPA) with the municipality. Municipalities are legally allowed to buy electricity from local producers, including community-owned cooperatives, as part of their constitutional duty to pursue developmental local government. In practice, communities can push municipalities to pilot small, local procurement arrangements for community energy, especially where the electricity will support municipal services, low-income households, or local businesses. Without a signed purchase agreement, even a technically viable community project cannot sell power, which is why early engagement with municipalities is essential,” Singh stated.

He said in many cases, communities may find it more realistic to begin with smaller, localised projects, such as supplying power to a clinic, school, water pump, or municipal facility, rather than attempting to sell large volumes into the grid from the start. 

These projects can often operate under simplified registration thresholds and can build a track record that strengthens the cooperative’s position over time, he said. 

“What currently holds communities back is not a lack of legal permission, but the absence of standardised templates, accessible financing, and institutional support that would allow community-owned energy to scale alongside commercial IPPs. Addressing this gap is essential if the renewable energy transition is to include municipalities and low-income communities rather than bypass them,” Singh stated.

Tommy Garner, a management committee member of the South African Independent Power Producers Association (SAIPPA), said that municipalities, like Eskom, would do anything to protect their own revenue streams, of which electricity is the biggest. They would therefore prevent private community-owned generators as far as possible.

He added that municipalities should be able to procure electricity from a wider range of generators beyond just Eskom.

“It would diversify supply risk and bring renewable energy into the municipal energy mix. Electricity tariffs from all generators should be cost-reflective. Eskom should be competitive and bring its cost base down to ensure its survival. It cannot expect municipalities to be the buyers of last resort for their electrons. Low-income households should be subsidised using grants and other instruments, and such subsidies should not be baked into the tariff,” Garner said.

He highlighted that wheeling and net metering policies are only in use in a handful of municipalities.

Wheeling is the process of delivering energy from a generator to an end-user located in a different area using existing distribution or transmission networks.

He stated that this is because municipalities in general struggle with the most basic issues of service delivery, and in most cases don’t employ professional engineers who can support them with creating an enabling environment for wheeling or net metering. 

“Political will is, in my view, the biggest challenge,” Garner said.

On municipalities losing high-paying clients to IPPs, he said municipalities don’t have to lose well-paying industrial customers; instead, they should change their attitude to entice businesses to expand their operations in a certain municipal area by improving reliable electricity supply, lowering the cost of electricity through higher efficiencies, and making it easier to do business.

The economic multiplier effect will ensure that the local economy grows with positive effects on job and wealth creation, Garner said.

“Municipalities should go back to first principles and do the basics right. Losses in the municipal space are mostly due to non-technical losses (low levels of revenue collection and electricity theft). To fix this, corruption needs to be stopped, grids should be modernised, and revenue collection should be a focus with consequence management for non-payers or corrupt officials,” Garner stated.

Charles Hlebela, Nersa spokesperson, stated that in the context of customers transitioning to IPPs, Nersa approves trading rules, wheeling arrangements, and tariff methodologies designed to ensure that network costs and approved subsidies are appropriately recovered, irrespective of the energy source.

He said that this includes the application of unbundled tariff structures, where applicable, so that customers who utilise the grid continue to contribute to approved network and system costs. 

These regulatory tools are intended to reduce the risk of undue cost-shifting to captive customers, including residential and indigent consumers, Hlebela said.

He highlighted that several municipalities have made progress in developing wheeling arrangements or facilitating private generation projects, subject to Nersa approval. These include, among others, the City of Cape Town and certain other metropolitan and local municipalities. 

“The status of wheeling tariffs and projects varies by municipality and is dependent on the submission and approval of compliant tariff applications. Nersa does not maintain a public list of all active wheeling arrangements, and approvals are issued on a case-by-case basis,” Hlebela stated.

He added that Nersa currently requires municipalities to undertake Cost of Supply studies (CoS) as part of the tariff-setting process, but it does not mandate their public publication. 

The publication of CoS studies, he said, can enhance transparency and public understanding of tariff structures; however, any requirement to mandate publication would need to be considered within the broader regulatory and legislative framework. 

“At present, Nersa focuses on assessing CoS studies during tariff applications to ensure that tariffs are cost-reflective and compliant with approved methodologies. 

On the progress made in the ‘National Wheeling Framework’ to ensure that small-scale residential users, not just mines, can legally buy power from third-party traders, Hlebela said, Nersa has developed and published National Wheeling Rules, which provide a regulatory framework for licensees to design wheeling arrangements and tariffs.

“These rules are intended to support the development of wheeling across the electricity supply industry and are implemented through Nersa-approved tariffs at a municipal and Eskom distribution level,” he said.

While the framework enables both large and smaller customers to participate in wheeling arrangements in principle, the practical availability of wheeling for residential customers depends on municipal readiness, approved tariffs, and system capabilities, Hlebela stated.

He added that Nersa’s role is to assess and approve wheeling tariffs where submitted, rather than to mandate specific customer participation models.

gcwalisile.khanyile@inl.co.za