LEGISLATION

SHEDDING LIGHT on grid independence

South Africa’s Minister of Mineral Resources and Energy, Gwede Mantashe, created a wave of excitement when he announced at the recent Investing in African Mining Indaba in early February that his department was busy drawing up regulations to make it easier for companies to generate their own electricity.

By Jason van der Poel, Mzukisi Kota and Alexandra Felekis*

he country’s industrial and T commercial users, from smelters to retail stores, have suffered financial losses since December as stateowned power utility Eskom, unable to meet demand, has re-introduced intermittent loadshedding. Among Eskom’s biggest customers are underground miners, who have drawn up plans over the past few years for private generation capacity of 40 MW to 75 MW.

Unfortunately, until recently, it was unclear whether or not self-generation projects exceeding 10 MW would be required to apply for and obtain an exemption from the minister from the obligation to comply with the IRP 2019 in terms of section 10(2)(g) of the Electricity Regulation Act (ERA; No. 4 of 2006), before an application for a generation licence would be considered by the National Energy Regulator of South Africa (Nersa).

Distributed generation

The definition of distributed generation in the current version of the IRP 2019 does not expressly limit distributed generation to 1 MW to 10 MW. According to the IRP 2019, distributed generation refers to “small-scale technologies to produce electricity close to the end users of power”. The reference to small-scale in the definition and explanations provided elsewhere in the IRP 2019 suggest that distributed generation projects may be limited to projects with an installed capacity between 1 MW and 10 MW.

The minister indicated that his department was in the process of revising Schedule 2 of the ERA, which would enable self-generation and facilitate municipal generation options. Depending on the circumstances, a generation plant might only need to be registered, not licensed, he said.

More light was shed on the issue by President Cyril Ramaphosa in his State of the Nation Address on 13 February. He said Nersa will ensure that all applications by commercial and industrial users to produce electricity for own use above 1 MW are processed within the prescribed 120 days. He also noted that there will be no limit to installed capacity above 1 MW.

Arguably, the president has confirmed that “distributed generation” as defined in the IRP 2019 is not capped at projects with an installed capacity of 10 MW and that self-generation projects above 1 MW may apply for a generation licence from Nersa and are not required to request an exemption from the minister for deviating from the IRP in terms of section 10(2) (g) of the ERA. This is a positive development for self-generation and will eliminate unnecessary red tape to licensing. However, the position in the IRP 2019 should be clarified formally by the department.

The IRP 2019 provides for an uncapped allocation of “distributed generation” up to and including the year 2022. The IRP 2019 provides, with reference to distributed generation in table 5 in the IRP 2019, that this is an “allocation to the extent of the short-term capacity and energy gap”. As such, developers of self-generation projects should submit their generation licence applications sooner rather than later.

Licensing

The central piece of legislation regulating electricity in South Africa is the ERA. Schedule 2 of the ERA sets out activities that are exempt from the obligation to apply for and hold a licence. These activities must still be registered with Nersa, which is responsible for licensing and tariffs.

These are the generation facilities that only need to be registered, not licensed, currently: • no bigger than 1 MW that is connected to the national grid, where there is a single customer, no wheeling of electricity through the national grid and the minister has not published a notice in the Government Gazette stating that the amount of megawatts allocated in the IRP for embedded generation of this nature has been reached • no bigger than 1 MW that is connected to the national grid, where there is a single customer,

wheeling through the national grid and there is an allocation for that electricity in the IRP • no bigger than 1 MW that is not connected to the national grid, where the operation is solely to supply the owner of the generation facility in question or for consumption by a customer related to the generator or owner of the generation facility on the same property where the generation facility is located • for demonstration purposes only, where the electricity produced is not sold and the facility will be in operation for less than three years • where the electricity is produced from a co-product, by-product, waste product or residual product of an underlying industrial process and where the operation is solely to supply the owner of the generation facility or for consumption by a customer related to the generator on the same property where the generation facility is located. Based on current legislation and the public announcements made by the government: • If companies wish to generate less than 1 MW of power for their own use, they will need to register with Nersa. • If companies wish to generate more than 1 MW of power for their own use, they can do so under the current IRP and will not need a ministerial deviation but will need to get licensed by Nersa. It is not clear what amendments will be made to Schedule 2 of the ERA to address the licensing of self-generation projects above 1 MW. Based on the statements made by the president in the State of the Nation Address, it does not appear that self-generation projects above 1 MW will be excluded from the requirement to be licensed by Nersa.

We would assume that the definition of what constitutes distributed generation will be aligned in the ERA and IRP 2019. In particular: the definition of distributed generation in the IRP 2019 should be amended not to limit this type of generation to “small-scale” projects, the reference to generation “close to the end users of power” should be clarified, particularly where there is wheeling, and it should be made clear that there is no limit to the installed capacity of these projects.

*Jason van der Poel, Mzukisi Kota and Alexandra Felekis are all partners at Webber Wentzel.

Jason van der Poel

Mzukisi Kota

Alexandra Felekis