South Africa Exempts Private Generators (Generation License)

South Africa’s Department of Mineral Resources and Energy (“DMRE”) has removed requirements for independent power producers (“IPPs”) to hold generation licences to produce electricity in an effort to rapidly add much needed generation capacity.

Exempts Private Generators Generation Licences under the Electricity Regulation Act

On 17 January 2023, the DMRE announced further amendments to Section 3 of Schedule 2 of the Generators Electricity Regulation Act 4 of 2006 (the “Act“), following earlier changes to the Act in 2021 that raised the generation licence threshold from 1 MW to 100 MW.

The most significant amendment exempts any generation facility, irrespective of its size or capacity, with a point of connection on the transmission or distribution power system (and irrespective of whether or not that generation facility has energy storage) from the requirement to apply for and hold a licence the operation of any generation facility, with or without energy storage, in circumstances where:

a) the generation facility supplies electricity to one or more customers by Wheeling (i.e. the transfer of electricity from the point of connection of the generation facility to the grid to a point of consumption through a third party transmission network), and the generator has entered into a Connection agreement with an entity that holds a transmission or distribution licence in respect of the power system over which the electricity will be wheeled; or

b) the generation facility has a point of connection to the grid but does not import or export any electricity onto or from the transmission or distribution power system.

This move enables investment in larger, utility-scale plants that will take advantage of economies of scale and represents a significant move towards the liberalisation of the South African energy market.

Additional Measures contemplated by the Government to combat load shedding

In addition to the removal of the requirement to hold a generation licence, South African President Cyril Ramaphosa has also announced additional measures to tackle the country’s load shedding crisis, as set out in the Energy Action Plan (the “Plan“), with a National Energy Crisis Committee (“NECOM“) established to implement the plan and coordinate the government’s response to the energy crisis. On 21 January, NECOM released a six-month progress report on the implementation of the Plan.

The Plan outlines five broad, but key, interventions that the government intends to make to address the load shedding crisis, including:1

Intervention 1: Fixing Eskom and improving the availability of existing electricity supply2

  • Eskom will carry out reliability maintenance across Eskom’s fleet to prevent further decline in the fleet’s energy availability. The recruitment of former Eskom Staff and improving the availability of spare parts and expertise from original equipment manufacturers are expected to play a key role in this intervention.
  • The National Treasury is working on sustainable solutions to tackle Eskom’s growing debt in a manner that accommodates all stakeholders. This is likely to be addressed in the national budget statement in February 2023.
  • The remaining units at Medupi and Kusile are expected to come online in 2023. With Unit 5 coming online in June 2023 and Unit 6 coming online in November 2023.

Intervention 2: Generators Enabling and accelerating private investment in generation capacity 3

Some measures to be undertaken by NECOM in this respect include, inter alia:

  • Removal of the licencing thresholds for new generation projects.
  • Eskom intends to grant access to land adjacent to its existing power stations in Mpumalanga to enable private investment in renewable energy projects. This is expected to unlock around 1800 MW of new generation capacity.

Intervention 3: Accelerating the procurement of new capacity from renewables, gas and battery storage4

Some measures to be undertaken by NECOM in this respect include, inter alia:

  • Releasing further bid windows for renewable energy, gas and battery storage, and increasing the amount of capacity to be procured.
  • Reviewing and updated the IRP 2019 to ensure its continued relevance in line with the country’s energy needs.
  • The procurement of 400 MW of battery storage through its Battery Energy Storage System (BESS) programme. With the first projects reaching financial close in 2023.

Intervention 4: Unleashing businesses and households to invest in rooftop solar5

  • Eskom will develop a feed-in tariff for small-scale embedded generators.
  • The National Treasury will consider expanding tax incentives to residential and commercial renewable energy installations.

Intervention 5: Fundamentally transforming the electricity sector to achieve long-term energy security6

  • The Electricity Regulation Amendment Bill will be finalised to ensure broader reforms to establish a competitive electricity market, enable private investment and remove the need for guarantees. Thereby allowing generators to compete on equal footing.
  • In accordance with the Department of Public Enterprises   Roadmap for Eskom in a Reformed Generators Electricity Supply Industry. Eskom has been focused on implementing the legal separation of its Transmission division. With the unbundling of the Distribution and Generation divisions intended to follow thereafter. The functional separation of Eskom s Generation, Distribution and Generation divisions has been completed.
  • A wholly-owned subsidiary of Eskom, National Transmission Company of South Africa (NTCSA). Has been incorporated and a merger agreement has been entered into between Eskom and NTCSA which gives effect to the Transmission unbundling subject to certain suspensive conditions.

NECOM’s progress in implementing the Plan

In the progress report released on 21 January 2023. NECOM outlined the steps that is has taken to implement the interventions identified in the Plan, including:

Intervention 1: Fixing Eskom and improving the availability of existing Generators electricity supply

Eskom has rehired 18 specialists, including the appointments of power station managers at Kendel, Koeberg and Medupi. Eskom is also sourcing more skills through its crowdsourcing platform.

Additionally, law enforcement agencies have been instructed to increase efforts to protect electricity infrastructure. This is expected reduce crime and sabotage that eventually worsen breakdowns at Eskom power stations.

Intervention 2: Enabling and accelerating private investment in generation capacity

Schedule 2 of the Electricity Regulation Act was amended to increase the licencing requirement for generation projects from 1 MW to 100 MW. This has resulted in more than 100 private sector projects with more than 9000 MW of capacity. The first of these large-scale projects are expected to connect to the grid by the end of 2023. Following the removal of licencing requirements for generation projects. One can reasonably expect to see an increase in private investment and capacity.

The timeframe for environmental authorisations has been reduced from more than 100 days to 57 days. While the registration process has been reduced from four months to three weeks. Further reforms have ensured that grid connection approvals are provided within six months of application by independent power producers (“IPPs“).

Intervention 3: Accelerating the procurement of new capacity from renewables, gas and battery storage

Project agreements for 19 projects from Bid Window 5 and six projects from Bid Window 6 of the renewable energy programme, representing 2800 MW of new capacity. These projects are expected to proceed to construction without any delays.

A new Ministerial determination has been published for 14771 MW of new generation capacity from wind, solar and battery storage to accelerate further bid windows. While an additional 300 MW has been imported through the Southern African Power Pool. Negotiations are currently underway to secure a potential 1000 MW from neighbouring countries in 2023.

Eskom has identified 162 MW of surplus capacity from IPPs and has developed and launched a programme to purchase up to 1000 MW of power from such IPPs over three years. The first of these power purchase contracts are expected to be signed in the coming weeks.

A request for new bids to establish battery storage is expected to be launched imminently. While a request for gas-to-power proposals is expected to be launched by March 2023.

Intervention 4: Unleashing businesses and households to invest in rooftop solar

Before the end of January 2023. Eskom intends to launch a new programme that will offer financial incentives for electricity users who don’t use power at peak times. While no details have been made available in relation to this. It is expected that this will form part of Eskom’s Demand Response Programme. Which compensates large companies that reduce their power usage during peak times.

In addition to its efforts to curb peak-time power usage. The Government has reduced designated local content for solar panels from 100 per cent to 30 per cent.

Intervention 5: Fundamentally transforming the generators electricity sector to achieve long-term energy security

Drafting of legislation to establish an independent transmission and system operator has been concluded and is expected to be submitted to cabinet by the end of January 2023.

A team of independent experts has been established to work closely with Eskom to diagnose the problems at poorly performing power stations and take action to improve plant performance.