New regulations will allow South African municipalities to buy and generate their own electricity

Minister of Mineral Resources and Energy Gwede Mantashe has published new draft regulations which will help address South Africa’s ongoing power issues.

The key change is an amendment which permits municipalities to apply to the minister to establish new generation capacity.

This comes after president Cyril Ramaphosa announced in his State of the Nation Address in February that municipalities in good standing will be able to develop or procure their own power generation.

The draft regulations state that this application must be done in accordance with the Integrated Resource Plan (IRP) and must:

• Be accompanied by a detailed feasibility study;
• Demonstrate sound financial standing of the municipality;
• Be aligned to the Integrated Development Plan of that municipality.

The draft regulations are open for public comment for 30 days after publication within the gazette (5 May).

“The draft amendments are aimed at clarifying the regulatory regime applicable to municipalities for procurement or development of power generation capacity,” said the Department of Energy in an accompanying statement.

“The amendments will ensure orderly development that is in line with the Integrated Resource Plan (IRP2019) and municipal Integrated Development Plans (IDPs).

“Furthermore, the amendments will also ensure that section 34 determinations by municipalities are feasible as they will be issued on the basis that they are supported by a feasibility study with minimum requirements as spelled out in the regulations.”

Welcome move? 

The City of Cape Town has said that it is looking to buy energy from independent power producers (IPPs) so that it can become less reliant on Eskom.

In February, Cape Town mayor Dan Plato said that urgent clarity is required from the national government on the legal and regulatory nuts and bolts of how this must happen.

“The city has been putting pressure on national government for many years to reshape the energy regime in South Africa to the benefit of our people and businesses,” he said.

“Now we need urgent clarity from national government on the roles and responsibilities for municipalities and other stakeholders in terms of the New Generation Capacity Regulations in the Electricity Regulation Act.

“This is an important case for all stakeholders in the energy sector as legal clarification is required for the future purchase from IPPs to become a reality.”

Plato said that the city will first need to complete an Integrated Resource Plan (IRP) to best optimise the supply and demand options.

He added that a lot depends on the legal clarification and also the lead time to construction varies by technology type.

“At a minimum, if the decision is favourable, it will bring new power plants online in three years time,” he said at the time.

The city has instituted legal action against government to allow for independent generation, but has not indicated whether the new regulations will impact its case.

Long road ahead

While the proposed new regulations may be seen as a welcome new approach, there are still a number of caveats, says energy expert and managing director of EE Publishers Chris Yelland.

Yelland said the new regulations may be seen as “perpetuating a painfully slow, bureaucratic, central command and control planning and procurement approach, requiring additional feasibility studies by municipalities and specific ministerial permissions on a case-by-case basis, in a process that is both outdated, dysfunctional and no longer fit for purpose.”

He added that the City of Cape Town is likely to proceed with its planned court action to allow for independent generation.

“Cape Town is likely to proceed with its court action because the minister of energy and Nersa have consistently declined the city permission to build its own generation capacity and/or procure energy from IPPs, and the requirement for ministerial permission and concurrence by Nersa is specifically entrenched under the proposed new regulations.

“What amazes me is that it has taken more than a year since the 2019 SONA and budget speech for the DMR&E to prepare these minor tweaks to the regulations and prepare a draft for public comment.

“This could have been done in a few days at most, and it will no doubt take several months more for any changes in the regulations to be finalised and gazetted,” he said.

The full draft regulations are below:

Energy Regulations 5 May 2020 by BusinessTech on Scribd

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