What you should know about South Africa’s new electricity rules – and getting off Eskom’s grid

 ·22 Aug 2021

Mineral Resources and Energy minister Gwede Mantashe has released the much-awaited exemption which raises the registration threshold for self-generation facilities from 1MW to 100MW.

This has been widely heralded as unlocking significant opportunities for the private sector and should assist in introducing additional generation capacity into the stressed South African grid.

Claire Tucker, head of Public Law and Regulatory at Bowmans, said the legal firm has received a number of questions regarding this change from clients.

She detailed some of the key discussion points below.

What type of generation facilities and customers will this benefit?

The amendment will allow a generation facility including an Independent Power Producer (IPP) of up to 100MW, to sell electricity to ‘an end-use customer’. This is a customer who consumes the power itself.

‘End-use customer’ is used in the exemption notice in the singular, however, there is no reason why this should not be interpreted as allowing delivery and sales to more than one ‘end-use customer’ from a generation facility.

An important beneficiary of this change will be large industrial and mining companies who will be able to purchase electricity from an IPP for all of the power needs within their groups and have the power ‘wheeled’ through the grid to facilities throughout the country.

This would allow them to lock in a long-term price for electricity from an IPP under a Power Purchase Agreement (PPA) and obtain certainty on price increases over a long-term horizon.

Will this allow private generation facilities to sell to Eskom or municipalities?

The exemption is specific to sales to a consumer of the electricity and not an intermediary.

This means there is no exemption from the licencing obligation for a generator selling to a ‘trading’ entity for further on sale, sale to a ‘distributor’, such as a municipality, or a ‘transmission company’  – such as the Eskom transmission company which is being spun off from Eskom.

Generators selling to Eskom, distributors (such as municipalities) or traders for on-sale, exporters and importers will continue to require a licence under the Electricity Regulation Act (ERA) and ministerial deviation under the Integrated Resource Plan (IRP).

The Department of Mineral Resources and Energy (DMRE) considers that ‘organs of state’ such as Eskom and municipalities also need a Ministerial determination issued under section 34 of ERA and the New Generation Regulations to enter into a PPA with an IPP.

Sales to Eskom or a municipal distributor would also have to follow a procurement process within Eskom or the municipality.

Previously the IPP Office of the DMRE has been used to procure long term PPAs for Eskom through IPP bid processes and indications are that this will continue to be used. A fifth round of the Renewable Energy IPP process is presently underway by the IPP Office. The IPP Office REIPP page can be accessed here.

In future electricity sales to ‘Eskom’ will made directly to the National Transmission Company which it has been announced will be unbundled from Eskom by the end of the year.

Various municipalities have recently announced an intention to procure new generation capacity from IPPs. The Western Cape government has recently released a Request for Information regarding supply of renewable energy to municipalities in the province. The Western Cape RFI can be accessed here.

What is the timing on implementing this?

The exemption has been gazetted and is effective immediately. However, two things appear to be outstanding:

  • NERSA still needs to release an updated registration procedure as the current procedure is specifically directed at ‘small-scale’ embedded generators up to 1MW. These are likely to be similar for 100MW facilities. The existing rules can be accessed here.
  • The wheeling framework and charges that Eskom will apply need to be clearly accessible and should be capable to implementation without lengthy one-on-one negotiations with Eskom. The Eskom webpage regarding wheeling of energy (eskom.co.za) indicates that bilateral engagements are presently required for wheeling and also that NERSA is still developing a national framework for use of system charges.

What is registration likely to require?

Schedule 2 of ERA effectively guarantees registration to 100MW facilities that meet the Grid Code requirements and have an arrangement with the relevant grid provider regarding the connection of the facility (a connection agreement).

It is expected that the registration requirements for private generators producing up to100MW under Schedule 2 will be similar.

If wheeling will be required evidence of the agreement regarding it is also needed for registration.

Read: Eskom on South Africa’s new electricity regulations and load shedding

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