Updated: Jul 6
South Africa has been plagued with power shortages for a long time due to demand exceeding available supply capacity. This is despite the government’s efforts to implement a number of programmes to try and close the capacity gap, which include the announcement of preferred bidders for the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) and issuing of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) Round 5 Request for Proposals (RFP), as well as announcing future procurement plans.
Eskom’s Energy Availability Factor (EAF) has been below recommended levels for a very long time, as demonstrated by the protracted load shedding that our country has been experiencing for well over a decade now. The challenges faced by Eskom need little elaboration and include a high debt burden and ageing power plants. As a result, the utility is unable to keep the lights on, making the delivery of alternative energy solutions a priority.
With load shedding costing South Africa’s economy R500 million per stage, per day we now need to urgently finalise Schedule 2 of the Electricity Regulation Act and clarify which categories of projects are covered by the relaxation and ensure that the permitting and registration requirements do not become another regulatory labyrinth causing unnecessary delays in the delivery of additional energy supply in South Africa.
The announcement by President Cyril Ramaphosa on 10 June 2021 that Schedule 2 of the Electricity Regulation Act will be amended to increase the licensing threshold for embedded generation projects from 1 MW to 100 MW evoked great excitement and optimism from the renewable energy sector.
Within 60 days — hopefully sooner rather than later, according to President Cyril Ramaphosa — new regulations will be gazetted to exempt embedded generation projects up to 100MW from having to apply for licenses from the National Energy Regulator of South Africa (Nersa). This will remove a significant obstacle to investment in embedded generation projects. It will enable companies to build their own energy facilities to cater to their own needs.
“The future is a combination of Eskom, the IPPs who are offering affordable high-quality electricity from clean sources”
Companies that produce up to 100MW of power will also be permitted to transmit power, at a fee, across Eskom’s grid to customers, provided they do not charge those customers more than Eskom would have done. This restriction is the major flaw in the new rules. There is no reason to cap prices for private power generators. In any case, competition erodes away high prices. The cure for high prices is high prices, not price controls.
The energy transition that the country is going through is multi-faceted and informed by a number of drivers including decarbonisation, decentralisation and democratisation. While decarbonisation has to do with shifting from carbon-intensive energy to more clean and green energy technologies, decentralization means moving away from a centralised single vertically integrated utility to more decentralised generation, through utility-scale IPP projects and small scale embedded generation projects. This means that energy will be produced closer to where it will be used, rather than at a large plant elsewhere and sent through the national grid.