The future looks brighter, 100MW brighter for IPP's

The long-awaited publishing of guidelines opens the way for the private sector to invest in power projects that can generate as much as 100MW without requiring a licence. Amendments to schedule 2 of the Electricity Regulation Act, which enable the change, were published on Thursday. The raising of the threshold is a crucial step to allow companies in energy-intensive sectors such as mining to launch their own power projects to reduce their reliance on unreliable Eskom. The expectation is that these embedded generation projects will mostly be sourced from green energy, reducing the carbon footprint of South African industry, which is crucial to maintain global market share.

"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", President Ramaphosa said when he made the announcement in June.

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.

“The energy shortfall is a major risk to our economy,” Ramaphosa said in a televised address when he announced the plan on 10 June.

Allowing independent power producers (IPPs) to increase the amount of power they can generate without a license further promises to reduce generation demands on the national grid and to alleviate residential, commercial and industrial electricity supply constraints. Private companies and industries will now have the opportunity to develop their own generation capacity and to participate more freely in the limited transmission, distribution and sale of electricity – including opportunities for producers to wheel energy. It is hoped that there is similar urgency to update and finalise the wheeling use-of-system charges to make wheeling more feasible.

According to the rules, there are exemptions from licensing and registration with the National Energy Regulator of South Africa (Nersa) for certain activities. The rules apply to facilities that have a connection point on the electricity transmission or distribution system, where:

  • they supply electricity to an end-use customer, but the electricity is not carried across transmission lines;

  • electricity is generated for an end-use customer and is carried across transmission lines, and the generator has a connection agreement with the holder of the transmission or distribution licence; or

  • the generation facility does not export, nor import any electricity onto or from the transmission or distribution system.

Ultimately, not only is this evidence of the government’s commitment to resolving the country’s energy crisis, it also represents its increasing willingness to embrace deregulation. The increased threshold will allow new IPPs to enter into the energy market, ultimately lowering the costs of generating power in the medium term.

The environmental regulatory framework developments to facilitate renewable energy generation, coupled with the 100MW Exemption Threshold increase, will hopefully encourage and contribute towards a robust embedded energy sector; energy security and associated economic recovery stemming from energy and infrastructure development that South Africa desperately needs. Although encouraging, there will remain the need to appreciate the risk of challenges and learning from these challenges to ensure robust assessment and public participation processes are carried out.

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