South Africa embedded generation changes to boost energy security

Out-Law News | 16 Aug 2021 | 12:16 pm | 2 min. read

Changes to South Africa’s Electricity Regulation Act (ERA) exempting embedded power generation projects with a capacity of up to 100MW from the need to obtain a generation licence have come into force with effect from 13 August 2021.

The extension of the exemption for small embedded generation facilities from those with a capacity of up to 1MW to those with a capacity of up to 100MW will, over time, “greatly assist in the effort to provide reliable and sufficient electricity for the economy”, according to Eskom, the state-owned electricity utility.

“As Eskom continues to implement the reliability maintenance recovery programme to achieve operational sustainability, many electricity generating units are taken offline for planned maintenance which leaves the national power system constrained,” Eskom said in a statement.

“Customer-funded capacity alongside the contribution by independent power producers will greatly assist in addressing the immediate supply/demand gap and reduce the risk of loadshedding over time. This amendment, together with Eskom’s own efforts to repurpose and repower our ageing power stations, will assist to reduce South Africa’s electricity supply gap,” it said.

Those seeking to generate electricity in South Africa must first obtain a licence from the National Energy Regulator of South Africa (NERSA), unless they qualify for one of the exemptions to the licensing requirement set out in schedule 2 of the ERA.

In June, South African president Cyril Ramaphosa announced that the existing exemption for certain small embedded generation facilities would be extended to those under 100MW in capacity. The announcement went further than plans put forward for consultation earlier in the year by the Department of Mineral Resources and Energy (DMRE), which had proposed lifting the capacity threshold to 10MW.

The exemption applies to generators operating an embedded generation facility under the capacity threshold, where the electricity is supplied to end user customers through onsite generation or wheeling, provided that the various connection and wheeling approvals have been obtained. The generation activity must still be registered with NERSA.

Johannesburg-based energy markets expert Emma Dempster of Pinsent Masons, the law firm behind Out-Law, said that whilst the implementation of the amended legislation is positive, it was not completely clear how the exemption would work in practice, given the various drafting inconsistencies, the omission of simple wording and overall ambiguity introduced in the amended legislation.

“The reference to ‘a customer or multiple customers’ in the previous schedule 2, which restricted the ability to wheel electricity to more than one customer, has been removed – accordingly, it can be interpreted that electricity can now be wheeled to multiple customers, which is a welcomed introduction.  However, it is not expressly stated as such which would have been preferable and provided much needed certainty to the market,” she said.

“Further, the next clause states that the relevant generation facility is exempt provided that it ‘does not export or import any electricity onto or from the transmission or distribution power system and it is unclear as to what is intended by this condition and how this applies in the context of the other clauses. As a general comment, it is likely that further clarification will have to be sought from the Regulator and the Department of Mineral and Energy Resources as to the application of the exemptions,” she said.