Recent and current developments compel one to reflect on achievements and challenges in the midst of the current power crisis.

Embedded generation is becoming a reality for businesses and households, thanks to the initiative by the National Energy Regulator of South Africa (Nersa) to introduce the necessary regulations. The response to this initiative has been encouraging. For example, there has been wide support for Nersa-sponsored principles that allow embedded generators to sell excess electrical energy into the grid as well as for the establishment of rules for embedded generation and a proposed general feed-in tariff because embedded generation is one of the best opportunities South Africa has to introduce distributed energy into the grid.

Embedded generation will largely use private capital. Although mostly small scale, embedded generation remains very capital intensive, with almost all the expenditure made upfront. It should be noted that investment and finance are very responsive to the quality of policymaking, especially when clear and credible signals from policymakers lower risk and inspire confidence.

The South African Independent Power Producers Association has contented that there should be no discrimination against any technology or fuel source, which means government should not be prescriptive regarding the forms of embedded generation selected. Ideally, embedded generation should reduce the cost of peak electricity provision, and not add to it.

The principle of protecting municipal revenue is understood; however, the principle of reducing customer energy costs should also be top of mind. I may add that the ultimate solution lies in reviewing the funding formula for municipalities by the National Treasury. While I am aware that there will probably be revenue loss for municipalities, embedded generation will happen in any case, given the current crisis, which will take some time to stabilise, during which the cost of electricity will continue to increase. This will lead to robust pursuance of energy efficiency practices and, in some instances, consideration of or actual business migration from the country.

The choice to limit the framework to projects generating less than 1 MW is rather unfortunate. The simplified registration and net metering process proposed in the draft framework would be well suited to embedded generation projects in the 1 MW to 5 MW band.

Another interesting development is the Facility for Investment in Renewable Small Transactions (FIRST) Programme, which was announced by Energy Minister Tina Joemat-Pettersson in her Budget speech recently.

Although the Department of Energy launched the Small Projects Independent Power Producers Programme (SPIPPP) to increase the participation of small and medium-sized enterprises (SMEs) in the renewable-energy market, a number of challenges have emerged in this sector. According to Dr Jan Martin Witte, of Germany development bank KfW, the greatest challenges include a limited development record, difficulty in sourcing or importing technology, a lack of experience in mitigating risk and equity constraints, as well as limited access to commercial debt and the high cost of capital (if it is available at all), which makes it difficult for SMEs to realise a return on equity.

Generally, SMEs have not been able to gain a foothold in the sector and projects continue to be developed by large multinational developers. Limited interest from commercial lenders is due to high transaction costs and a low investment value.

The objective of the facility is to provide financing for SME developers participating in the SPIPPP on a risk-pooling basis that allows for the standardising of certain risks across developers and projects, and for ‘crowding in’ commercial investors/lenders on a reduced
transaction cost and structured risk exposure basis.

Owing to these challenges, the FIRST Programme aims to provide senior and subordinated debt but no equity to SPIPPP projects and ensure that projects are run by a private- sector player through a ‘facility manager’. Further, a technical assistance facility will be set up to
assist with project development, the funding of advisory costs and reaching financial close as well as the compilation of standardised legal and financial documentation for the projects.

The War Room process has made, and continues to make, progress but clarity is needed on how far we are regarding the implementation of the five points of the Stabilisation Plan. Are we not supposed to monitor all the five points without exception? Seemingly, the predominance of those who are mostly keen on tackling the effects of load-shedding and, logically, ensuring Eskom’s financial health, direct public focus instead of comprehensively the five points.

While cynics can paint doom and gloom about the crisis, these few observations do highlight the serious efforts being made to address the current crisis and build a foundation for a sustainable power supply. With adequate will, there will be a light at the end of the tunnel.