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New power generation exemption framework creates fresh hurdles for IPPs

New power generation exemption framework creates fresh hurdles for IPPs

Photo by Duane Daws

28th February 2018

By: Terence Creamer

Creamer Media Editor

     

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A warning has been sounded that recent amendments to the Electricity Regulation Act relating to licence exemptions for generation plants could create further impediments to the deployment of private generation facilities.

Titled ‘Licensing Exemption and Registration Notice’, the amendment was published in the Government Gazette of November 10, 2017, and signed by former Energy Minister Mmamoloko Kubayi-Ngubane, who occupied the position ahead of David Mahlobo, who himself has since been replaced by Jeff Radebe. In fact, the amendment was initiated during Tina Joemat-Pettersson’s stint at Energy Minister.

Specialist energy lawyer Sue Röhrs argues that the amendment reduces the scope of those generation activities that can be exempt from licensing. It also raises new uncertainties, which could delay the implementation of independent power producer (IPP) projects.

A key area of uncertainty relates to the need to register exempt projects with the National Energy Regulator of South Africa (Nersa), she explained to members of the South African Independent Power Producer Association (SAIPPA) in Johannesburg this week.

The amendment exempts several categories of generation activity, including:

  • A facility, with an installed capacity of no more than 1 MW, which is connected to the national grid, where electricity is supplied to a single customer, but where such power is not wheeled through the grid.  This exemption would only apply to a generation facility where the owner or the generator has entered into a connection and use of system agreement (CUOSA) with Eskom, or obtained approval for the connection from the applicable distributor. If the Minister has published a notice in the Government Gazette to the effect that the amount of megawatts allocated to embedded generation of this nature has been reached before the date upon which the CUOSA is signed, or an approval granted, then the generation facility will not be exempt under this provision.
  • A grid-connected generation facility with an installed capacity of no more than 1 MW, which is operated solely to supply a single customer or related customers by wheeling electricity through the grid. Again, a CUOSA is required, and the exemption will only apply when, as at the date of signature of the CUOSA, the Minister has not gazetted a notice stating that the capacity allocated in the IRP has been reached.
  • The operation of a generation facility with an installed capacity of no more than 1 MW that is not connected to the national grid. The facility must supply only the owner of the facility, a customer who is related to the owner or generator, or a customer on the same property.
  • The operation of a generation facility for demonstration purposes for a duration of no more than 36 months, whether or not the facility is connected to the national grid, where the electricity produced is not sold and, where the facility is grid connected, a CUOSA has been signed, or approval has been granted.
  • A facility where the electricity is produced from a co-product, by-product, waste product, or residual product of an underlying industrial process and operated solely to supply electricity to the owner of the generation facility, a related customer or to a customer for consumption on the property.
  • A private distribution line used to convey electricity from an exempt facility to the customer, if the customer is located on the same property, or to the point of connection if the electricity is to be wheeled through the grid.
  • Sales of electricity by resellers who buy electricity from distributors, where the tariff or price charged is not greater than that which would have been charged by the applicable distributor, where the reseller has entered into an agreement with the distribution licensee and where the general conditions of the service delivery agreement have been approved by Nersa.
  • And a generation plant used solely for the purpose of back-up or standby power in the case of supply interruption.

 

Registration with Nersa is required for all exempted generation facilities, including those generation facilities exempted from licensing ahead of the change to the legislation, as it is for facilities that declared non-compliance, but have signed an agreement with the regulator to comply within a specified timeframe.

However, in the absence of rules, which are still being finalised by Nersa, Röhrs says it is unclear whether the exemption becomes effective immediately, or only after registration has taken place.

Should registration be treated as an administrative requirement only, exemption would be effective even in the absence of registration with Nersa. However, there is a risk that exemption will only be considered to be effective once registration has taken place.

Röhrs is concerned that Eskom could refuse to sign a CUOSA with an IPP until registration, while municipalities would also hold off on offering their approval until a standardised set of guidelines was in place.

Already the Association of Municipal Electricity Utilities (AMEU) is advising that municipalities should wait for the Nersa rules before making any determination on projects that should be exempted from licensing.

AMEU strategic adviser Vally Padayachee tells Engineering News Online that each municipality, in terms of their Constitutional mandate with regard to electricity service delivery, has the prerogative to implement the amendments as they deem fit.

In the absence of the final implementation rules from Nersa each municipality would, thus, still be empowered to implement the amendments, while being cognizant of the dictates of the law, their internal rules, as well as the specific conditions affecting the municipality. “[Therefore], in the interim IPPs should continue to liaise and consult with the respective municipality.”

However, Padayachee says that the issue has been flagged as a priority both for the South African Local Government Association (Salga) and AMEU, which are also keen to “influence these rules before they are finalised by Nersa”.

The issue will also be discussed as Salga’s upcoming ‘Energy Summit’, which will be held from March 7 to 9 in Sandton.

It is understood that Nersa is indeed preparing the rules and is likely to release these for public comment. However, Engineering News Online was not able to verify this ahead of publication.

Röhrs says that, in a context where Eskom has returned to a power surplus position and the market opportunity for IPPs is limited to agreements with private customers, the exemption amendment is proving to be a serious impediment to the development of new projects.

“We now have a situation where, because of the lack of rules around registration, there is a lacuna. So, a project may be exempt, but if Nersa’s view is that you can’t claim the exemption until registration, then effectively the amendment is not yet applicable. Therefore, IPPs are stuck in a bit of a Catch 22,” Röhrs explained.

She also indicated that there was a growing apprehension among IPPs that the amendment’s primary aim was to protect Eskom, rather than facilitate the introduction of private generators.

SAIPPA chairperson Thomas Garner says that, while he understands the desire to protect Eskom, technology was advancing at a pace where it was becoming increasingly difficult to employ legislation and regulation to protect an inefficient utility.

He argued that seeking to regulate technology disruption after the fact is resulting in further inefficiency, but stressed that SAIPPA stood ready to work with government and the regulator to ensure that solutions could be found.

Edited by Creamer Media Reporter

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