President Cyril Ramaphosa announced on Thursday that Schedule 2 of the Electricity Regulation Act would be amended within the next three months to increase “the licensing threshold for embedded generation”.
The current licence-exemption cap is set at 1 MW, with projects above that size required to follow a licensing process with the National Energy Regulator of South Africa that has been designed primarily for utility scale investments.
Delivering his State of the Nation Address during a hybrid sitting of Parliament, Ramaphosa said that between 4 000 MW and 6 000 MW of additional generation capacity would be required over the next five years, over and above that which would arise for independent power producer (IPP) procurement programmes and the completion of Eskom’s much-delayed coal projects.
“Recent analysis suggests that easing the licensing requirements for new embedded generation projects could unlock up to 5 000 MW of additional capacity and help to ease the impact of load-shedding,” he said, without referring to the 50 MW licence-exemption cap proposed in the analysis, conducted by Meridian Economics in January.
The analysis was based on a survey conducted by EE Business Intelligence at the request of Meridian Economics to which 239 responses were garnered from developers or potential developers of distributed-generation plants, often referred to as self-generation facilities.
Stakeholder consultation would be undertaken, the President said, to determine the level at which the new licensing threshold should be set and to finalise the necessary enabling frameworks.
“Eskom has already started work to expedite its commercial and technical processes to allow this additional capacity on to the grid without undue delay,” he added, indicating that he was aware of business complaints that the processes were taking too long.
The proposed reform of the regulatory framework for distributed-generation projects by mines, mineral processors, factories and farms was the most novel component of what was identified as government’s “fourth priority intervention” for 2021, which related to the rapid expansion of energy generation capacity.
To achieve this objective, the President reiterated the importance of restoring Eskom to operational and financial health and accelerating its restructuring process.
“Eskom has been restructured into three separate entities for generation, transmission and distribution. This will lay the foundations for an efficient, modern and competitive energy system.”
He said the utility was making “substantial progress” with its maintenance programme to improve the reliability of its ageing coal fleet and that government was working closely with Eskom on “proposals to improve its financial position, manage its debt and reduce its dependence on the fiscus".
“This requires a review of the tariff path to ensure that it reflects all reasonable costs and measures to resolve the problem of municipal debt.”
Eskom would also look to partner with investors to repurpose and repower part of its coal fleet, which would be decommissioned. "This will be done in a way that stimulates investment, local economic activity and local manufacturing, as part of a just transition."
Outside of Eskom, the Department of Mineral Resources and Energy was pushing ahead with the procurement of IPP capacity.
Ramaphosa said that the department would soon be announcing the successful bids for 2 000 MW of emergency power, while government would also be initiating procurement programmes for an additional 11 800 MW of power from renewable energy, natural gas, battery storage and coal in line with the Integrated Resource Plan of 2019.
He also noted that the regulations had been amended to allow municipalities to buy power from IPPs and said that systems were being put in place to support qualifying municipalities.