Positive outcome from government’s amendment to embedded generation

22nd October 2021

Renewable-energy producer Genesis Eco Energy states that the promulgation of the Electricity Regulation Act (ERA) amendment, gazetted August 20, 2021, surprised many.

“Business had been calling for an increase from the 1 MW limitation for years but the Department of Mineral Resources and Energy would only consider a move to 10 MW. “Industry leaders wanted a 50 MW limit increase, so the giant leap to 100 MW was highly welcomed throughout the private sector and by renewable energy independent power producers (IPPs),” says Genesis Eco Energy project development executive Glynis Coetzee.

Theoretically, it should become much easier for businesses to enter into private power purchase agreements (PPAs) with IPPs and energy traders. It is a simple, immediate way for businesses to reduce costs, mitigate operational risks and grow their business, viably and sustainably.

Intensive private-sector energy users are already well into planning and in the processes to procure renewable energy, but challenges remain; such as the cost of capital, grid code compliance, use of system and connection agreements, and other policy and regulations that still need expanding.

“A clear national framework is needed for how wheeling would actually work, how tariffs are charged for grid use, and there remain challenges around capacity and strength of grid infrastructure.”

Corporate PPAs are on the rise, as such structured agreements provide financial certainty for the IPPs and ‘mini-utilities’, where a financially strong off-taker is essential to achieve a "bankable" project, removing obstacles to financing.

This option, where the IPP funds, builds, owns, operates and maintains the generation system, means no upfront costs or maintenance concerns for the business owner or their landlord. If they are a tenant, they simply pay less for electricity and can get on with their core business. In addition, both landlords and the business benefit from the reduced costs, with increased yield providing added value to their building, she explains.

Within the mining sector and among large power users, are the “private wire” PPAs, where power is sold directly from the generator's facility, located at or near the offtaker’s assets, rather than passing through the national grid. The renewable-energy industry has quickly evolved from a single off-taker model to a multiple, bilateral buyers willing sellers paradigm.

The obvious boost to economic growth is the reduction in bottom line costs to the private sector, with up to 40% in savings achievable, measured against the likely increases.

Access to sustainable, reliable, always-on electricity can only mean business stability across industries of production, manufacturing, mining, commercial, retail and even agriculture and aquaculture farming operations.

“South Africa’s post-Covid-19 post-economic depression recovery programme, driven by government, focuses on how to grow the economy in a clean way and address South Africa’s carbon mitigation commitments, faster than has been done in the past,” says Genesis Eco Energy Developments MD Davin Chown.

He adds that, although the threshold change is a good forward step, government must speed up the carbon transition through clean infrastructure plans, at the same time addressing poverty and joblessness – failure to do so in a substantive manner will mean serious long term economic problems.

Chown explains that lifting this cap decentralises energy supply and creates a transition and transformation in the energy sector, that allows for broader-based ownership and participation in different parts of the economy.

He states that it is cumbersome to retool large industrial entities, so the quickest path to meaningful economic growth is through an inclusive industrialisation plan, executed in a decentralised manner, with greater levels of participation at a small scale.

“Business and government must focus on spreading these opportunities for energy generation across the country, developing a completely new business model for our electricity supply industry. This will enable a greater number and range of small electricity providers, allowing the sector to employ and upskill more people, by stimulating the supply chain, to address the desperate need for new skills and jobs,” Chown concludes.