The Electricity Regulation Amendment Bill [B 23 – 2023] (the Bill), has been published for comment and aims to introduce an array of significant amendments to the Electricity Regulation Act 4 of 2006 (ERA). The Bill was tabled before Parliament on 23 August 2023 for its consideration.

Call for comments by the Portfolio Committee on Mineral Resources and Energy opened on 17 September 2023, and submissions must be received by no later than 13 October 2023.

The previous version of the bill, published in February 2022 [B – 2021] differs from this version of the Bill in certain areas.

This article sheds light on the significant amendments introduced by this Bill and its implications, which will reshape the electricity generation, transmission and distribution landscape in South Africa.

A Competitive Electricity Supply Market

At the core of the Bill lies the aspiration to create a competitive electricity market.  The Bill enforces third party access to the transmission and distribution system based on published tariffs, applicable to all customers and applied objectively, without discrimination. Refusal by a licensee to grant access is only permissible when capacity limitations exist, accompanied by clear written justifications.

The Introduction of Key Role Players in the Electricity Sector

The following key role players are proposed to be introduced in the electricity sector:

• Transmitter – this role is tasked with overseeing infrastructure plans for the transmission network and the development and implementation of transmission use of system charges.
• System Operator – the System Operator has a multifaceted role, including the operation of the integrated power system. Furthermore, it is obligated to collaborate with the Minister and procurer to facilitate the establishment of new generation capacity or electricity transmission infrastructure. This cooperation comes into play when a section 34 determination under the ERA is in effect.
• Market Operator – the Market Operator is required to provide a trading platform market, along with market rules and criteria.
• Central Purchasing Agency – this agency is responsible for the procurement of electricity, including ensuring sufficient capacity and energy supply.

This is in line with the unbundling of Eskom. The Bill requires the Minister of Public Enterprises to establish the Transmission System Operator SOC Limited (TSO) within 5 years, to fulfil the above-mentioned functions. Interim provisions are made to accommodate this transition, including that the National Transmission Company South Africa SOC Limited will fulfil assume the role and responsibilities of the TSO. The National Energy Regulator of South Africa (NERSA) will oversee this transition.

Registration and Licensing

The Bill streamlines licensing requirements and introduces mandatory registration for activities not requiring licensing. Notably, facilities solely providing standby or backup electricity, those without a point of connection, and small-scale facilities under 100 kilowatts are exempted, provided that they register with NERSA and comply with specific conditions.

This is in line with the amendment of Schedule 2 of the ERA, Licensing Exemption and Registration Notice 2023 (the Amendment). Following the Amendment which granted certain generation facilities an exemption to be licenced which will only require registration. Registrants will be required to comply with the applicable technical codes, regulatory requirements and payment of fees imposed for granting registrants access to their network.

NERSA’s Powers

The proposed amendments empower NERSA further, granting it authority over a broader range of activities and giving it the power to issue, amend, withdraw, suspend, and revoke licenses. The registration, revocation, and deregistration of entities or activities will also be under its purview.

It appears that previous licensees, such as generation facilities will be required to follow this process to deregister.

Additionally, the Bill broadens NERSA’s powers to act as an arbitrator, in addition to its mediatory function. NERSA will also be empowered to investigate, either following a complaint or of its own accord, any matters pertaining to licensing or registration.

Pricing and Tariffs

In a significant departure from the current approach under the ERA, the Bill redefines NERSA’s role regarding pricing. NERSA will no longer be required to regulate pricing but will take on the responsibility of setting and approving tariffs.

In setting approved tariffs, NERSA must allow licensees to recover their costs, including a reasonable margin or return. Additionally, NERSA needs to take into account the promotion of renewable energy and consider the need for security and diversity of supply.

The Bill provides an exception allowing a licensee to charge a tariff not approved or set by NERSA which is a result of a competitive market or a direct supply agreement.

The Minister’s Role

As currently provided for under section 34 of the ERA, which operates as the legislative framework by which the Minister is authorised to make determinations regarding the need for additional electricity or new generation capacity, any decision taken by the Minister in that regard has no force and effect unless NERSA agrees with the Minister’s decision.

The Bill vests the power in the Minister solely (after consultation with the Minister of Finance and NERSA, and by notice in the gazette) to make a determination in relation to additional electricity and new generation capacity to ensure the uninterrupted supply of electricity. This authority can be invoked in cases of market failure, emergencies or national interest. One of the most notable shifts is that NERSA will be bound by the Minister’s determination and the Minister is not bound by the state tender board act in exercising his powers in this regard.

It is anticipated that the Bill will provide for much needed change in the electricity sector, promoting the growth of independent power producers to compete with Eskom. As the call for comments on the Bill is now open, it is vital for stakeholders to provide input on the Bill which will have vast implications for years to come.

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Director, Jonathan Behr and Kiera Bracher, Candidate Attorney, have contributed this year’s South African chapter, which provides a comprehensive source of legal insights and analysis of the complete South African legal framework relating to the #electricity sector and power markets.

Click below to navigate to the South African chapter of the guide and click here to visit the Global Guide

2023 Electricity Regulation – South Africa

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• In line with the Ministerial Determination issued under section 34 of the Electricity Regulations and concurred with by the National Electricity Regulator of South Africa (Nersa), on 18 March 2021, the Minister of Mineral Resources and Energy, Gwede Mantashe made the long awaited announcement that the Request for Proposals (RFP) for the procurement of 2 600 megawatts of electricity under the Renewable Energy Independent Power Producers Procurement Programme (REIPP) Bid Window 5 would be released to the market at midnight on 19 March 2021.
• The RFP for Bid Window 5 invites independent power producers to submit bids for 1 600 megawatts generated from wind and 1 000 megawatts from solar PV, with project sizes ranging from a minimum of 1megawatt to a maximum of 140 megawatts for wind and a minimum of 1 megawatt to a maximum of 75 megawatt for solar PV.
• The Minister further announced that the closing date for the submission of bids under Bid Window 5 is 4 August 2021 and Bid Window 6 will be launched in August 2021. Details as to how to obtain the RFP for Bid Window 5 are available on the IPP office website: ipp-projects.co.za.
• Since the above announcement the Department of Mineral Resources and Energy (DMRE) has, further announced that it intends convening a virtual bidders’ conference in April 2021 to provide information and clarity on the bid submission requirements and expectations for Bid Window 5 of the REIPP. Further details of the bidders’ conference will be announced by DMRE in due course.
• The announcement to procure additional electricity capacity comes at a time when the country is experiencing crippling load shedding and therefore shows Government’s serious intent to address electricity shortages that the country is facing and ensure energy security. Government is to be applauded for this initiative, which will hopefully go a long way to resolving the electricity shortages in South Africa and revitalise the renewable energy industry and the economy.

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• On 15 February 2021, the CEO of Eskom SOC Limited (“Eskom”), Mr Andre de Ruyter made a much welcome announcement that the independent system and market operator will be in place by 2022. This was a clear acknowledgement that, as part of the process of unbundling Eskom, Government needs to accelerate the establishment of an independent system and market operator as a state owned entity. Legislative reforms to create the independent system and market operator were first commenced in 2011 by the Department of Energy by publishing the Independent System and Market Operator Bill, 2011 (“ISMO Bill”). Since then, not much has happened to finalise and pass the ISMO Bill into law.
• The main objects of the ISMO Bill are to establish an independent system and market operator (ISMO) as a state owned entity which will, inter alia, be responsible for the planning of supply of electricity by generators of electricity through the national grid, the transmission and operation of the national grid, the buying of electricity from generators and the sale of electricity to distributors and large customers. In essence, the ISMO Bill contemplates that the functions of the planning of supply of electricity, the buying and the selling of electricity will be transferred from Eskom to an independent body, namely the ISMO, which shall be free and independent from any industry participants, particularly power generators.
• Currently Eskom operates as a “monopoly” in the sense that it controls the generation, transmission and a significant portion of the distribution of electricity in South Africa. This current structure is not only outdated and inefficient but it allows Eskom to have enormous power and control over the power generation, transmission and distribution facilities. Eskom currently generates over 90% of the country’s electricity.  This concentration of power has, in the past, sadly resulted in Eskom sometimes protecting its dominant market position at the expense of independent power producers.  Furthermore it has undermined the implementation of the national energy policy. Evidence of this was Eskom’s refusal to sign the power purchase agreements with the independent power producers a few years ago which had disastrous consequences for the Renewable Energy Independent Power Producers Programme in South Africa.  It is now widely accepted that the establishment of the ISMO will resolve the inherent conflict of interest arising from Eskom’s current position as a generator, transmitter and distributor of electricity and level the playing fields by ensuring equal treatment of all power generators including the independent power producers and Eskom.  Furthermore, market sentiment indicates that having an “independent and unconflicted” grid operator and consequently equitable access by all power producers to the national grid will boost investor confidence in the South African power industry, including the renewable energy sector which, in turn, is likely to attract increased private sector investment in the South African power sector.
• In order to accelerate the establishment of the ISMO, the main starting point will be to prioritise the finalisation and passing into law of the ISMO Bill. As noted above, the ISMO Bill contemplates the establishment of a state owned entity to be known as the Independent System and Market Operator SOC Limited. Government will be the sole shareholder of the ISMO. The main functions of the ISMO will include, inter alia, the planning of supply of electricity by generators, system operation, market operation including the procurement and sale of electricity.  The Bill provides that the ISMO will be managed by an independent board of directors, the majority of whom shall be non executive directors. In order to ensure that the process of appointing the non executive members of the board of directors of the ISMO is transparent and represents a sufficient spread of skills, knowledge, qualifications and experience to enable it to function efficiently and effectively, the ISMO Bill provides that the process of appointing the board of directors of the ISMO will be conducted by a nominations committee.  The ISMO Bill also deals with, inter alia, –
• • the appointment of the ISMO staff, including the Chief Executive Officer and the Chief Financial Officer;

• • the transfer of assets, rights, liabilities and obligations required by the ISMO to perform its functions and personnel of Eskom performing functions pertaining to the ISMO; and

• • the funding of the ISMO. The ISMO Bill envisages that all of the ISMO’s normal costs should be recovered from tariffs, fees and charges to ISMO Customers and further that the ISMO may, subject to compliance with its Memorandum of Incorporation, the Public Finance Management Act and the Companies Act, borrow money or arrange for facilities to meet its capital and operational requirements.
• It is worth noting that, as currently drafted, the ISMO Bill merely deals with the operation of the transmission system and does not deal with the ownership and maintenance of the transmission system. In this regard, the ISMO Bill should clarify therein whether the ownership and maintenance of the transmission assets will be transferred to the ISMO or remain with Eskom or a subsidiary of Eskom. It is submitted that the ISMO does not necessarily have to own and maintain the transmission assets but consideration should be given to transferring ownership and maintenance of the transmission assets to an independent entity as it would be an untenable position and possibly frustrate the objectives of the ISMO if Eskom as a generator of electricity continues to own and maintain the transmission assets in a competitive environment.  If however Government’s position is that ownership and maintenance of the transmission should remain with Eskom, strict regulation will need to be put in place in order to guarantee equal and fair access to the transmission system by all generators.
• In conclusion, we wish to highlight that it is unsustainable that Eskom should remain a player and a purchaser of electricity in a competitive environment. Accordingly,  in order to resolve this, Government is urged to –

• • in the best interest of all industry players in the power market, accelerate the establishment of the ISMO;

• • clarify who will own the national transmission assets – will it be the ISMO, Eskom or another independent body; and

• • to the extent Government’s intention is to have ownership and maintenance of the transmission assets remain with Eskom and not an independent party, introduce regulation as to how equal and fair access to the national grid by all generators will be guaranteed.

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By Chris Stevens, Director and Head of the Mining, Environmental & Resources practice; Jonathan Behr, Director; Bronwyn Parker, Senior Associate; and Tsebo Masia, Candidate Attorney

It goes without saying that from the period commencing on 27 March 2020 to date, our country has experienced, among many other things, firstly an increase in the public’s reliance on and tentative assessment of the Gazetted information being released almost daily and secondly that the various government departments have released directions, regulations and amendments thereof more frequently in the past three months than it has done in a ‘normal’ year.

The Department of Mineral Resources and Energy (“DMRE“) is no exception to the above. This article therefore serves as an attempt to aid those who may be either confused or have fallen behind on what has been released since the 8^th of May 2020 to date, in relation to the DMRE.

Mining sector

On 18 May 2020, the DMRE published in Government Gazette 43335, ‘Guidelines for a Mandatory Code of Practice (“COP“) on the Mitigation and Management of Covid-19 in the Mining Sector’ (“Guidelines“), which we note was an anticipated document as discussed in a Werksmans Attorneys article dated 8 May 2020 entitled ‘New directions, regulations and a Labour Court judgment bring clarity to the mining industry’. These Guidelines were drafted in terms of section 9(2) of the Mining Health and Safety Act 29 of 1996 (“MHSA“) and came about as a result of the Labour Court Order granted on 1 May 2020, instructing employers in the mining industry to prepare and implement a COP on Covid-19. The Guidelines were released to assist employers as far as reasonably possible and practicable in order to establish and maintain a Covid-19 prevention, management and mitigation plan at mines. The Guidelines also provide minimum requirements and best practices for the implementation of the Covid-19 specific COP. Also included in the Guidelines is the status of mandatory COPs, risk assessment, start-up procedure for mines, compliance with the COP and access to the COP and related documents. It was noted by the Chief Inspector of Mines that the Guidelines are to be seen as being ‘a living document’ and may be subject to change should new developments relating to Covid-19 arise.

The Guidelines therefore seem to answer many of the questions that previously faced the mining sector during the start-up process but of importance, among other things, would be to be advised that the legal status of the Guidelines and the COP are such that an employer must prepare and implement a Code of Practice (COP) on the COVID-19 pandemic present and spreading in South Africa. This COP must comply with any relevant guidelines and instructions issued by the CIoM in terms of Section 9(3) MHSA, including regulations and guidelines released in terms of the Disaster Management Act no 57 of 2002 (“DMA“) and all other applicable statutory obligations related to COVID-19.

Failure by the employer to prepare and implement the mine’s COP in line with this guideline constitutes a criminal offence and a breach of the MHSA. The employer must ensure that a complete COP and the related documents are kept readily available at the mine for examination by any affected person, a registered trade union with members at the mine or where there is no such union, a health and safety representative on the mine, or, if there is no health and safety representative, an employee representing the employees on the mine, must be provided with a copy. A register must be kept of such persons or institutions with copies to facilitate updating of such copies. The employer must ensure that all employees are fully conversant with the sections of the COP relevant to their respective areas of responsibilities.

As at 29 May 2020, and in terms of the relevant updates to mining under Alert Level 3, all deep mining operations are now expected to ramp-up to their full capacity and therefore place the mining industry back into full production capacity. In a briefing, the minister of mineral resources and energy, Gwede Mantashe, noted that prior to ramping up, all mining operations are required to prepare and implement a mandatory COP for the mitigation and management of Covid-19, as discussed above. In the Mantashe Economic Cluster Media Briefing on Coronavirus Covid-19 Alert Level 3, the chairperson of the portfolio committee on mineral resources and energy, Sahlulele Luzipo, also called on the department to consider having a “dedicated health specialist, over and above the regular mine health and safety inspectors, who will specifically take lead in the inspection of compliance with Covid-19 plans”

Energy sector

On 5 May 2020, the minister of the DMRE published for comment in Government Notice No 500, in Gazette No 43277, ‘Draft Regulations amending the electricity regulations on new generation capacity, 2011’ (“Draft Regulation Amendments“). One key aspect to take note of in the Draft Regulation Amendments, relates to the proposal to allow Municipalities to apply to the minister to establish new generation capacity in accordance with the integrated resource plan.

The intention behind the Draft Regulation Amendments is said to amend the Electricity Regulations on New Generation Capacity as published by Government Notice R. 399 in Government Gazette 34262 of 4 May 2011 and amended by Government Notice R. 1366 in Government Gazette 40401 of 4 November 2016.

The Draft Regulation Amendments were published for public comment in terms of section 35(5) of the Electricity Regulation Act 4 of 2006 (“ERA“), and invited interested parties to submit written comments on the Draft Regulation Amendments within 30 days of 5 May 2020. As a brief overview, the Draft Regulation Amendments have proposed, among other things, that:

Regulation 3 of the ERA be amended by the insertion after paragraph (a) of, “(aA) to permit a municipality to apply to the Minister to establish new generation capacity”;

Regulation 5 of the ERA be amended by the addition of the following sub-regulations, “(3)Notwithstanding sub-regulation (1), a Municipality may apply to the Minister to establish new generation capacity in accordance with the integrated resource plan, and such application must:

(a) be accompanied by a detailed feasibility study as contemplated in sub-regulation (2);

(b) demonstrate sound financial standing of the Municipality; and

(c) be aligned to the Integrated Development Plan of that Municipality.

(4)In considering an application by the Municipality in terms of sub-regulation (3), the Minister may request additional information required to make a determination in terms of regulation 6.”; and

Regulation 9 of the ERA be amended by the substitution in sub-regulation (2) for the words preceding paragraph (a) of the following words, “(2) Before the buyer concludes a power purchase agreement, the buyer or the procurer must, subject to any approvals required in terms of the PFMA, Municipal Finance Management Act and Municipal Systems Act”.

On 14 May 2020, the DMRE released directions for the Continuous Supply of Energy and Petroleum Products to Society, in terms of the DMA regulations published on 29 April 2020. The directions not only deal with the continuous supply of energy and petroleum products but further aim to allow maintenance and construction work for energy projects to recommence, subject to strict hygiene, safety, sanitation and social distancing protocols. The permitted activities under these directions include, among others, projects procured under the Renewable Energy Independent Power Producers Procurement Programme that are currently in construction, Eskom new build programme which includes Medupi and Kusile, the mineral resources and energy department’s national social solar water heater programme and projects, nuclear projects under maintenance and construction in power stations and other nuclear facilities and energy construction work for already priced and awarded government tenders.

Of interest, in a non-governmental organisation notice 287 of 2020 dated 22 May 2020, the National Nuclear Regulator announced that Eskom had applied for a nuclear vessel licence in terms of section 21(3) of the National Nuclear Regulator Act No 47 of 1999. This licence will enable a non-nuclear powered vessel to dock in the Cape Town harbour for two days in December 2020 in order to transport fresh nuclear fuel assemblies to the Koeberg Nuclear Power Station. Representations regarding this notice have been invited within 30 days of the date of publication of this notice.

On or about 26 May 2020, the DMRE released a ‘2020-2025 Strategic Plan and 2020-2021 Annual Performance Plan’ (“Plan“) in an attempt to provide a roadmap to achieve the 2500 MW Nuclear New Build Programme that is soon to commence. This was announced during a briefing with parliament and it was added that a plan for providing oversight monitoring for the Koeberg Life Extension Programme is also being developed. Among other things, the Plan aims to deal with the inadequate energy supply in South Africa by accelerating the updating and processing of the DMRE’s regulatory frameworks in order to enable interventions relating to the various IRP2019 technologies. The DMRE further plans to commence immediately with procurement processes to ensure the security of energy supply.

Some of the planned interventions include, enhancing the stability of the energy distribution industry by reviewing the regulatory framework and industry structure, as well as introducing regulations to improve the National Energy Regulator’s regulatory oversight on infrastructure maintenance, addressing licensing turnaround times by reviewing and strengthening relevant legislation. It is further proposed that section 50 of the Minerals and Petroleum Resources Development Act be revisited to help increase domestic beneficiation.

On 29 May 2020, regulations were released in Government Gazette 43367, in respect of the Maximum Refinery Gate Price of Liquefied Petroleum Gas (“RGP“). The DMRE drafted these regulations in terms of the Petroleum Products Act No 120 of 1977. Among other things, the regulation states that the RGP has to be based on the import parity pricing and comprise the Saudi Contract Price, freight, insurance, storage, cargo dues, demurrage and stock financing and be expressed in Rands per metric ton. The regulations further state that this RGP needs to be revised every month and will be effective from the first Wednesday of each month and must be calculated by the CEF (SOC) Limited using the RGP in the preceding month in accordance with regulation 2. These regulations have since the date of publication come into effect.

General

On 5 June 2020 and in relation to all industries, it has recently been announced and published in Government Gazette 43408, that the national state of disaster that was declared on 15 March 2020 by Government Gazette 43096 has been extended to 15 July 2020 in terms of section 27(5)(c) of the DMA (“5 June 2020 DMA Extension“). This is said to be subject to the need to continue augmenting the existing mitigation measures undertaken by the state to address the impact of the disaster.

Although the impacts on the 5 June 2020 DMA Extension have not been fully elucidated in respect of the different governmental departments, at this time, one must be cautious in assuming that this extension can be interpreted as being an extension of the timeframe relaxations as provided for in, for instance the directions issued in terms of regulation 10(8) of the regulations made under section 27(2) of the DMA, which dealt with the extension of certain timeframes, released by the DMRE dated 11 April 2020 under Government Gazette No R 462 No 43227 (“DMRE 11 April 2020 Directions“).

The DMRE 11 April 2020 Directions had provided for the extension of timeframes in relation to various processes including, but not limited to, permissions, rights and permits as contemplated in the MPRDA, directives, notices, orders and instructions and the submission of various reports. The DMRE 11 April 2020 Directions had stated that the extensions of these timeframes would in most cases be extended or deemed to have been extended by the number of days of the duration of the lockdown period. If one looks at the definition of “lockdown” in the Regulations issued in terms of section 27(2) of the DMA on 29 April 2020, Government Notice No. R. 462 Gazette No. 43227 (“29 April 2020 DMA Regulations“), it is clear that the lockdown was defined as being the period between the 23h59 on 26 March 2020 and 23h59 on 30 April 2020. As the 29 April 2020 DMA Regulations have not since been repealed, this would mean that the extensions as provided for in the DMRE 11 April 2020 Directions, remain to have only been extended up until 30 April 2020.

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The regulations issued in terms of the Disaster Management Act, 2020 (“Regulations“), which set out the relaxation of the lockdown restrictions under Alert Level 4, permitted the resumption of civil engineering services for public works projects (including water, energy and sanitation) and public works civil engineering and construction works.  In order to provide certainty as to the specific services covered by the Regulations, on 15 May 2020 the Department of Mineral Resources and Energy published directions under the Government Notice No. 542(“Directions“) which provided much needed clarity as to which “civil engineering activities for public works” relating to energy and other additional services are permitted to recommence and continue under Alert Level 4.  These specifically include:

1. “Civil engineering for public works projects” in so far as it relates to energy, including the following:
   
   (i) projects procured under the Renewable Energy Independent Power Producers Procurement Programme that are currently in construction;
   
   (ii) embedded generation projects under construction and listed in Schedule 2 to the Electricity Regulation Act, 2006 (Act No. 4 of 2006) or licensed in terms of section 7 (1) of the Electricity Regulation Act;
   
   (iii) Eskom new build programme which includes Medupi and Kusile;
   
   (iv) the Department of Mineral Resources and Energy national sodas solar water heater programme and projects;
   
   (v) energy efficiency and demand side management projects;
   
   (vi) national electrification programme;
   
   (vii) liquid fuels (including retails) projects under maintenance and construction;
   
   (viii) liquid Petroleum Gas projects under maintenance and construction; and
   
   (ix) nuclear projects under maintenance and construction in power stations and other nuclear facilities.

In addition, the above, the Directions also confirmed that the following services are permitted under Alert Level 4:

• all professional entities that provide licences, approvals and authorisations for the maintenance and construction of energy projects;

• all professional planning, costing and design work that supports construction work on sites, in anticipation of incremental work on construction sites;

• contracted suppliers, contractors and consultants who need to travel across borders to attend to projects; and

• energy construction work for already priced and awarded government tenders.

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1.1 On 13 May 2020, the President of South Africa addressed the nation about the further easing of lockdown restrictions and the re-opening of the economy. This is to be achieved by increasing economic activity whilst strengthening health measures to reduce the transmission of the corona virus and providing adequate healthcare for those who become infected. Amongst other things, the President also announced that “…we will soon be embarking on the third phase of our economic response to the coronavirus crisis by outlining a clear strategy for economic recovery.” This is a welcomed announcement which has been followed by intense lobbying and pressure on Government to also start putting in place the necessary building blocks to rebuild the economy following the economic devastation caused by the COVID-19 pandemic.

1.2 According to reports, the six week lockdown to curb the spread of COVID-19 has resulted in a dramatic decline in electricity usage by 8000 MW and left Eskom with surplus capacity. This decline however is seen as a temporary knock on effect of the COVID-19 pandemic due to the slowing down of economic activity and should not detract our Government from its long term plan and focus to boost energy security in South Africa. It is widely expected that post lockdown, once the economy is fully reopened, South Africa will, once again, see a surge in energy/electricity demand.

1.3 With the easing of the lockdown restrictions there are renewed calls to counteract the economic decline and to boost the economy and energy supply by, inter alia, accelerating infrastructure investment and spending. Lack of energy security and load shedding is often cited as one of the key challenges that have deterred economic growth and direct foreign investment into South Africa. Accordingly any economic recovery plan will, in our view, be inadequate if it does not include measures to ensure long term security of energy supply post the COVID-19 pandemic. At the State of the Nation (SONA) address in February 2020, the President of South Africa acknowledged that ensuring security of energy supply was critical to the future economic growth of the country. In this regard the President announced the following well received measures to significantly increase electricity generation capacity outside of Eskom, the implementation of which was interrupted by lockdown:

1.3.1 the issue of a Section 34 Ministerial Determination to give effect to the Integrated Resource Plan 2019, enabling the development of additional grid capacity from renewable energy, natural gas, hydro power, battery storage and coal;
1.3.2 the initiation of the procurement of emergency power from projects that can deliver electricity into the grid within 3 to 12 months from approval;
1.3.3 the continuation by the National Energy Regulator to register small scale distributed generation for own use of under 1 MW and for which no licence is required;
1.3.4 ensuring that all applications by commercial and industrial users to produce electricity for own use above 1MW are processed within the prescribed 120 days; and
1.3.5 opening of bid window 5 of the Renewable Energy Independent Power Producer Programme (REIPP) and working with producers to accelerate the completion of window 4 REIPP projects.

1.4 In its bid to achieve economic recovery post the COVID-19 pandemic, Government is being urged to identify “low hanging fruit” as part of the strategy to accelerate the rebuilding of the economy and also boost energy security. Some of the above noted measures for example the opening of bid window 5 are viewed as such “low hanging fruit” for the following reasons:

1.4.1 there is an excellent procurement process in place in South Africa for the procurement of the renewable energy projects, the execution of which has received international acclaim;
1.4.2 power from renewable energy sources is clean energy which, from a cost perspective, is now at parity if not cheaper than electricity generated from coal plants;
1.4.3 renewable energy projects are largely financed with private capital with very little reliance on public sector funding and as such it is not necessary to mobilise significant public sector capital in order to fund these projects. This also frees up public sector capital to fund other initiatives; 1.4.4 they positively promote South Africa’s transformation agenda in that high requirements for localisation and BEE ownership, which are some of the notable aspects of the renewable energy projects, are now generally accepted as the norm for these projects;
1.4.5 generally, the solar photovoltaic and wind projects have shorter construction lead times as compared to other energy projects;
1.4.6 they create much needed jobs particularly during the construction phases;
1.4.7 a number of renewable energy projects are bid ready as development work on the licensing, permitting and design of these projects has been completed.

1.5 Latest reports indicate that utilities and other large users of energy in some parts of the world are moving to wind and solar plants for power generation not only because renewable energy is now a cheaper option but to also address air pollution and climate change concerns. Here in South Africa we now see large companies like Sasol roll out plans to turn to renewable energy as their primary source of power.

1.6 Given the above developments, we submit that it would be a missed opportunity if Government, as part of its economic recovery plan, failed to accelerate the implementation of, amongst other initiatives, the above mentioned measures announced by the President at the SONA particularly the re-opening of bid window 5, working with independent power producers (IPP) to accelerate the completion of bid window 4 projects and fast tracking all applications by commercial and industrial users to generate their own electricity.

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But can we catch up?

The updated IRP which is sitting with the National Economic Development and Labour Council (Nedlac) for comment, has cut the renewables target to a mere 32%.
The latest plan proposes an energy mix by 2030 of 34 000 MW of coal (46%); 1 860 MW of nuclear (2.5%); 4 696 MW of hydro (6%); 2 912 MW of pumped storage (4%); 7 958 MW of solar PV (10%); 11 442 MW of wind (15%); 11 930 MW of gas (16%) and 600 MW of concentrated solar power (1%).

Unfortunately, we lost four valuable years for implementing renewables when the smooth Power Purchase Agreements process to buy renewable energy from independent power producers (IPPs) was abruptly halted in October 2015, with no logical explanation. If we were on track to our original 2030 goals we would by now be getting about 22% of our energy from renewables. And we wouldn’t be having to face frequent rolling blackouts that do so much damage to our economy.

The outlook is not all bleak. A number of quick wins could get us back on track to meet the approximately 45% renewable target in the next decade. In fact, we may well be on track again sooner than later following the recognition by former Energy Minister Jeff Radebe that we need to act with extreme urgency in addressing the energy crisis in South Africa. Then Minister Radebe notified Nersa that he had approved deviation from the IRP (2010-2030) in accordance with section 10(2)(g) of the Electricity Regulation Act of 2006 for the granting of licences to small-scale embedded generation (SSEG) projects, with a combined capacity of 500 MW. This means that IPP developers will not have to get permission from the minister for a deviation from the IRP.

Government should double the capacity to be brought on board in each of the next three rounds of Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Renewables are a no-brainer for our cash-strapped government. Renewable energy, combined with flexible generation or storage, is the most cost-effective power to produce. Wind and solar photovoltaic are now the cheapest forms of power generation per kilowatt hour (kWh) while the cost of renewables is expected to continue dropping.

SA would need to implement battery technology to store renewable energy – a good investment compared to the alternatives, such as continuing to rely solely on a struggling Eskom. Renewables and Eskom should both be part of the solution to our energy crisis.

Before REIPPPP was put on ice in October 2015, we had global investors lining up to invest. They may have been put off by the uncertainty, but if government commits to a 45% target by 2030, and shows it has the appetite to follow through, foreign investors would return to our shores. There is already interest, which will be shored up by the proactive conduct of government in removing the regulatory hurdles in relation to SSEGs, as these are generally considered the quickest and cheapest way for South Africa to address its electricity capacity crisis. After all, there are few opportunities in renewables in other markets like Europe which are largely saturated.
Nedlac should call on government to relook the IRP to reconsider the renewable energy targets. In the absence of readily available energy from Eskom, South Africa should increase its reliance on renewables. After all they are cheaper and quicker to install to keep the lights on – and this is exactly what we desperately need.

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Radebe’s welcome move will certainly help in alleviating electricity supply constraints as it opens the generation market to allow the private sector to provide power together with Eskom.

But more needs to be done – and in a hurry to prevent the lights going out again.

Nersa is only allowed to license applications from industrial, agricultural, mining and similar businesses to generate their own capacity for projects between 1 megawatt (MW) and 10MW – without waiting for the promulgation of the new Integrated Resource Plan (IRP) which has been under discussion by the National Economic Development and Labour Council (Nedlac) for many years.

It shows what can be done when you work around the lack of progress that has hampered Nedlac for so long now. The draft IRP, tabled in August 2018, is likely to take several more months before consultation is complete.

But the newly appointed Minister needs to go even further to allow smaller generation by businesses and households that want to produce energy, mostly for their own use. Typically these entities would produce up to 1MW and will need to be registered. Nersa expects to be able to register these entities within the next two to three months.

But this is where they need to hurry, provide clarity and get this administrative hurdle out of the way.

As winter approaches, South Africa’s economy cannot afford to wait for months on end for these smaller projects to be approved. The morale of the country is also important and it would be real proof of government’s new broom election promise for there to be fewer blackouts (ideally no blackouts at all)- and demonstrable steps to a long term solution.

Fortunately, households producing less than 100 kilowatts (kWh), typically by way of solar panels, do not need to register with Nersa.

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