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South Africa: A new era for industrial and mining power consumers

18 June 2021
– 4 Minute Read


President Ramaphosa’s announcement on 10 June 2021 that the registration threshold for self-generation facilities is to be raised from 1MW to 100MW, will unlock significant opportunities for the private sector and should assist in introducing additional generation capacity into the stressed South African grid. 

We have received a number of questions regarding this change from clients and we respond to some of the frequently asked questions below:

What type of generation facilities and customers will this benefit?

The proposed amendment will allow a generation facility (including an Independent Power Producer (IPP)) of up to 100MW to sell electricity through a direct connection to a customer who consumes the power themselves; or to multiple end use customers to whom the electricity is wheeled over a transmission or distribution grid. 

An important beneficiary of this change will be large industrial and mining companies who will be able to purchase electricity from an IPP for all of the power needs within the group and have the power ‘wheeled’ through the grid to facilities throughout the country. This would allow them to lock in a long-term price for electricity from an IPP under a Power Purchase Agreement (PPA)and obtain certainty on price increases over a long-term horizon.

Will this allow private generation facilities to sell to Eskom or municipalities?

The amendment does not automatically mean that private facilities can sell to Eskom or to municipal distributors. Presently Schedule 2 only exempts generators selling to an ‘end use customer’. In other words, electricity sales to Eskom, distributors (such as municipalities) or traders for on-sale are not exempt. 

Generators selling to Eskom, distributors (such as municipalities) or traders for on-sale, exporters and importers will continue require a licence under Electricity Regulation Act (ERA) and Ministerial deviation under the Integrated Resource Plan. 

Sales to Eskom or a municipal grid would also have to follow a procurement process within Eskom or the municipality.

Previously the IPP Office of the Department of Mineral Resources and Energy has been used to procure long term PPAs for Eskom through IPP bid processes and indications are that this will continue to be used. A fifth round of the Renewable Energy IPP process is presently underway by the IPP Office. The IPP Office REIPP page can be accessed here.

In future electricity sales to ‘Eskom’ will made directly to the National Transmission Company which it has been announced will be unbundled from Eskom by the end of the year.

Various municipalities have recently announced an intention to procure new generation capacity from IPPs. The Western Cape government has recently released a Request for Information (RFI) regarding supply of renewable energy to municipalities in the province. The Western Cape RFI can be accessed here.   

What is the timing on implementing this?

The announcement still has to be translated into law for it to be effective. This will be through an amendment to the licencing exemptions under Schedule 2 of the ERA. President Ramaphosa indicated that Schedule 2 will be amended within two months. Click here to read the announcement.

What is registration likely to require:

Schedule 2 of ERA presently effectively guarantees registration to 1MW facilities that meet the Grid Code requirements and have an arrangement with the relevant grid provider regarding the connection of the facility (a connection agreement). It is expected that the registration requirements for private generators producing up to100MW under Schedule 2 will be similar. If wheeling will be required evidence of the agreement regarding this may also be needed for registration.

NERSA recently published a registration procedure (for 1MW facilities) with the detailed requirements for registration. These are likely to be similar for 100MW facilities. The existing rules can be accessed here.

Will the public be consulted on the specifics of the change to Schedule 2:

A consultation process had already commenced (before the President’s announcement) regarding amendments to raise the licensing threshold to 10MW. Click here to access the Draft of Schedule 2 released for public consultation on 22 April 2021. The raised threshold is likely to have similar requirements.