AMENDMENTS TO 100MW THRESHOLD EXEMPTION

By Claire Tucker Wednesday, September 01, 2021
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Our previous newsflashes dated 18 June, available here, and 16 August, available here, regarding the amendment of the Electricity Regulation Act (ERA) to raise the licencing threshold, refer.

On 20 August 2021, Minister Mantashe published further amendments to Schedule 2 of ERA (20 August exemption notice) which clarifies some of the questions asked when the exemptions raising the licencing threshold to 100MW were first published on 12 August 2021.

Following these further amendments, we have updated our responses to the frequently asked questions we have received from clients.

What type of generation facilities and customers will this benefit?

The 20 August exemption notice allows a generation facility of up to 100MW to operate without the need to obtain a licence but subject to ‘registration’. [Note: there is an error in the way the exemption notice has been published in that it, in fact, omits this statement, but it is reasonably implied.]

The facility may be operated by an Independent Power Producer (IPP) with the power sold to an unlimited number of ‘customers’, or may be operated by the offtaker. A ‘customer’ is defined as a person who purchases electricity; this could be a purchase for own use or could be a purchase for on-sale to a third party, including one or more consumers.

Important beneficiaries of these changes will be large industrial and mining companies who will be able to generate electricity, or purchase electricity from an IPP, to satisfy all of the power needs within their groups 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 by investing in their own plants or purchasing 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 20 August exemption notice allows a generation facility of up to 100MW to sell to any ‘customer’ without a licence. This should allow sales to Eskom or a municipal distributor without a licence.

What remains to be seen is whether these sales can take place without a ‘determination’. Previously the Department of Mineral Resources and Energy (DMRE) considered that ‘organs of state’ such as Eskom and municipalities need a ‘Ministerial determination’ issued under section 34 of ERA and the New Generation Regulations to enter into a PPA with an IPP. 

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

What is the timing on implementing this?

The 20 August exemption notice has been gazetted and is effective immediately. However, two things appear to be outstanding:

  • NERSA still needs to release an updated registration procedure as the current procedure is specifically directed at ‘small-scale’ embedded generators up to 1MW. These are likely to be similar for 100MW facilities. The existing rules can be accessed here.
  • The wheeling framework and charges that Eskom will apply need to be clearly accessible and should be capable of being implemented without lengthy one-on-one negotiations with Eskom. The Eskom webpage regarding wheeling of energy (eskom.co.za) indicates that bilateral engagements are presently required for wheeling, and also that NERSA is still developing a national framework for use of system charges.

What is registration likely to require?

Schedule 2 of ERA effectively guarantees registration to 100MW 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 it is also needed for registration.

Is there anything else outstanding for the implementation of the exemption?

The 20 August exemption notice has cleared up some of the immediate confusion generated by the 12 August exemption notice. (See, for example, an article published by the Sunday Times titled ‘Green energy boost looming’.) 

There remain opportunities for the DMRE and NERSA to clarify the following:

  • The IRP and the South African Electricity Supply Policy in general are now in need of an overhaul as many of the assumptions appear to have been by-passed. This will make licencing decisions for those facilities that do still need licences difficult and uncertain. The confusion generated by the recent decision on nuclear new build is a case in point.
  • It is unclear how the DMRE and NERSA will treat applications for a determination, IRP exemption or licence applications for those facilities that will still need these licences. This is particularly for facilities intended to supply municipalities that need approval under the New Gen Regulations. The exemption also creates uncertainty regarding Small Scale Embedded Generators (SSEG) which had been specifically catered for under the previous exemption and registration process.
  • The framework for licencing facilities that supply for export and the import approval process will need to be adapted to cater for this significant change in the electricity supply industry.
  • Certain definitions remain unclear:
    • The use of the term ‘embedded generation’ in the context of the 100MW threshold is unclear. In the IRP, this term is used to refer to generation facilities embedded in a distribution network with a 1MW to 10MW capacity.
    • The term ‘End user’ in the definitions now seems redundant.
    • The definition of ‘Property’ at 1.11 at the top of page 5 is incomplete and needs correction, and the defined term 1.10 is missing; based on a comparison with the 12 August amendments this would seem to be the term ‘point of connection'.
    • The ‘lead in’ to clause 3 at the top of page 6 is missing, based on a comparison with the 12 August amendments; this is the all-important paragraph confirming that registration and not licencing is required for facilities below 100MW.
    • The reseller provisions at the top of page 7 are incomplete and, based on a comparison with the 12 August amendments, it seems 3.5.1 is missing and 3.5.2 is incomplete.