Policy and regulatory malaise undermining efforts to address power deficit
Lingering policy uncertainty and regulatory delays are continuing to impede the development of hundreds of small-scale embedded generation (SSEG) projects, which are seen at the quickest and cheapest way for South Africa to address its current electricity supply deficit.
The South African Independent Power Producer Association (SAIPPA) estimates that between 2 500 MW to 3 500 MW of capacity is being constrained as a result of the problem and that 30 MW to 50 MW could be added monthly once coherent processes are instituted.
The prevailing policy framework and regulatory processes remain deeply problematic and are affecting both small plants below a capacity threshold of 1 MW, as well as larger SSEG projects.
In fact, the South African Photovoltaic Industry Association (SAPVIA) has identified just over 280 MW from projects under 1 MW and about 600 MW from projects between 1 MW and 10 MW that are currently built, but not operating, as a result of regulatory gridlock.
Although sub-1 MW plants have been exempted from the theoretical burden of licensing, they are currently tied up in red tape arising from a November 2017 Licensing Exemption and Registration Notice published in terms of the Electricity Regulation Act (ERA). Issued by the Department of Energy (DoE), with the National Energy Regulator of South Africa’s (Nersa’s) concurrence, the notice amended Schedule 2 of the ERA.
Both the DoE and Nersa acknowledge the notice is “flawed” and the DoE sent an updated notice to Nersa for its concurrence in late 2018.
The updated notice exempts projects below 100 kW from any form of registration and instead directs municipal distributors to keep a register of such facilities. Plants between 100 kW and 1 MW in size are required to register with Nersa and pay a R200 registration fee.
However, Nersa has not yet published the new notice for public consultation and is still only considering registration applications under the flawed 2017 notice.
As a result of a lag between the publication of the notice and the release of application forms and the finalisation of the R200 registration fee late last year, only a handful of plants have been formally registered by Nersa. Engineering News Online has learned that even these 34 registrations are being questioned by some regulatory members, owing to the fact that their registration was approved ahead of the finalisation of the registration process and fee.
Several other plants are lying idle, as reported recently by television news show Carte Blanche in anticipation of registration letters, while hundreds of other potential projects remain on hold until a new notice is instituted and the registration process is clarified.
On April 10, Nersa’s electricity subcommittee approved the notice for publication for public consultation, which is likely to occur after the meeting of the Energy Regulator on April 25.
Should the process follow its normal course, a consultation period of 30 days will follow ahead of Nersa offering concurrence and the Minister signing the notice.
“Nersa still needs to publish the Schedule 2 of the ERA for public consultation. This is merely to provide concurrence with the DoE. Following the consultation and finalisation of Schedule 2, Nersa will need to determine the rules for registration,” SAPVIA programme manager Niveshen Govender explains.
In other words, the flawed notice and registration process is likely to remain in place for a number of months yet.
Nersa head of department for electricity licensing, compliance and dispute resolution Dennis Seemela insists the regulator has the necessary rules and systems in place to process registrations and will continue to administer these under the 2017 notice until that notice is repealed and replaced by the updated version.
However, SAPVIA board member Jo Dean questions both the current rules, as well as the fee. She says the rules as drafted create confusion for off-grid generators, which, despite being off-grid, are required to provide a letter of consent from the network service provider showing that the network has capacity to accommodate the generator.
Dean believes the registration fee should initially be set at nil, as the regulator’s primary aim is to gather information for the effective operation of the network rather than raise revenue for administration.
BIGGER PLANTS BIGGER PROBLEMS
The scenario for projects above 1 MW in size, meanwhile, is even more uncertain.
Prior to the publication of the flawed 2017 notice, so-called ‘own generation’ facilities, or behind-the-meter plants, did not require registration or licensing.
The notice stipulates that plants above the 1 MW threshold be licensed. To do so, however, they must secure a letter from the Energy Minister approving a deviation from the Integrated Resource Plan (IRP), as the current out-dated version, known as the IRP 2010, fails to cater for SSEGs.
The problem is likely to be resolved once the IRP is updated, with the document currently serving before the National Economic Development and Labour Council (Nedlac), suggesting an allocation for ‘distributed generation’. The document before Nedlac suggests the allocation for distributed generation be used to close short-term supply gaps between 2019 and 2022, before settling at a yearly level of 500 MW from 2023.
Until the updated IRP is published, however, SSEG plants of above 1 MW will require a Ministerial deviation letter before Nersa can consider a licence application.
“The new regulations have, thus, stopped any ‘own generation’ larger than 1 MW as the IRP 2010 does not cater for own generation,” SAIPPA chairperson Thomas Garner tells Engineering News Online.
To clear the logjam Garner says the updated IRP 2019 needs to be approved by Cabinet and published as soon as possible.
“As part of the IRP, there should be a focus on distributed generation, as opposed to embedded generation. This would allow the private sector to construct privately owned generation plant and wheel the electricity via the national grid from point of generation to point of use without the need for a sovereign guarantee from Eskom and or National Treasury. This will relieve pressure on the State while new capacity will start to come online immediately.”
In the absence of an updated IRP, Garner believes Energy Minister Jeff Radebe should use his discretion to approve a deviation from the IRP2010 so that Nersa can issue generation licences for any private capacity that could be built.
In late March, Radebe signalled his willingness to use his legislative powers to facilitate the introduction of private electricity supply alternatives that could reduce the threat of load-shedding by Eskom in the short- to medium-term.
“As the Minister of Energy, empowered by the Electricity Regulation Act, I will do the necessary to ensure that, where it is possible, we bring these alternatives on board,” he said in response to a question posed during the DLO Africa Power Roundtable Conference in Johannesburg.
Radebe also requested a written motivation from those proposing a Ministerial Determination to enable SSEG projects currently in a position to seek a generation licence from Nersa.
SAIPPA has not yet written a motivation, but Engineering News Online understands that other organisations are in the process of preparing such a proposal.
Garner believes visible political will and leadership are necessary to open up the electricity market for private players during the current period where Eskom is not in a position to increase supply, owing to its financial and operational problems.
“This will lead to private capital flowing into generation capacity to ensure the economy can grow and more jobs can be created. The government and specifically the DoE should create policy certainty while Nersa should ensure that the regulatory environment falls in place without further delays. We should stop over regulation of the sector that has been changed forever by advances in technology.”
SAPVIA’s Govender highlights that the SSEG projects are, by nature, lower risk, owing to their small size.
“With dropping technology prices, the SSEG solar projects are looking more feasible and financially attractive and make more sense for the end-user or customer. Building the SSEG segment of the solar PV industry will provide opportunities for more players. Growing the skills and creating small and medium enterprises to play in this space are key factors,” he concludes.
The DoE’s Ompi Aphane tells Engineering News Online that government is keen to bring certainty to the sector and views concurrence by Nersa of the updated version of Schedule 2 of the ERA as an important next step.
He says the DoE will do what it can to ensure that the process of finalising the notice is accelerated.