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What do the recent amendments to Schedule 2 of the Electricity Regulation Act mean for electricity generators in South Africa?

Fasken
Reading Time 4 minute read

On 26 March 2020, the Minister of Mineral Resources and Energy published a notice amending Schedule 2 of the Electricity Regulation Act (Act No. 4 of 2006) which exempts certain electricity generators from obtaining a licence from, or registering with, the National Energy Regulator of South Africa (“NERSA”). 

 

The amendments were made following President Cyril Ramaphosa’s State of the Nation Address in which he announced Government’s plan to implement measures that will “fundamentally change the trajectory of energy generation” in South Africa.  South Africa has, for the last ten years, been experiencing energy shortages and increased periods of load shedding.  The much-anticipated amendments seek to relieve Eskom of some pressure, while encouraging independent electricity generators to produce electricity for their own use. 

 

Previously, even though some electricity generation activities were exempted from holding a licence, all generation activities were required to be registered with NERSA. However, the amendments to Schedule 2 now allow certain electricity generators to generate electricity without a licence and without having to register their activities with NERSA. Generation facilities such as those operating for the sole purpose of providing standby or back-up electricity, irrespective of the generation capacity, and those with capacities of under 100 kilowatts that are connected to the national grid, are no longer required to register with NERSA. This is an important change as registering all back-up and standby facilities was proving to be an administrative nightmare for NERSA.  

 

Another notable amendment is that if a generation facility does not have a “point of connection” it does not need to register or obtain a licence from NERSA, regardless of its capacity. This means that electricity generators of any size are exempted from the licensing and registration requirements of the Act, provided that they are not connected to the national grid. This is in line with the Department of Energy’s 2019 Integrated Resource Plan (the “2019 IRP”) which seeks to encourage the development of electricity generation “for own use” purposes, through the “enactment of policies and regulations that eliminate red tape”.

 

Interestingly, despite the calls from industry to increase the licence exemption threshold to 10MW, the Minister has maintained the current threshold of 1MW for electricity generators connected to the national grid.  Therefore, grid-connected facilities that produce less than 1MW of electricity do not require a generation licence but must still register with NERSA.  Many commentators have argued that energy generators producing electricity for their own use should be allowed to be connected to the national grid, regardless of their size, especially given the country’s current power crisis. 

 

The amendments also include an express reference to the ability of resellers to sell electricity and enter into service delivery agreements with municipalities, with NERSA being responsible for ratifying the general terms and conditions of the service delivery agreements. This should help to facilitate municipal generation options under the "Distributed Generation" component of the 2019 IRP which seeks to diversify the supply base of municipalities by allowing for power generation embedded within municipal distribution networks. This is in line with the President’s announcement in the State of the Nation Address that Government would put in place measures to enable municipalities in good financial standing to procure their own power from independent power producers. 

 

The 2019 IRP also provides that “distributed generation through biomass, biogas and municipal waste are areas holding great potential for improving municipal revenues”, particularly since all municipalities have sewer outfall sites and sites for processing waste. Municipalities will therefore not need to be so reliant on Eskom if they have the option to purchase sustainable and reliable power from independent power producers or to generate their own electricity through projects that make use of municipal waste. 

 

South Africa’s economic growth is dependent on a secure and reliable electricity supply.  The amendments to Schedule 2 of the Act  appear to be a step in the right direction and will hopefully encourage municipalities to diversify their electricity supply and make it easier for electricity generators to generate electricity for their own use, in order to help to address the electricity supply challenge in South Africa.

 

Should you have any queries or concerns about the amendments to Schedule 2 and how they may impact you, please do not hesitate to contact us. 

 

The amendments to Schedule 2 of the Electricity Regulation Act were published under Government Notice 402 in Government Gazette 43151 of 26 March 2020.