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100MW Electricity Generation Licence Exemption May Have Finally Been Given The Green Light

Fasken
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After much anticipation, the amendments to Schedule 2 of the Electricity Regulation Act 4 of 2006 to increase the licensing threshold for self-generation facilities from 1MW to 100MW were published in Government Notice 737 in Government Gazette 44989 of 12 August 2021 (the “Notice”).

The wording of the Notice has created some confusion as it provides that the Minister of Mineral Resources and Energy “intends” to amend Schedule 2 of the Electricity Regulation Act 4 of 2006 and “intends” to determine that a person who operates certain generation facilities identified in the Notice must register with the National Energy Regulator of South Africa (“NERSA”). The Notice, however, does not provide an opportunity for members of the public to submit written comments and we expect that the Department of Mineral Resources and Energy will provide further clarity in this regard.

Nevertheless, the publication of the amendments to Schedule 2 is encouraging as it indicates Government’s willingness to engage and to commit to alleviating South Africa’s energy crisis.

The publication comes after President Cyril Ramaphosa’s announcement on 10 June 2021 to increase the licensing threshold to 100MW, instead of the 10MW threshold that had been proposed by the Department of Mineral Resources and Energy on 23 April 2021, in order to encourage investment in embedded generation projects and generally bring about much-needed economic growth.

The amendments provide that generation facilities (with or without energy storage) with a generation capacity of no more than 100MW and a point of connection on the transmission or distribution power system are exempt from obtaining a generation licence if:

  1. the generation facility is operated to supply electricity to an end-use customer and there is no wheeling of that electricity;
  2. the generation facility is operated to supply electricity to an end-use customer by wheeling; and the generator has entered into a connection agreement with the holder of the transmission or distribution licence in respect of the power system over which the electricity is to be wheeled; or
  3. the generation facility does not export nor import any electricity onto or from the transmission or distribution power system.

However, these grid-connected generation facilities must comply with the Distribution or Transmission Code and will need to follow the comprehensive registration process in order to register the generation with NERSA. Once NERSA has received all of the necessary information, it should (according to the NERSA guidelines) evaluate and decide whether or not to approve the registration within 60 days. The prescribed time frame for NERSA to make a decision regarding an application for a generation licence, on the other hand, is 120 days. The faster registration period should therefore encourage private entities to generate their own electricity as they will no longer be required to go through the costly, more time-consuming, process of obtaining a generation licence.

Another important change provided in the Notice is that generators will be allowed to “wheel” (i.e. convey electricity from the point of connection to a point of consumption via a third-party transmission or distribution network) electricity through the transmission grid and not only the distribution grid, as had been the case under the previous version of Schedule 2. 

These amendments will help to relieve some pressure off Eskom by enabling private entities to build generation facilities to meet their own energy needs or to supply customers, regardless of where in South Africa those customers may be situated. Private entities are likely to use cheaper and more accessible energy sources such as solar and wind.

Schedule 2 has also been amended to include a provision that states that NERSA may vary, suspend or remove any registration on receipt of an application by a registrant or a third party or upon violation of the regulatory requirements to comply with the Distribution or Transmission Code or any other authorisations and/or agreements. In addition, NERSA may revoke a registration if the facility is no longer required, the conditions of registration are not met or on application by a registrant.

According to the media statement published by President Ramaphosa on 10 June 2021, the reform is expected to “unlock significant investment in new generation capacity in the short and medium term” which will “reduce the impact of load shedding on businesses and households across the country”.

Although there is some ambiguity in the drafting and confusion as to the legal effect of the Notice, the amendments to Schedule 2 are a step in the right direction and will hopefully help to achieve a stable and secure supply of energy and boost South Africa’s economic growth.

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.

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