Private electricity generation on the horizon for South Africa

The minister of mineral resources and energy, Gwede Mantashe, published proposed changes to the Electricity Regulation Act that will amend the licensing exemption and registration requirements for generating, trading, transmitting and distributing electricity.

According to Mzukisi Kota – a partner at Webber Wentzel – Mantashe’s proposed changes related to schedule 2 of the Electricity Regulation Act, 2006 (ERA) were published for public comment in the Government Gazette on 2 September 2022.

The much-anticipated removal of the 100MW threshold is the headline change proposed, which aims at encouraging increased private investment in electricity generation to aid South Africa’s critical energy supply.

The amendments are a welcomed change considering South Africa has experienced the worst load-shedding ever in 2022, with regular power cuts across the country by Eskom expected to continue for years to come.

Proposed changes

According to Kota, the Schedule 2 Notice proposes the following noteworthy amendments:

1. Activities exempt from licencing

The activities listed in paragraph 2 of Schedule 2 will continue to be exempt from licensing and registration with the National Energy Regulator of South Africa (NERSA). These activities are:

• A generation facility for backup electricity.
• A generation facility that does not have a point of connection.
• A generation facility with a capacity of 100 KW or less (and has a point of connection).

Kota noted that the Schedule 2 Notice deletes the current language, providing that these activities are also exempt from registration with NERSA.

However, suppose the intention was to subject the activities listed in paragraph 2 to NERSA’s registration requirement.

In that case, this could have the potential unintended impact of requiring rooftop solar facilities and large generators for backup power to be registered with NERSA.

Kota, therefore, said that the better interpretation is that these facilities will remain exempt from both licensing and registration requirements in the language of the Schedule 2 Notice.

This is because the minister would have to state which activities are subject to registration, which he hasn’t done.

2. Activities exempt from licencing but must comply with Code and be registered with NERSA

Previously, the exemptions listed in paragraph 3.1 of Schedule 2 were limited to the operation of generation facilities with a capacity of no more than 100MW.

Under the Section 2 Notice, the 100MW restriction has been removed, and paragraph 3.1 applies to generation facilities “of unrestricted capacity”. 

It means that any generation facility of any size or capacity – which meets the criteria in paragraph 3 – is exempt from licencing.

Kota noted that the 100MW restriction also applies where a generation facility supplies electricity to one or more customers by wheeling, as was the case with the previous exemption.

However, the exemption from licencing does not remove the need to be registered with NERSA and comply with the applicable grid codes and regulatory requirements.

What these changes mean for South Africa

Kota says the greatly anticipated removal of the 100 MW licensing threshold for embedded generation projects is a positive change that will further incentivise private investment in electricity generation and reduce the lead times to commence construction projects.

He added that this, along with other proposed regulatory and legislative changes, should positively impact South Africa’s electricity supply crisis.

The changes proposed in the Schedule 2 Notice will pave the way for greater private sector participation in a future competitive power market – as foreshadowed in the draft ERA Amendment Bill published earlier this year.

Interested parties should submit written comments on the proposed amendments by 3 October 2022.