C&A Friedlander Attorneys

Written by Raffaella Migliore

As a result of the national utility company generating insufficient electricity to meet demand from increasingly aging infrastructure, South Africa has experienced 15 years of chronic power shortages with regular load shedding since 2007.

As far as opportunities for the private sector go, the South African power sector remains highly regulated, but changes in independent power producer (IPP) regulations may prove to be a game changer for both power stability and those looking to enter the sector.

Last month, the City of Cape Town opened its first round of procurement of power from IPPs, issuing tenders to procure 300 MW of additional renewable energy – much of which will be generated by solar energy. This is the first round of municipal procurement following the amendments to Schedule 2 of the Electricity Regulation Act 4 of 2006 (ERA), which increased the exemption of the licensing threshold for embedded generation projects from 1 MW to 100 MW.

This amendment allows for private electricity generators to build and commission plants up to 100 MW without generating licenses – hundredfold the previous limit, which had been a bottleneck in applications for licenses at the National Energy Regulator South Africa (NERSA), with a waiting period of several years and without any guarantee of approval, creating an extensive barrier for applicants.

This reform is expected to unlock significant investment in the short and medium term by enabling companies to build their own power generation facilities to meet energy demands, liberate themselves from national energy constraints, and reduce the burden on the national grid. Furthermore, alleviating residential, commercial, and industrial electrical supply constraints, which will allow Eskom to proceed with its intensive maintenance programme.

Whilst licensing is no longer required, registration with NERSA is still necessary for most electricity generation activities for plants up to 100 MW. Exempt from this requirement are facilities that are designed and used for the sole purpose of providing standby or back-up electricity, and for a duration no longer than an electrical supply interruption or failure.

Significant beneficiaries of this amendment are energy-intensive users, and large industrial and mining companies. These players are now able to generate their own energy or enter into power purchase agreements with private entities and IPPs. This amendment means more price stability in energy costs for entities who enter long-term pricing arrangements with IPPs or invest in their own plant infrastructure. Not only will this influence the certainty and affordability of electricity expenditure, but it will also decrease company expenditure on Carbon Tax and increase the ability to reduce the carbon footprint in light of the significant global decarbonisation drive.

For those looking to engage in the IPP sector in the Western Cape, prospects are looking especially promising. Cape Town mayor, Geordin Hill-Lewis, held meetings earlier this week with 100 stakeholders from the IPP sector as part of a push to end load shedding in the city, with Cape Town planning to be at the cutting edge of municipal energy independence in South Africa and a second tender phase for generation projects expected to be brought online soon.

Despite its inability to produce enough coal-powered energy, South Africa remains the world’s 12th-biggest producer in greenhouse gases. With national pressure to provide reliable energy and international pressure to meet the 2030 Paris Agreement targets, renewable energy stands as not only an attractive option in building both a greener and more reliable energy infrastructure, but an essential one.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE).