South Africa increases license-exemption cap on distributed projects to 100 MW in a bid to tackle power crisis

SOUTH AFRICA – President Cyril Ramaphosa has announced that the license-exemption cap on self- or distributed-generation plants would be raised from 1 MW to 100 MW to help address the country’s electricity crisis, which has been weighing down economic growth and confidence for more than a decade.

The increase would be facilitated by an amendment to Schedule 2 of the Electricity Regulation Act “within the next 60 days or sooner”.

It exceeds calls made by organized business and labor to increase the threshold to at least 50 MW, and allows the so-called embedded-generation plants to both wheel that electricity through the grid and sell it to nonrelated off takers.

Those calls were made as part of public comments submitted following the publication of a draft amendment, released by Mineral Resources and Energy Minister Gwede Mantashein early 2021 in which he proposed that the increase be limited to 10 MW.

Ramaphosa said progress being made to procure new utility scale capacity and improve the performance of Eskom’s aged coal fleet was not sufficient to address the immediate shortfall, which had resulted in a return to regular load-shedding.

“Following an extensive public consultation process and a significant amount of technical work undertaken by the Department of Mineral Resources and Energy (DMRE), we will be amending Schedule 2 of the Electricity Regulation Act to increase the National Energy Regulator of South Africa (Nersa) licensing threshold for embedded generation projects from 1 MW to 100 MW.”

He further said that the intervention reflected government’s determination to take the necessary action to achieve energy security and reduce the impact of load-shedding on businesses and households across the country.

The reform was also expected to unlock significant investment in new generation capacity in the short and medium term, enabling companies to build their own generation facilities to supply their energy needs.

“Resolving the energy supply shortfall and reducing the risk of load-shedding is our single most important objective in reviving economic growth”

President Cyril Ramaphosa

It was also confirmed that any plants developed to power mines, factories and farms would also be allowed to wheel electricity through municipal and Eskom networks and sell surplus electricity to nonrelated buyers.

However, generation projects would still need to obtain a grid-connection permit, undertake an environmental impact assessment and register with Nersa, which would “verify that they have met these requirements” and provide authorization for the plants to operate.

“Municipalities will have discretion to approve grid-connection applications in their networks, based on an assessment of the impact on their grid,” Ramaphosa added.

Mantashe, who has previously resisted calls to increase the cap beyond 10 MW, warning of grid “chaos”, expressed support for the move and promised that the envisaged Nersa registration process would not exceed three months.

The Mineral Resources and Energy Minister indicated that the move beyond 50 MW had been informed by the fact that three mining companies had already expressed a desire to invest in projects exceeding that limit and government felt that these projects should also be facilitated.

Ramaphosa stressed that the ability to address the energy crisis swiftly and comprehensively would determine the pace of South Africa’s economic recovery.

“Resolving the energy supply shortfall and reducing the risk of load-shedding is our single most important objective in reviving economic growth,” he added.

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