• Winning solution

    South Africa’s smaller renewable projects can provide self-sufficient independence for many businesses but they need regulatory clarity

    Winning solution

    With power supply taking strain, the need for South Africa to develop resilient, sustainable energy systems has never been clearer, and private-sector involvement will be vital. One of the most promising avenues is the harnessing of ‘embedded generation’ – often called small-scale or decentralised generation – where small, private bodies produce energy for their own use or feed excess back into the grid. (There is little agreement on a precise definition, as the concept includes many technologies and applications, say experts.)

    This has been made possible by the increasing accessibility and affordability of new renewable-energy technology. ‘Without doubt, the quickest and easiest way to bolster supply is to open the market up for small-scale embedded generators [SSEGs] of up to 10 MW, and to allow such generators to feed energy back into the Eskom and municipal networks,’ according to Tobias Bischof-Niemz, director of renewable energy company ENERTRAG South Africa, and co-author of South Africa’s Energy Transition.

    Harnessing this energy would not only bring financial relief to smaller players but also create stability in the power supply. For farmers, for example, solar PV installations on their land present a golden opportunity. ‘By allowing solar installations to be used as security for funding projects, farmers could potentially – with further expansion – supply enough electricity to prevent Stage 3 load shedding,’ says head of economics and trade at agricultural industry association Agri SA, Requier Wait.

    There is widespread enthusiasm and potential funding for projects such as these. The Green Climate Fund, for instance, has extended US$100 million to the Development Bank of Southern Africa, matched by a further US$100 million from the bank, to establish the Embedded Generation Investment Programme (EGIP) – which will develop a model for funding smaller, renewable embedded-energy projects. Ultimately, the investment will add 330 MW of new generation capacity.

    Small-scale businesses, farms and municipalities are lining up to play their role. But many are frustrated by what they see as administrative red tape, and meagre allocations for small-scale generators in the country’s plans for energy production up to 2030.

    The South African Department of Energy’s updated Integrated Resource Plan (IRP) was released for comment last year by Minister Jeff Radebe, after a long delay. The document envisions a minor role for ‘embedded generation for own use’, which it defines as small facilities that supply between 1 MW and 10 MW of energy to a single customer, via any technology. The draft updated IRP allocates 200 MW per annum for such generation, but the consensus seems to be that this is insufficient. In the final approved document, this is likely to be increased to 500 MW a year.

    Even this is not enough, many feel. As Thami Ngubane, chair of the South African Local Government Association’s energy working group, points out, ‘individual municipalities say they can account for from 200 MW to 300 MW alone. There is currently 1 500 MW awaiting generation licences already’.

    Many are also concerned about limits on installed capacity (1 MW to 10 MW) for each individual producer. According to Alexandra Felekis, a partner at Webber Wentzel, several mines and industrial entities are ready with power projects of between 30 MW and 60 MW. ‘If the installed capacity restriction is not adjusted in the final IRP, projects with an installed capacity above 10 MW will be required to apply for a deviation from the IRP from the Minister of Energy.’ Furthermore, there is no megawatt allocation in the draft updated IRP for very small embedded facilities producing under 1 MW. Felekis sees little clarity on how the available megawatts will be allocated.

    ‘Although the department has expressed the view that these projects have a place in the energy mix and should be developed to bridge the shortfall in demand and capacity currently faced by Eskom, a restrictive approach to regulation of these projects has the potential to deter investment and fruition of these arrangements,’ she adds.

    There is, meanwhile, widespread frustration from small to medium-sized entities that are raring to start operations, with claims that thousands of megawatts’ worth of workable projects (mostly solar PV) are stuck in bureaucratic limbo at the National Energy Regulator of South Africa (Nersa).

    Part of the problem is a complex and unclear system of registration, approval and licensing. Nersa’s most recent version of the process is as follows: first, an applicant must obtain approval for their generation system from Eskom or the municipality. Secondly, they need to apply to Nersa for registration and pay a registration fee. They then need to obtain a letter from Eskom confirming approval. Finally, Nersa issues a registration letter or certificate, and the small producer can begin operations.

    Not surprisingly, given this convoluted system, there has been confusion and delay. There has also been ambiguity regarding the necessity for small producers to be licensed. The 2018 updated Licensing Exemption and Registration Notice from the DoE exempts projects below 100 kW from any form of registration, while those between 100 kW and 1 MW must register with Nersa, while not requiring a licence. Hundreds of projects, however, have been on hold. This has hurt producers that have already obtained Eskom approval and invested in generation infrastructure, but are prevented from producing power because they are still awaiting registration.

    The country, too, has suffered from being denied the benefit of thousands of MW of capacity. The South African Independent Power Producer Association (SAIPPA) estimates that between 2 500 MW and 3 500 MW of capacity is waiting to be used. Agri SA, meanwhile, points out that 500 applications from farmers – for solar generation plants with a potential capacity of 1 400 MW – have been caught up in administrative bottlenecks. Just 13 such projects are currently operational.

    With the right support, small-scale – or embedded – generation has the potential to contribute significantly to South Africa’s energy mix

    The South African Photovoltaic Industry Association has identified nearly 900 MW that could have been produced by small projects (up to 10 MW) that have been built but are lying dormant. As Jaco Botha, CEO of Solareff (a solar PV company involved in numerous residential, commercial and industrial projects) argues, government regulations and processes have placed substantial pressure on the growth of this sector. ‘We hope that this process can be urgently finalised and that the administrative hurdles curtailing further investment can be removed,’ he says, calling for fast-tracking of the Eskom and Nersa processing.

    Energy Minister Jeff Radebe has, however, expressed a willingness to facilitate the growth of small- and medium-scale renewable electricity alternatives. ‘Energy infrastructure projects are […] regarded at the highest level of government as key to attracting investments into our country and growing the economy,’ he said in his welcome address at African Utility Week, held recently in Cape Town.

    ‘We have developed a framework under various amendments to Schedule 2 of the Electricity Regulation Act, relating to circumstances under which a generation licence may not be required.

    ‘The Schedule 2 amendments will address the constraints related to licensing potentially hundreds of thousands of rooftop PV systems, biogas and other small-scale embedded generators smaller than 1 MW, and unlock investment in that space,’ he said.

    Radebe appears to be making good on his promises. In early May, he notified Nersa to consider licences for SSEG projects above 1 MW without the need for deviation permission (from the IRP) from the DoE – a move widely commended by the industry.

    ‘The minister’s announcement was positive as many of our clients have pending licence applications and registration requests with Nersa that were simply not being processed,’ says Jonathan Behr, director at Werksmans Attorneys. ‘While Nersa is still required to follow the correct legal processes in considering these licence applications and creating a registration protocol for generation facilities up to 1 MW […] the minister’s announcement has, however, created a sense of urgency at Nersa and appears to have contributed towards unlocking the potential for SSEG.’

    ‘This […] will contribute to further decentralisation and democratisation of the South African electricity sector,’ SAWEA states on its website, adding that it will open the market to smaller-scale renewable energy projects, with a significant level of local ownership.

    ‘The small-scale embedded generation market has the potential to support the industrialisation efforts stimulated by the Renewable Energy Independent Power Producer Procurement programme and contribute to job creation,’ says Ntombifuthi Ntuli, SAWEA board member.

    South African Photovoltaic Industry Association programme manager Niveshen Govender agrees. ‘The minister’s instruction should provide some relief to frustrated businesses,’ he says.

    ‘Removing the regulatory hurdles that currently impede the implementation of these projects will also provide additional power generation capacity and create much-needed jobs in the economy.’

    By Henrietta Rose-Innes
    Images: Massmart, Jotham van Tonder/HMimages