A New Era of Energy Source – Amendments to Schedule 2 of the Electricity Regulation Act

Following an extensive public consultation process and a significant amount of technical work undertaken by the Department of Mineral Resources and Energy (DMRE), President Cyril Ramaphosa made the announcement that Schedule 2 of the Electricity Regulation Act will be amended to increase the National Energy Regulator of South Africa (NERSA) licensing threshold for embedded generation projects from 1 MW to 100 MW.

This surprise announcement was to address the country’s electricity crisis, which has been seriously impacting economic growth and confidence in the country for over a decade.

It doubles the call made by business and labour to increase the threshold to at least 50 MW, which were made as part of public comments submitted following the publication of the draft amendment, released by Mineral Resources and Energy Minister Gwede Mantashe earlier this year in which he proposed that the increase be limited to 10 MW.

Nikita Lalla, Chief Executive of LNP Attorneys says, “This announcement is a massive relief for the energy and mining sectors as well as the entire country.  In order to ensure that this momentum is maintained Eskom and municipalities must ensure the required agreements are in place and can easily be concluded.”

The amended regulations will exempt generation projects up to 100 MW in size from the NERSA licensing requirement, whether or not they are connected to the grid. This will remove a significant obstacle to investment in embedded generation projects.

“While ESKOM will continue to be the major supplier of electricity, this new development will provide them with the opportunity to focus on making much needed improvements to their own internal infrastructure,” comments Lalla.

Generators will also be allowed to wheel electricity through the transmission grid, subject to wheeling charges and connection agreements with Eskom and relevant municipalities. However, generation projects will still need to obtain a grid connection permit to ensure that they meet all of the requirements for grid compliance. This will ensure that we are able to bring online as much new capacity as possible without compromising the integrity or stability of our energy system.

Generation projects will also need to have their registration approved by the regulator to verify that they have met these requirements and to receive authorisation to operate. Municipalities will have discretion to approve grid connection applications in their networks, based on an assessment of the impact on their grid. They will also have to undertake an Environmental Impact Assessment and all other requirements of existing legislation. This will ensure that while we enable as much new generation capacity as possible to come online, we also ensure the orderly development of the energy system.

He stated that within the next 60 days or sooner the increase would be facilitated by an amendment to Schedule 2 of the Electricity Regulation Act.

In his speech he stated that much has been done to address the issue but that, “while these steps are positive and necessary, they are not enough to address the immediate and significant energy shortfall that threatens our economic recovery but that we know that to confront the energy challenge will require bold and urgent action now”.

He went on to say, “This intervention reflects our determination to take the necessary action to achieve energy security and reduce the impact of load shedding on businesses and households across the country. It is evidence of our intention to tackle this economic crisis head-on, by implementing major economic reforms that will transform our economy”.