Business organisations and industry have overwhelmingly called on the government to open the way for firms and mines to generate their own electricity by allowing the construction of private projects of up to 50MW to link to the national grid without needing a licence.
Self-generation is by far the quickest way to add megawatts to the grid and relieve SA’s power supply gap, which is hampering economic recovery and is forecast to stretch four years into the future. If large enough, new projects could potentially add 5,000MW to the grid — equivalent to five stages of load-shedding — within two years, says private sector research.
The appeal from business is contained in multiple submissions on the proposed amendments to Schedule 2 of the Electricity Regulation Act, which is open for comment until next Friday. Business Unity SA (Busa) has also this week written to mineral resources & energy minister Gwede Mantashe and President Cyril Ramaphosa about the amendments.
The schedule has stifled self-generation by requiring that all projects over 1MW that connect to the grid be licensed by the National Energy Regulator of SA (Nersa), a lengthy process.
Mantashe has proposed the cap be amended to 10MW as greater deregulation would lead “to chaos” and the government would lose control of the grid, he has argued.
The issue of where the cap should be set has become a big source of contention between the department of energy and Operation Vulindlela — a unit that sits in the presidency and the Treasury, with the mandate to unblock obstacles to economic reform. Business and labour have also appealed at the National Economic Development and Labour Council (Nedlac) for a higher cap to reduce supply constraints and stimulate growth.
Four arguments have been presented in the submissions: that self-generation is the best way to close the supply gap; that large projects are more economically viable and more likely to unlock investment; and that listed and foreign firms have demanding environmental, social and governance (ESG) commitments that require them to “go green” and switch to renewable energy sources within set time frames. To do so, they would need to build their own renewable energy generation capacity or buy energy from other producers.
The fourth argument relates to the distribution and selling of electricity to other parts of business operations as well as to other customers, which include firms but also municipalities or Eskom itself. This reform, which is not enabled by the proposed amendment, is seen as critical to improving the attractiveness of an investment case and derisking the project, should the main enterprise, such as a mine, close and no longer require the energy. The prospect of being able to sell electricity to the market would substantially change the business case of many investments.
The Energy Intensive Users Group, a lobby group that includes the largest industrial and mining companies in the country, states in its submission that a 10MW cap will not attract and accelerate more economically viable investments, and for the purposes of own-use projects “there should be no arbitrary licensing threshold or requirement”. Instead, the size of a project should be determined by technical considerations such as infrastructure capacity, grid stability and compliance to Eskom’s grid code.
The Minerals Council SA, which represents the mining industry, says in its submission that while 10MW projects may unlock embedded generation for commercial operations, it will not be sufficient for industrial and mining operations. The council, which supports raising the cap to 50MW, says it has collected a list of projects from members who are pursuing self-generation. The projects start at 11.5MW and go up to 400MW.
In the letters this week to Mantashe and Ramaphosa, Busa made the case for a 50MW cap, which it says could potentially close SA’s energy supply gap and bring 5,000MW on to the grid.
“The most practical, fastest, least-cost and least-risk option for security of supply in the immediate term is through enabling embedded generation. Research shows that enabling embedded generation through lifting the electricity licensing threshold to 50MW will protect up to 80,000 jobs, create up to 70,000 additional jobs and unlock up to R150bn in capital investment,” it said.
Smaller employers have also weighed in on the cap, with the National Employers Association of SA (Neasa), which has 8,000 members and 18,000 associate members, many of them farmers, also arguing that the cap is arbitrary and that the main determinant should be whether projects are technically possible and comply with the grid code. Neasa argues for no cap at all, or at minimum, one of 50MW.
Mantashe, who said in parliament last week that “the market was not ready” for big investments, will be under close scrutiny as the public submissions process draws to a close. His department has said that more than 10,000 responses have been made, most of them in overwhelming support of moving the cap to 10MW but no higher. The department has also said that submissions are for internal use and will not be publicly available.
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