Catching trade and industry off guard, President Cyril Ramaphosa recently announced at an impromptu press briefing that the licence-exemption cap on “distributed” or self-generated power plants would be raised from 10MW to 100MW. The official publication of the enabling legislation, an amendment to schedule 2 of the Electricity Regulation Act, was gazetted on Thursday.
The intention is to empower more independent energy producers to help alleviate SA’s electricity crisis, which has been affecting economic growth and quality of life in the country for more than a decade. In short, what this change means is that one is no longer required to apply for a licence from the National Energy Regulator of SA (Nersa) to install or produce your own power up to a capacity of 100MW per hour.
It was only a few months ago that the cap was raised to 10MW. While this was a comfortable number for the department of mineral resources & energy, the increase was only begrudgingly welcomed by the private sector, which felt 10MW was insufficient to make a dent in the country’s power woes. Only when the increase to 100MW was announced did the excitement became real.
Because coal and nuclear power are the purview of parastatals, this leaves the private sector with the opportunities presented by renewable energy sources. While most will probably turn to solar given our climate, wind- or hydro-power are also options, depending on available resources.
However, to quote the president: “This will remove a significant obstacle to investment in embedded generation projects. It will enable companies to build their own energy facilities to cater to their own needs.” The operative words here are “their own”.
For the increased licence cap to produce its intended effect we need a clear and transparent system that empowers independent producers to sell their energy to other users. This would, of course, need to take place via the national grid. There are three main parties involved in this transaction: party A, which is producing excess power, for example with a large solar plant; party B, which needs power and wants cheaper or cleaner energy; and party C, the grid in between them, which must be paid a fee to wheel this energy. This billing process needs to be functional and transparent, with metering, billing processes and a management system that ensures fairness to all.
As things stand, some municipalities will buy power from independent producers but at a much lower rate than they sell it for. This differs from province to province and is subject to an onerous licence application process that can take up to 18 months — all while power plants accrue debt.
The next challenge that needs to be addressed is who will manage all of these renewable energy sources feeding into the grid. It is well known that Nersa is stretched to capacity, seen through its lengthy turnaround times for connection approvals. And it is no secret that Eskom has its own challenges.
If there is a large uptake, which we hope there will be, because of the unpredictable nature of renewable energy we will need predictive models that can incorporate the country’s energy needs, with weather fluctuations, the interplay between these aspects and someone to manage the grid with these variables at play. We will still need Eskom, whose role is clearly defined, but managing this new aspect is a function all on its own, perhaps best served by a private entity that could bring this expertise to the table.
Furthermore, infrastructure development will be required to accommodate the additional connection points so that these independent producers can connect to the grid. This includes transformers, switches, bigger cables and the like.
Continuing the impediment hidden in “their own”, very few companies or operations could afford to develop or be in a position to use a full 100MW power plant themselves. For instance, Gold Fields recently made headlines with its announcement that it will develop a 40MW solar plant to supply energy to its Johannesburg South Deep Mine at a cost of R660m. If one does the maths, a 100MW plant would cost in the region of R1.3bn. Few companies are in a position to raise that level of capital.
From a space perspective, broadly speaking one needs about one hectare of land or roof space to generate 1MW of solar power. Logic therefore dictates that we are likely to see a far greater number of plants built at, say, 20MW capacity, than 100MW plants springing up. This means a higher number of independent producers and connection points will need to be managed. The more connections there are into the grid, the more intricate the operational science becomes.
So, while the increased cap is rightly being welcomed, the next steps must be the creation of a system that enables power producers to trade the power they produce, and the rapid development of the infrastructure and expertise that will be required to manage this process, failing which the change will be little more than semantic.
• Masureik is CEO of New Southern Energy.
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