What the 100 MW license cap lift means for your business

In June, amid much celebration, Cyril Ramaphosa announced that the amendment of Schedule 2 in the Electricity Regulation Act – a clause that has long had both producers and consumers of energy at loggerheads with government – was imminent. Today, the amendment was officially gazetted. However, what exactly does this amendment mean, and will it affect your business?

The Electricity Regulation Act of 2006 is an important piece of legislation that governs how electricity is generated and distributed in South Africa, and the roles of the various stakeholders involved. Schedule 2 used to specify that any electricity generation activity over 1 MW requires a generation licence. Essentially, this implied the same amount of paperwork for a huge coal-fired power plant as a rooftop solar system! The amendment to schedule 2 of the ERA means that this cap has now been lifted – which is great news for large energy consumers in South Africa.

What does the new Electricity Regulation Act Schedule 2 Amendment say?

In short, this amendment exempts certain activities from licencing and registration with the electricity regulator (Nersa). Such exemptions include:

  • Any generation facility without a connection to the grid
  • Any generation facility below 100 kW in size (provided it complies with standard connection codes);
  • Any generation facility with/without energy storage under 100 MW and either:
    • No wheeling;
    • A wheeling agreement (provided there’s a connection agreement between the generator and the transmitter of the power); or
    • No import or export on to the grid
  • Generation facilities that are used for demonstration purposes and will not be in operation for over 36 months
  • Existing generation facilities that were exempted from the requirement before the gazette need to register within 6 months, if it is compliant with the grid-code and connected to the grid.

This means that, essentially, electricity generation projects under 100 MW, whilst still needing to meet requisite grid-code compliance and normal permitting procedures, will not require a generation licence from Nersa.

This will mean that projects that have historically taken years to complete will now be able to be built much more quickly, thus providing private consumers of energy with power and alleviating South Africa’s electricity crisis. 

Are there still other permits required for electricity generation?

Yes, the relevant regulatory approvals are still required for self-generation. The main change under the new legislation is that projects between 1 – 100 MW will not require a Nersa generation licence, which are substantial and very complex licences to obtain. Historically, this meant that a project of 2 MW would require the same amount of paperwork as a large coal-generation facility (oven GW in size), and thus slowed the uptake of renewable energy quite dramatically. 

It’s important to note that the projects must still be registered with Nersa, in which the relevant grid approval documents and environmental approvals, amongst other documents, will be submitted. Nersa will review the documents over 60 business days before granting registration to the relevant projects.

If the client is part of the municipal grid network, they would still need to obtain the relevant permissions in order to self-generate. This is standard practice for all solar PV plants and is necessary to make sure that the municipality has oversight of how much their grid is likely to be loaded at a specific time. The capacity of the grid needs to be taken into consideration, and so weak grid areas are likely to remain constrained, regardless of legislation.

The gazetting of this ERA Schedule 2 amendment is incredibly positive and will make a big impact on the sentiment toward the Renewable Energy sector – both for the companies that supply renewable energy, as well as the large energy consumers.

What does the amendment say about energy storage? 

Whilst many large energy consumers choose to remain connected to the grid, as it allows the use of the cheapest form of energy at various times of the day (eg., solar during mid day, grid-supply during off-peak hours), there are increasing numbers of energy consumers that are using battery systems to supply them with power 24/7, which also prevents load shedding. The amendment includes energy storage provision – meaning that the licencing exemption applies to energy storage systems as well. 

Hybrid, “islandable” systems which act like on-grid systems, but automatically “island” during load-shedding, are also included in the provision. The opening of the self-generation threshold means that these islandable systems will be increasingly cost-effective, because larger solar PV systems can be built and their cheap power stored in batteries for dispatching during load shedding or the evenings. 

What is wheeling?

Wheeling is the transfer of energy from an independent power producer to a client via the grid. For our clients, this means that electricity can be generated in an area with lots of space and great solar resource, in order to supply an energy consumer that may not have the space or the solar resource available (such as our Amazon Wheeling project). Wheeling requires quite a few different licences, but the advantage of the generation threshold increase would mean that a Nersa generation licence would be one less piece of permitting required. 

Because of its affordability there is likely to be a great uptake of renewable energy with the ERA 2 amendment. We look forward to working with all relevant stakeholders to make this happen.

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