South Africa’s energy action plan has potential to deliver energy security

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While Eskom’s debt currently stands at around 400 billion rand ($24.3 billion), Ramaphosa announced that Eskom intends to increase its critical maintenance budget to preserve the reliability of its generating stations. To further support Eskom, new qualified personnel must be recruited, while procurement policies must also be relaxed with regard to maintenance spare parts as well as equipment to enable timely repairs of the plant. existing electrical infrastructure.

How Eskom’s debt will be managed will be addressed in the Finance Minister’s medium-term fiscal policy statement in October, but we understand that the South African Treasury is in the process of completing a recovery plan from a part of this debt. .

Short term improvements

To bolster short-term supply, the action plan foresees that excess generation capacity will be purchased by Eskom from existing Independent Power Producer (IPP) projects and retailers as well as industrial or utility buyers. electricity buyers, including neighboring countries.

At a press conference on Monday August 1, Minister of Public Enterprises Pravin Gordhan confirmed that the South African government will seek to ensure that up to 1,000 MW of excess electricity that is expected to be generated by IPPs during of the next three months are available for the national network. He said the government would explore exemptions to public procurement and public finance rules to unlock up to 600MW of additional power, and that talks are underway with the Southern Africa Power Pool to add between 100 MW and 200 MW of capacity within about a month. . Gordhan said the government is also considering getting 150MW of gas-fired power from Mozambique over the next three months.

Additional capacity

Ramaphosa announced several measures to procure new production capacity. These should be seen as medium to long-term goals given the complexities involved in achieving these measures, such as the collaboration required between government agencies.

Initiatives include government plans to meet local procurement requirements under ‘Bid Window 5’ – the fifth in a series of auctions aimed at adding capacity to South Africa’s energy system – for ensure the progress and start of the construction of these projects. Greater flexibility is provided for location requirements under Bid Window 5. Bid Window 5 requires certain components to be manufactured locally and integrated into the construction of wind and solar power plants.

Ebrahim Patel, South Africa’s minister for trade, industry and competition, said that with regard to solar power plants, the current requirement that 100% of solar photovoltaic modules must be produced in South Africa will be relaxed to 35%. There are currently only two South African solar PV module producers on the market, and Patel said the government does not want location targets to hamper the speed at which IPPs and Eskom are able to obtain new grid-connected solar capacity. To further support this goal, exemptions to the 35% localization production requirement will be available in the event of delays or supply issues, Patel said.

Patel further confirmed that future supply windows will see increased localization targets to increase local production, create jobs and enhance supply chain security. He indicated that particular emphasis will be placed on the location of component manufacturers, the objective being to locate these manufacturers as close as possible to areas likely to be affected by the energy transition.

The supply of solar and wind power under tender window 6 is also to be increased to 5,200 MW. Mineral Resources Minister Gwede Mantashe has said that in the interests of fairness, the registration process for potential bidders will be reopened and the deadline for submitting bids extended by around 45 to 60 days – an official communication will be published on this subject in due course.

In our experience, it will likely take between 18 and 24 months for the energy from the winning bids to arrive on the national grid, subject to any delays.

The government also intends to launch tenders for battery storage by September and for gas power at a later stage.

A determination regarding the remaining allocations in the 2019 Integrated Resource Plan is also to be released. However, Ramaphosa announced that this plan was being revised in light of the country’s needs for additional generation capacity and climate commitments. No indication was provided as to when the results of the review will be published, but Mantashe confirmed that the team is reviewing the assumptions made in 2019.

Relaxation of licensing requirements

On August 13, 2021, the threshold for which a license was required for on-board power generation was raised from 1 MW to 100 MW. This served as a catalyst for the industry to explore new on-board power generation projects.

In his announcement, Ramaphosa said the government now intends to lift the licensing threshold in its entirety. However, no time frame has yet been indicated for this.

We expect this move to further stimulate private sector participation in power generation, although projects will still need to register applicable activity with South Africa’s energy regulator, NERSA, and obtain permits. environmental and other required approvals. In this context, the environmental landscape is also undergoing continuous reform with a view to bringing new capacities online more quickly, a development which has been well received by the market. At the same time, Eskom has worked to finalize the release of land next to its Mpumalanga power plants to accelerate and catalyze private sector investment in renewable energy projects.

At the August 1 press conference, Barbara Creecy, South Africa’s Minister for the Environment, Forestry and Fisheries, said her department was working on an environmental screening tool to help environmental practitioners to identify areas of low, medium and high environmental sensitivity in order to rationalize the environmental impact. assessments.

At the same time, the department has developed a standard for the development and expansion of power lines, including substations, and has identified geographical areas of low and medium sensitivity where an EIA will not be required for power line development. network infrastructure. Creecy said there will be a registration process which will involve an on-site inspection by an environmental specialist to confirm the area is of low and medium sensitivity. Geographical areas are to be published in the South African Government Gazette in due course.

Creecy also confirmed that the government, together with Eskom, had identified five electricity transmission corridors. If grid infrastructure is developed in transmission corridors, an EIA would not be required, provided the areas are of low and medium sensitivity.

The role of feed-in tariffs

The reforms that the South African government is pursuing aim to encourage investment in power generation in the commercial and industrial sector. However, there are currently no feed-in tariffs in place to help encourage adoption of renewable energy solutions.

As part of the energy action plan, Eskom has been tasked with developing a feed-in tariff for small-scale integrated generators. We would expect such a tariff to be subject to NERSA approval. The development comes after Cape Town introduced feed-in tariffs, later endorsed by NERSA, which are designed to incentivize customers to adopt renewable energy solutions by offering them the opportunity to save energy. money off utility bills, depending on the structure of the power supply. in the pricing policy.

Our point of view

Removing regulatory hurdles should encourage a number of companies to source from independent power producers and thereby stimulate the growth of the energy market. The plan appears to resonate with South Africa’s energy issues and, if properly implemented, should enable South Africa to achieve energy security.

We expect the removal of various red tape regarding Eskom’s purchasing policies within the limits of the law and the necessary legislative changes to facilitate the implementation of the energy action plan.

Co-written by Konani Rasengane of Pinsent Masons.

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