Author: Brigette Baillie

The following events have occurred in the broader South African energy sector in recent months.

BACKGROUND

AMENDMENTS TO SCHEDULE 2 TO ERA TO PERMIT GENERATION AND DISTRIBUTION WITHOUT A LICENCE FROM NERSA

AMENDMENTS TO NEW GEN REGS IN RESPECT OF MUNICIPALITIES

PROCUREMENT OF POWER BY COMPANIES IN THE PRIVATE SECTOR

PROCUREMENT OF 2 000MW OF GENERATION CAPACITY TO BE CONNECTED TO GRID IS SHORTEST TIME POSSIBLE

ADDITIONAL PROCUREMENT PROGRAMMES FOR MORE THAN 10 000MW POWER

THE 2 500MW NUCLEAR NEW BUILD PROGRAMME

BACKGROUND

1. Procurement of all IPPs, including renewable energy and nuclear power, is governed by:

1.1 the Electricity Regulation Act (ERA);

1.2 the New Generation Capacity Regulations (New Gen Regs);

1.3 the Integrated Resources Plan (IRP).

2. The New Gen Regs specifically exclude the procurement of nuclear power. At present, there are no regulations that deal with the procurement of nuclear power.

3. The National Energy Regulator (NERSA) grants licences for electricity generation and to operate transmission and distribution networks. Until recently, all generation facilities (with a limited number of exclusions detailed in Schedule 2 to ERA) and the operation of all transmission and distribution networks required a licence from NERSA.

4. Prior to any organ of state at any level (whether national, provincial or municipal government and including Eskom) procuring new generation capacity, the Minister Of Mineral Resources And Energy has to issue a Section 34 Determination permitting that procurement. NERSA has to agree to the issue of a Section 34 Determination and has to undertake a public consultation process (the process involves both written and verbal submissions) before it does so.

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AMENDMENTS TO SCHEDULE 2 TO ERA TO PERMIT GENERATION AND DISTRIBUTION WITHOUT A LICENCE FROM NERSA

5. In March 2020, Schedule 2 to the ERA was amended to allow for own or captive power generation without the need to get a licence from NERSA. Some of the exemptions are:

5.1 in respect of generation facilities which do not have a point of contact to a transmission or distribution grid (regardless of the size of the generation facility);

5.2 for cogeneration plants where the supply of power is solely for use by an affiliated entity to the entity doing the generation and there is compliance with the grid codes (these projects must be registered with NERSA);

5.3 for the operation of a distribution facility up to the point of connection to a transmission or distribution grid, where the distribution facility is operated in respect of any generation facility that does not need a license from, but only needs to be registered with, NERSA.

6. We have seen some entities in the private sector (such as Sasol) issue requests for information or requests for proposals for IPPs to supply it with power.

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AMENDMENTS TO NEW GEN REGS IN RESPECT OF MUNICIPALITIES

7. In May 2020, amendments to the New Gen Regs were published for comment, with comments being required to be submitted by 5 June 2020. The amendments are intended to allow municipalities in “sound financial standing” to “establish new generation capacity”. The following requirements are contained in the draft amendments:

7.1 the procurement by each municipality must align with the IRP;

7.2 in undertaking a procurement of power, each municipality must comply with the Municipal Finance Management Act and the Municipal Systems Act;

7.3 the procurement of power by a municipality must align with that municipality’s Intergrated Development Plan (which is a requirement of the Municipal Systems Act.

8. The regulations have come in for numerous comments to the effect that the regulations do not go far enough in unfettering the procurement of power from IPPs by municipalities, with the City of Cape Town calling for a nationally coordinated renewable energy procurement programme through which municipalities can procure renewable power from IPPs.

9. The City of Cape Town is currently challenging the requirement for municipalities to get the Minister of Energy’s consent to procure electricity and to obtain a Section 34 Determination before they can procure power, in the Constitutional Court. Arguments were closed on 13 May 2020 and judgment is awaited

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PROCUREMENT OF 2 000MW OF GENERATION CAPACITY TO BE CONNECED TO GRID IS SHORTEST TIME POSSIBLE

10. Department of Mineral Resources and Energy (DMRE) launched a RFI in December 2019, for the supply of between 2 000 to 3 000MW generation capacity that can be connected to the grid in the shortest possible time (and by not later than December 2021), at the least cost. DMRE stated at the time that this will result in the launch of an IPP procurement programme.

10.1 The draft Section 34 Determination for 2 000MW was submitted by DMRE to NERSA shortly after 18 February 2020. On 18 March 2020, NERSA invited public comment on this draft Determination, with a closing date for public comments of 14 April 2020.

10.2 The Section 34 Determination is not specific in respect of the generation sources that are being procured in respect of the 2 000MW. Rather, it is for a wide range of generation sources, including renewable energy generation.

10.3 NERSA had originally indicated that it would take 3 months to finalise its decision in respect of the contents of the Section 34 Determination. However, on 26 May 2020, the DMRE confirmed that NERSA had issued its concurrence in respect of the Section 34 Determination.

10.4 This allows the IPP procurement programme to be launched. DMRE has confirmed that the procurement documentation is being prepared, for issue in June or July 2020 (on 23 June, Mr Tshifiwa Magoro [head of the IPP Office] said during the SIDSSA that the procurement documentation will be issued towards the end of July 2020).

10.5 DMRE be the procurer of the generation capacity and Eskom SOC will be the buyer of the electricity and all the generation capacity be provided by IPPs.

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ADDITIONAL PROCUREMENT PROGRAMMES FOR MORE THAN 10 000MW POWER

11. DMRE is expected to launch Round 5 of the Renewable Energy IPP Procurement Programme (REIPP) early in 2021.

12. The draft Section 34 Determination was submitted to NERSA shortly after 18 February 2020.

13. On 18 March 202, NERSA invited public comment on the draft Determination, with a closing date of 7 May 2020 for public comments.

14. NERSA has indicated that it will take 6 months to finalise its decision in respect of the contents of the Section 34 Determination (hopefully, it will take less time, as with the Section 34 Determination for the procurement of 2 000MW of generation capacity detailed in the preceding paragraph).

15. If NERSA grants its approval for the Section 34 Determination, the various IPP Procurement Programmes will be launched shortly thereafter.

16. DMRE has requested, in its application to NERSA for approval of that Section 34 Determination, that it be the procurer of the generation capacity and Eskom SCO be the buyer of the electricity and the generation capacity.

17. The draft Section 34 Determination is requested for the following generation sources:

17.1 renewable energy generation (Wind and Solar PV) – 6 800MW (years 2022 to 2024 in the IRP):

17.1.1 the split between Wind and Solar PV is 4800MW for Wind and 2 000MW for Solar PV;

17.2 storage – 513MW (year 2022 in the IRP);

17.3 gas – 3 000MW (years 2022 to 2027 in the IRP);

17.4 coal – 1 500MW (years 2023 to 2027 in the IRP).

18. NERSA has requested input from the public as to whether storage must be included as part of the procurement from Wind and Solar PV. The consultation notice and paper may be found on NERSA’s website, at nersa.org.za, under the heading: Consultation – Notices – Electricity.

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THE 2 500MW NUCLEAR NEW BUILD PROGRAMME

19. Mr Zizamele Mbambo (zizamele.mbambo@energy.gov.za), who is the deputy director-general for nuclear energy is in charge of the nuclear new build programme.

20. The Department of Mineral Resources and Energy launched a Request for Information for the 2 500MW Nuclear New Build Programme on Sunday 14 June 2020. Inside the media statement issued by the Department, is a link to the RFI. The RFI can also be accessed on the Department’s website (energy.gov.za) or at http://www.energy.gov.za/files/tenders/t open. html.

21. Interested companies are required to notify the Department of their interest by 15 July 2020 and responses to the RFI are requested to be submitted by 10h00 on 15 September 2020.

22. On the basis of past experience, once the Department has received the responses to the RFI, they will prepare a Section 34 Determination (which authorises a specified government entity to undertake the procurement and the government entity (probably Eskom) that will be the buyer of the power) and submit it to NERSA (National Energy Regulator of South Africa) for its concurrent. NERSA will run a public participation programme (we anticipate that will take at least 6 months) to get the public’s views. The Department usually starts preparing its procurement documents at the time that it submits the Section 34 Determination to NERSA, with the intention of issuing the procurement documents a short time (6 to 8 weeks approximately) after it gets NERSA’s concurrence. Accordingly, based on timelines on other RFIs and Section 34 Determinations currently in play, we anticipate that the procurement programme will launch in the 2nd half of 2021.

23. If any entities active in the sector are interested in participating in this programme, we urge them to respond to the RFI so that the Department can consider their recommendations and suggestions and possibly take them into account.

24. As stated above in this note, the New Gen Regs specifically state that they do not apply to the procurement of nuclear generation capacity. At present, there are no regulations or statutory provisions that deal specifically with the procurement of nuclear generation capacity. Previously, the DMRE (or its predecessor department, the Department of Energy) issued the first new generation regulations shortly before the launch of the first IPP procurement in South Africa (which was of the Peaking Power IPP Projects at Dedisa and Avon). Amendments were made to the new generation regulations regularly, as it became apparent that these regulations needed to deal with additional issues, until the current New Gen Regs were settled. On the basis of this experience, we anticipate that regulations for the procurement of nuclear generation capacity will be issued for public comment, in the near future and before the procurement documentation is issued.

25. If any entities active in the sector want have individual discussions about the RFI, we would be happy to have such discussions.


For more information, please contact Brigette Baillie or your usual Herbert Smith Freehills contact:

Brigette Baillie
Brigette Baillie
Partner, Johannesburg
+27 10 500 2632