“Holy smoke! Did he just do that?” was the collective exclamation as President Cyril Ramaphosa announced on 10 June 2021 that he was amending Schedule 2 of the Electricity Regulation Act, raising the exemption threshold for the National Energy Regulator of South Africa (Nersa) licensing requirement from 1MW to 100MW.
Some others were probably going: “Can he do that?”
It is safe to say that the decision caught the entire country completely off-guard. Here I want to unpack some quick questions that people have been asking themselves and explain why this is big for the economy and the environment.
To borrow the title of Naomi Klein’s seminal book: this changes everything!
Put simply, Nersa permits are no longer required for embedded generation projects that fall below the 100MW threshold. In other words, any physical or natural person who is willing and able can set up a power generation plant with capacity of up to 100MW without a permit from Nersa.
Eskom’s André de Ruyter admitted on eNCA this week that “we can assist in alleviating and managing the risk of load shedding, but we need additional capacity to be brought on to the grid as soon as possible … we cannot work miracles with the system we’ve got”. These sentiments were echoed by the president in his speech: “Resolving the energy supply shortfall and reducing the risk of load shedding is our single most important objective in reviving economic growth.” That is why the announcement is so important.
Remember, the president had already amended Schedule 2 to make it easier for municipalities to buy power from Independent Power Producers (IPPs). The City of Ekurhuleni, for example, has already signed pre-contracts with 46 IPPs to provide it with power. Stellenbosch was the first municipality to announce its intention to wean itself off Eskom.
Although many media outlets have been reporting that businesses will finally be able to install embedded generation capacity, that is not what the announcement said. They are assuming that only businesses can afford vast outlays of cash on small power plants and that has become the main story.
In President Ramaphosa’s own words, “the amended regulations will exempt generation projects up to 100MW in size from the Nersa licensing requirement, whether or not they are connected to the grid… Generators will also be allowed to wheel electricity through the transmission grid, subject to wheeling charges and connection agreements with Eskom and relevant municipalities.”
Generators is a broad term. But if you are willing and able to do it, then you absolutely can.
Embedded generation is simply the generation of electricity from any power source (solar, wind, biomass) on a business premises, residential area, etc, for use on-site only or for on-site use with the ability to wheel the excess power generated through the national grid (or bigger grid owned by another private company) to be sold to other users, the local municipality, another business, the national power utility, etc.
Think thousands of prosumers producing their own electricity and selling some to Eskom, thereby decongesting the system and helping the utility with the cash injections it cannot manage by itself.
Let’s put it this way. According to Eskom, 1MW of electricity can power 650 average homes. Ergo, 10MW can power 6,500 homes, and 100MW can power 65,000 homes. In other words, 100MW can power the entire city of Mbombela or Kimberley. All without a permit from Nersa.
Currently, the aggregate standard tariff for Eskom customers is 134.30c/kWh. When load shedding started in 2007, Eskom was selling electricity at 19.80c/kWh. In other words, the kWh price has gone up almost 700% in 14 years.
The big mines can set up a power plant in three to five months, but that comes with a hefty price tag. In the initial phase of the new dispensation, generating power from small plants will probably cost more per kilowatt-hour than what Eskom is currently providing, so only the richer entities will benefit from the decision.
It will probably be another couple of years before we see a real surge in installed embedded generation capacity. As soon as more people start importing or developing cheap technologies, the prices will dip below Eskom’s current offer. So Eskom’s biggest shareholder has a lot of hard work to do to make sure that the utility continues to deliver for a majority of South Africans, at the risk of being buried by leaner, more efficient entities.
Load shedding is a major albatross around South Africa’s neck. It is the country’s Achilles heel, crippling socioeconomic activities and stunting growth. Without electricity, businesses cannot expand their activities, schools have to close early, crime goes up, people spend hours stuck in traffic and so on. A Soweto resident complained the other day that he has been forking out an extra R1,500 a month to pay for electricity since power outages resumed there last year. Clearly, the poor suffer the most when the lights go out.
Many business entities can finally do something about the pent-up demand that exists. Residents’ associations, mines, cooperatives, trade unions etc can all organise and set up their own power plants. Municipalities will be able to purchase extra power from independent power producers or extend the letters of guarantee that independent power producers require to invest in small power stations. This opens up a whole new business model for the country. Some people already have projects ready to go. They were ready five years ago!
Load shedding will become history for a select few in the short term and, as prices go down, more people and cities will be able to have power 24 hours a day. As people become aware of the importance of the decision and how quickly they can set up their own power plants and save a ton of money, we are going to see some really bold and innovative businesses get off the ground.
What I’m really interested in seeing is to what extent workers’ unions, stokvels, bold entrepreneurs etc will create crowdfunding platforms to roll out IPPs. The key is also in setting up a good power mix and negotiating a good arrangement with the power utility and/or local municipality.
Right after Ramaphosa’s announcement, the Congress of the People (Cope) went on the SABC and said the announcement was effectively “the privatisation of Eskom”. Cope has a point. We can predict that there is going to be a mass exodus of big accounts from municipalities, so tough times lie ahead for number-crunchers in cities and towns across the country.
A majority of South Africans are probably of the opinion that Eskom should control everything that has to do with electricity generation, come hell or high water. This, they would argue, is the surest way to protect jobs in the mining sector as well as in the power utility.
Others believe the company should be completely privatised and the private sector allowed to get on with it. Those in the middle think power production should be democratised to give households and some companies the possibility of embedded generation, to help Eskom generate the extra power it is struggling to deal with.
At the same time – and this is very important: in the short term, we might see a two-tier system emerge, with parts of the country where the lights are on 24 hours a day and other parts where electricity is available only sporadically – a sort of unintended economic apartheid or social Darwinism, if you will.
Eskom still produces in excess of 55,000MW of electricity daily, but it is knee-deep in debt and part of its fleet is in urgent need of repair. Although most people in government and in the trade unions have been reluctant to say it, somebody really needed to step in and shoulder some of the burden. The unbundling process is going to set up three entities for generation, transmission and distribution. The future transmission wing of Eskom will still be responsible for all the power that IPPs will have to feed into the grid.
There were audible groans as the president announced that it could take up to two months to develop the nuts-and-bolts policies around how embedded generation will be connected to the grid and under what circumstances they will be allowed to operate, and here we are talking about things like environmental impact assessment studies, pollution standards, connection licences, safety standards, cost per kilowatt hour if an IPP decides to sell to Eskom, what to charge for using Eskom’s transmission grid, etc.
Although Ramaphosa’s hand was forced by Eskom’s unbundling process, which is well under way, as well as the municipal elections scheduled for later this year, this is still a massive win for the environment.
It is simply too expensive and too time consuming to start building a 100MW nuclear power plant at this stage … or going for coal and diesel and so on. Renewables are already insanely cheap, as The Guardian put it recently, and take a relatively short time to install, and so that is the solution that most people and business entities will go for.
A lot of carbon-neutral projects are going to get off the ground quickly. This lowers South Africa’s carbon footprint. It also expands the country’s carbon trading marketplace. With smaller embedded clean energy plants, small communities and municipalities will be able to receive money to help offset carbon for major polluters. Last year, the carbon tax raised about R2.5-billion, and so there is a lot of opportunity there for small clean energy producers.
Ultimately, the biggest opportunity in the decision is that many people now have the certainty to make decisions about important investments in wind, rooftop PVs and so on. You can set up a small plant by installing PVs on X number of households in a suburb, for example – it need not be only on a farm in the middle of nowhere. Farmers in the Karoo, in Mpumalanga, in the Eastern Cape, can set up power plants. These decisions will contribute to driving down the cost of energy. Long term, that will translate to “prosumers” who are carbon neutral, save a ton of money every day and can make a bit more by selling to others.
The amendment to Schedule 2 of the Electricity Regulation Act will indirectly force the government’s hand into buying more renewable energy in the future. This is good for jobs. Business Unity SA has already announced that the decision will create about 16,000 jobs in the near future. Add to that the jobs and opportunities that will be created as the decision trickles down the system. DM
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