Potential Captive Power / Off - Grid Power Game - Changer

An opinion by Kerry Williams, Alessandra Pardini, Alexandra Felekis, Nadiaah Singh and Garyn Rapson of Webber Wentzel

The legal framework governing the generation of electricity in South Africa is the Electricity Regulation Act, 4 of 2006 (ERA). Section 7 of the ERA provides that no person may, without a license issued by the National Energy Regulator (NERSA), operate any generation facility, save in regard to the exceptions listed in Schedule 2 of the ERA, namely:

• any generation plant constructed and operated for demonstration purposes only and not connected to an inter-connected power supply;
• any generation plant constructed and operated for own use; and
• non-grid connected supply of electricity except for commercial use.

On 2 December 2016, the Minister of Energy published for public comment, the draft licensing exemption and registration notice in GN R 1482 Government Gazette 40464.  

The purpose of the Draft Licensing Exemption Regulations is to amend Schedule 2 of the ERA and exempt various categories of generation facilities and electricity resellers from the requirement to hold a license under the ERA, and to instead require that these activities be registered with NERSA.

The following activities are exempt from licensing and will only require registration with NERSA:

• embedded generation where no wheeling takes place;
• facilities that wheel through the grid;
• off-grid generation;
• facilities used for demonstration purposes; and
• back-up or standby generation.

Importantly, the first three categories of generation facilities are only exempt from the licensing requirement if their installed capacity does not exceed 1MW. In the case of the first two categories, a facility will also be eligible for exemption if the Minister has not published a notice in the Government Gazette stating that the amount of megawatts allocated in the integrated resource plan (IRP) for embedded generation of this nature has been reached.

The intention of the IRP is to specify an allocation for embedded generation facilities of up to 10MW in installed capacity. The provision in the IRP is intended to facilitate the licensing or registration of these facilities and do away with the need for the Minister to, on a case by case basis, grant approval for deviations from the IRP in terms of section 10(2)(g) of the ERA for the relevant facilities.

The Draft Licensing Exemption Regulations are a positive step in removing the regulatory hurdle that currently exists under Schedule 2 of the ERA, which permits only generation facilities for own use as the only manner in which they can be operated without a license from NERSA.

However, the proposal that the exemption from the licensing requirement is capped at 1MW is in our view, insufficient, and should be lobbied in order to have this cap amended to permit a greater installed capacity for power generation facilities to fall within the registration requirement proposed in the Draft Licensing Exemption Regulations.

This proposed amendment is a potential game-changer for the captive power market, but the 1MW threshold is too restrictive.

Interested persons and organisations are invited to submit, within 30 days (by 2 January 2017), written comments on the Draft Licensing Exemption Regulations.