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Electricity regulations amended to allow municipalities to develop or buy power

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Electricity regulations amended to allow municipalities to develop or buy power

Photo by Creamer Media's Donna Slater
Mineral Resources and Energy Minister Gwede Mantashe

16th October 2020

By: Terence Creamer
Creamer Media Editor

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  • Amended Electricity Regulations on New Generation Capacity on page 21
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Mineral Resources and Energy Minister Gwede Mantashe has gazetted amendments to the electricity regulations for new electricity generation capacity, opening the way for “municipalities in good financial standing to develop their own power generation projects”. 

The Gazette notice amends the Electricity Regulations on New Generation Capacity in terms of Section 35(4) of the Electricity Regulation Act (ERA), of 2006, and has been published a day after President Cyril Ramaphosa released government’s Reconstruction and Recovery Plan, which lists the rapid expansion of energy generation capacity as a top priority.

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In a speech to Parliament, Ramaphosa said steps would be taken to enable power generation for own-use, but he did not specifically comment on whether municipalities would be freed up to build capacity, or procure electricity from independent power producers (IPPs).

The City of Cape Town took the Department of Mineral Resources and Energy (DMRE) and the National Energy Regulator of South Africa (Nersa) to court recently, after Nersa informed the city that it could not license an IPP to establish new generation capacity in the absence of a specific determination from the Mineral Resources and Energy Minister catering for such capacity.

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On August 15, Judge Leonie Windell referred the dispute back to the parties for resolution in terms of Section 41(3) of the Constitution, which  requires all spheres of government to strive to adhere to the principle of cooperative governance, and Section 41 of the Intergovernmental Relations Frameworks Act, 2005.

Windell left the way open, however, for any party to return to the court to seek further relief in the event that the dispute was not resolved through engagement or a possible dispute-resolution process.

In a statement released on October 16, the DMRE asserted that the amendments to the regulations clarified the regime applicable to municipalities when requesting determinations under Section 34 of the ERA.

It added that an internal standard operating procedure had been put in place at the department to ensure that requests for Section 34 determinations were “attended to in the shortest possible time”.

The amendments extend the procurement of new renewables, cogeneration, baseload, mid-merit, peak load, energy storage and cross-border generation capacity to organs of State “active in the energy sector”, which includes municipalities.

A municipality must, however, apply to the Minister to procure or buy new generation capacity in accordance with the Integrated Resource Plan (IRP), as well as the municipality’s own Integrated Development Plan (IDP).

A feasibility study must also be submitted in instances where a project is being funded internally, while a municipality must submit proof that it has complied with the provisions of Section 120 of the Municipal Finance Management Act and the Municipal Public-Private Partnership Regulations in those instances where the electricity is being procured from an IPP.

“This will ensure an orderly development that is in line with the applicable IRP and municipal IDPs. Furthermore, the amendments will ensure that Section 34 determination requests are from municipalities that are in good financial standing with feasible project proposals,” the DMRE said in a statement.

Western Cape finance and economic opportunities minister David Maynier welcomed the amendments, but called for urgent clarity on the standard operating procedure developed by the DMRE to process municipal requests for Section 34 determinations.

“We request full transparency of this procedure as soon as possible, and will work with the DMRE to obtain clarity on requirements on each of the conditions listed [in the gazette], including, most importantly, what qualifies as ‘good financial standing’, which is not defined in the regulations.”

Maynier noted, too, that the provincial administration had established a Municipal Energy Resilience (MER) project, aimed at strengthening the energy resilience of municipalities in the Western Cape.

“The MER Project will work with municipalities to understand the conditions and requirements under which municipalities will be able to procure power from IPPs and develop alternative energy projects,” he said in a statement.

South African Wind Energy Association Ntombifuthi Ntuli noted that, while the new regulations still required the Minister’s final approval, which could restrict uptake, the move towards a more decentralised procurement model would take the country a step closer to the broader energy transition needed to increase much-needed electricity capacity.

Several questions still needed to be addressed following the amendments, however, including a whether a separate Ministerial determination would be required for municipal procurement, or whether procurement could proceed under existing determinations.

Ntuli added that distributed wind generation projects would be viable at a minimum size of 10 MW and supported by power purchase agreements of between 15 to 20 years.

“This works even better if the smaller projects are built alongside other big projects and they source turbines simultaneously, to minimise costs. The opportunity for IPPs to pair up smaller and bigger wind projects, will be easier once the Renewable Energy Independent Power Producer Procurement Programme gets under way again,” she added.

Greenpeace Africa's senior climate and energy campaign manager Happy Khambule argued that the amendments were long overdue and should help support both greater decentralisation and higher levels of renewable-energy penetration.

“But, it is between local and national government, and it doesn't address the key issue: ordinary South Africans are still unable to meaningfully participate in energy democracy as prosumers. The government is still not prioritising this,” Khambule lamented.

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