New issues with amended amended Schedule 2 of the Electricity Regulation Act for private power generation

23rd August 2021

New issues with amended amended Schedule 2 of the Electricity Regulation Act for private power generation

The recent gazetting of amendments to Schedule 2 of the Electricity Regulation Act (ERA) of 2006, which increases the licensing threshold for embedded generation projects from 1 MW to 100 MW, is good news for South Africa’s biggest energy users. It will also bring eventual energy security to smaller businesses and consumers, who can look forward to a reduction in loadshedding and less reliance on Eskom in the future.

The main amendment to Schedule 2 of ERA is in paragraph 3.1, which now provides that operating an electricity generation facility, with or without storage, with a point of connection to the transmission or distribution grid, with a capacity of no more than 100 MW, is exempt from licensing by, but will require registration with, NERSA.

In practical terms, this means that the following facilities are now exempt:

There are additional exemptions, including for facilities that only provide standby or back-up electricity or that do not have a point of connection. Other activities exempt from licensing, and which require registration under paragraphs 3.2 to 3.5 of the amended Schedule 2 of ERA, include demonstration facilities and a distribution facility up to the point of connection that connects an exempted generation facility where there is wheeling (Distribution Licence Exemption).

Since the issuing of Government Gazette No. 44989, Government Notice No. 737 dated 12 August 2021, which contained the original licensing exemption and registration notice (the Original Exemption), the Minister of Mineral Resources and Energy, Gwede Mantashe (the Minister), heard comments from industry commentators and published an amendment to the licensing exemption and registration notice under Government Gazette No. 45023, Government Notice No. 751 dated 20 August 2021 (the Amended Exemption).

The amended exemption removes several issues raised in relation to the Original Exemption.

However, the Amended Exemption contains some new and important issues.

In addition, certain issues remain unclear.

The licensing exemption will only have real import for the electricity sector once the Minister has addressed the identified omissions (if they are indeed unintentional) and once the registration requirements are issued by NERSA. We expect that NERSA’s current registration requirements for facilities with an installed capacity of 1 MW are likely to apply, with some additional requirements.

Amendments to allow less-fettered large-scale electricity generation represent a seismic change of law and a major step towards deregulating South Africa’s electricity supply industry. They are welcome news for businesses whose operations have been hampered by Eskom’s capacity constraints.

Written by Jason van der Poel, Alexandra Felekis & Mzukisi Kota from Webber Wentzel: With thanks to Andrew Johnson of Zutari for his technical input on this insight piece