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Increasing the licensing threshold for self-generation will unlock capacity and create jobs
Across the many industries calling for reform that will unlock growth, the energy sector stands out as an exception that seems to have genuine momentum behind it.
This was highlighted again when, last week, the National Energy Regulator of SA (Nersa) awarded a licence for Gold Fields to generate its own power for its South Deep mine. The mine, Gold Fields's remaining asset in SA, has been struggling to produce gold profitably and in 2019 the company said an electricity bill of more than R500m had forced it to seek alternatives.
At an installed capacity of 40MW (keeping in mind SA's total installed capacity is 44,000MW) it will be the largest installation of self-generation, or embedded generation, in SA. It certainly is something to be celebrated, but it also highlights just how slow reform has been.
After all, the application to generate its own power has been in the regulator's in-tray for three years. And, as Business Day reported last week, Nersa has approved only five projects of 28MW over the past two years.
The private sector has for too long been calling on the government to simply lift the cap that requires that any self-generation power project above 1MW have a licence from Nersa. But the government has been fiddling at the fringes. In 2019, when the latest Integrated Resource Plan was published, the need to have a ministerial determination for such projects was done away with, but the licence remained a requirement.
In March 2020, after President Cyril Ramaphosa promised to "rapidly and significantly change the trajectory of energy generation" in SA, mineral resources & energy minister Gwede Mantashe went ahead and amended schedule 2 of the Electricity Regulation Act, which clarified aspects about self-generation. But it inexplicably kept the 1MW cap.
One can understand accusations that there is an attempt to frustrate the ability to self-generate, while the energy crisis in SA is only deepening. But exactly who such a frustration would serve is hard to say.
Eskom would have the most to lose in terms of potential sales, but it's losing them anyway when it calls for load reductions or is forced to implement load-shedding. As noted in the Budget Review, in 2020, load-shedding reached the highest levels since 2015. The electricity availability factor (EAF), which measures plant availability, mostly remained below 2019 levels to average 65, relative to 67 in 2019.
In fact, Eskom CEO André de Ruyter has made it clear that the utility is in favour of embedded generation as it will ease demand pressure on the power grid. On February 11, Ramaphosa committed to increasing the licensing threshold for embedded generation within three months. By how much is yet to be seen, but general calls are for a licensing cap of 50MW, a figure Eskom supports.
If lifted to this degree, it could unlock up to 5,000MW of additional capacity grid in next to no time. To put that in perspective, that is more power generation than the 4,800MW Medupi power station, which is years late and R70bn over budget and, together with the similarly troubled Kusile power plant, is the primary reason Eskom finds itself in a debt trap.
Speaking at the Africa Energy Indaba on Monday, De Ruyter pointed to Vietnam where, he said, a similar move has unlocked 7,200MW of generation capacity from the private sector in just over 12 months.
Not only will the lifting of the licensing threshold unlock power generation capacity, it will derisk the expansion of power generation in SA with the use of private sector investment. It will also create job opportunities that don't require the level of skill that large power plants might.
Utilities needn't feel threatened either. By letting businesses get on with embedded generation, they can get on with providing reliable baseload supply to industries that depend on it.
Lifting the licensing cap is a no-brainer. And though its eventuality appears to be right around the corner, it's anyone's guess why it has taken so long.