Calling for light at the end of the tunnel?

On March18, 2020, the National Energy Regulator of South Africa (NERSA) published invitations for public comment, in the form of consultation papers, on two draft ministerial determinations for the procurement of new electrical generation capacity in terms of Section 34 of the Electricity Regulation Act 4 of 2006 (ERA). These consultation papers have been published pursuant to NERSA’s obligation under the Electricity Regulation Act to consider ministerial determinations and, if indicated, concur therewith, and further informed by the ruling of the Western Cape High Court in the case of Earthlife Africa Johannesburg and another v Minister of Energy and others, that NERSA’s concurrence with ministerial determinations must take adequate public participation and consultation into account.

The first consultation paper, titled ‘Concurrence with the Ministerial Determination on the procurement of new generation capacity from the range of energy technologies’, concerns the procurement of 2,000 MW from various technologies in order to bridge the short-term supply gap identified in the Integrated Resources Plan (IRP) published in October last year (Consultation Paper 1).

The second consultation paper, titled ‘Concurrence with the Ministerial Determination on the procurement of new generation capacity from Renewables, Storage, Gas and Coal technologies’, concerns the procurement of 11,813 MW of new generation capacity from specific energy technologies in accordance with the IRP (Consultation Paper 2).

Below are four key points to note from Consultation Papers 1 and 2:

Fast-tracking the process

In terms of Consultation Paper 1, NERSA has requested that comments by stakeholders and members of the public take the form of written submissions. This is as opposed to NERSA holding public hearings at which interested and affected parties may make presentations. The closing date for comments on Consultation Paper 1 is April 14, 2020. The reason given for this truncated process is the ongoing electricity crisis in South Africa.

The public participation process under Consultation Paper 2 is more orthodox. Stakeholders and members of the public have been invited to submit written comments by May 7, 2020, following which the date of a public hearing will be announced. Doubtless the dates of public hearings will take account of the status of the declared COVID-19 national disaster and any applicable lockdown regulations.

Preparing the way for Bid Window 5

Consultation Papers 1 and 2 indicate that the procurement of new generation capacity from independent power producers (IPPs).

If, following the public participation process, NERSA concurs with the determinations, it is likely that preparation for the fifth bid window for the Renewable Energy Independent Power Producer Procurement Programme will commence. However, the Minister of Mineral Resources and Energy, Gwede Mantashe, has not committed to exact timelines in respect of opening the bid window, which may further delay the procurement process.

Seeking security of supply

The recent onset of load shedding is indicative of the need for South Africa to secure a reliable energy supply. While the ministerial determination under Consultation Paper 1 specifically focuses on security of supply, the large scale procurement of 6,800 MW of new generation capacity from renewables and 3,000 MW from gas in terms of Consultation Paper 2 seeks to diversify further the energy mix as a means of ensuring energy security.

Beyond renewables, Consultation Paper 2 refers to generation of 513 MW from storage, which is set to play a key role in mitigating the intermittency of renewables. Finally, it is proposed that 1,500 MW of new capacity is to be generated from coal,  emphasising that the ‘just transition’ from fossil fuels to the more sustainable energy future envisioned in the IRP is a gradual process.

Potential move away from the single-buyer model

South Africa currently operates under a single-buyer model whereby Eskom has the exclusive right to purchase electricity from IPPs. However, in his State of the Nation Address, President Cyril Ramaphosa announced a ‘new trajectory’ in the generation and sale of electrical energy that potentially included third party trading.

This is indicative of a possible significant shift in policy on the horizon, creating a more competitive South African energy landscape. The two consultation papers both maintain the single-buyer model by referring to Eskom as the designated buyer of electricity. However, both Consultation Papers pose the question as to whether Eskom should be the only buyer of electricity, perhaps a reiteration of the intention to move away from the single buyer model.

It is imperative for players in the electricity sector to participate in this enquiry meaningfully and provide informed responses, so as to inform and possibly influence the potential policy shift. That said, a cautionary approach should be adopted in responding to the questions posed, given the open-ended nature to such questions. The NRFSA Energy Team is fully equipped to assist in this process.