Regulation of electricity utilities – power generation

Authorisation to construct and operate generation facilities

What authorisations are required to construct and operate generation facilities?

For the purpose of operating a generation facility, NERSA is responsible for issuing electricity generation licences and registrations for such facilities. No person may operate any generation facility without a licence, save for certain exemptions set out in Schedule II of the ERA or determinations made by the Minister of Minerals and Energy. The exemptions mostly relate to the operation of smaller generation facilities of no more than 1MW and those generation facilities operated for own use or not connected to the grid. The purpose of the exemptions is to exempt various categories of generation facilities and electricity resellers from the requirement to hold a licence under the ERA in defined circumstances and to require such activities to be registered with NERSA. NERSA is required to consider the IRP and the applicable ministerial determinations when granting licences for the operation of generation facilities.

The general authorisations for constructing generation facilities include environmental authorisations, whereby the developer must conduct an environmental impact assessment (EIA) and secure an environmental authorisation in terms of the National Environment Management Act, 1998.

Some of the other key permits required for generation facilities include:

  • water use licences in respect of certain water use activities under the National Water Act, 2008;
  • atmospheric emissions licences under the National Environmental Management: Air Quality Act, 2004;
  • waste management licences under the National Environmental Management: Waste Act, 2008;
  • biodiversity permits under the National Environmental Management: Biodiversity Act, 2004;
  • zoning consents and building plan approvals from the relevant municipal authorities;
  • consents for obstacles in respect of the Civil Aviation Regulations, 2011; and
  • permissions for certain activities affecting heritage resources under the National Heritage Resources Act, 1999.
Grid connection policies

What are the policies with respect to connection of generation to the transmission grid?

NERSA is the custodian of the South African Grid Code. NERSA’s role is to ensure non-discriminatory access to the transmission and distribution systems and the safe and reliable operation of the electricity infrastructure.

The South African Grid Code specifies the minimum technical and design requirements that customers must adhere to when connecting or seeking to connect to the transmission grid. A customer seeking to connect to the transmission grid or to modify an existing connection must apply in writing to the National Transmission Company (NTC).

NERSA has established a grid connection code specifically for renewable energy power generation plants connected either to the transmission or to the distribution system.

Alternative energy sources

Does government policy or legislation encourage power generation based on alternative energy sources such as renewable energies or combined heat and power?

The NDP identifies South Africa’s long-term plans to meet its economic, social and environmental needs. The NDP proposes diversity and alternative energy resources and electricity supply options. The IRP has also been developed to ensure that the preferred energy mix includes renewable energy and cogeneration technologies.

The Minister of Minerals and Energy (in consultation with NERSA) is vested with the power under the ERA to determine the types of energy sources from which electricity must be generated. Various ministerial determinations for renewable energy have been issued in respect of the procurement of 14,725MWs from IPPs. The renewable energy technologies under these determinations include concentrated solar power (CSP), wind, solar photovoltaic (PV), biogas, biomass, landfill gas and small hydropower. The procurement of renewable energy technologies is also driven by South Africa’s international commitments to address climate change.

The determination for cogeneration was amended in 2015 to increase the capacity to be procured from IPPs from an initial 800MW to 1.8GW. The types of generation sources were also amended to include:

  • waste heat or furnace off gas;
  • cogeneration (ie, the simultaneous generation of electricity and useful thermal energy from a common fuel source); and
  • an energy source that is a co-product, by-product, waste product or residual product of an industrial process or sustainable agricultural or forestry activity.

The Draft IRP has a substantial allocation of wind (11,442MW) and solar PV (7,958MW) that is planned to be installed by 2030. There is, however, no planned allocation for cogeneration technologies in the latest Draft IRP.

To date, the Department of Minerals and Energy has procured 92 renewable energy projects from IPPs, totalling over 6GW, with just over 3.5GW in full operation.

Climate change

What impact will government policy on climate change have on the types of resources that are used to meet electricity demand and on the cost and amount of power that is consumed?

South Africa’s Nationally Determined Contribution (NDC) contains a target to limit greenhouse gas (GHG) emissions. The NDC pledge is consistent with South Africa’s long-term goal to constrain its emissions to follow a peak-plateau-decline trajectory. Based on this, South Africa’s emissions should peak between 2020 and 2025 before then plateauing for approximately a decade and then declining thereafter.

South Africa has signed and ratified the Paris Agreement. The NDC is premised on the adoption of comprehensive, ambitious, fair, effective and binding rules in accordance with the Paris Agreement. The NDC acknowledges that South Africa’s priorities include equity, economic and social development and poverty eradication.

The 2011 National Climate Change Response White Paper also supports the use of carbon budgeting and carbon pricing measures.

The IRP is the key electricity sector policy to reduce emissions. The Draft IRP released for public comment envisages that the energy and capacity mix will be fairly comparable for the period up to 2030. The share of coal will then reduce as older power plants are decommissioned and GHG emission constraints are imposed. This implies that coal will contribute less than 30 per cent of the energy supplied by 2040 and less than 20 per cent by 2050. The share of renewables and potentially gas will accordingly increase substantially under the Draft IRP with the imposition of the GHG emission constraints.

The president signed the Carbon Tax Act, 2019 into law, which is effective from 1 June 2019. Taxpayers are liable for carbon tax should they conduct any of the activities as specified in Schedule 3 of the Act which are above the threshold for that activity. Carbon tax will be levied on the sum of greenhouse gas emissions from fuel combustion, industrial processes and fugitive emissions, determined in accordance with a reporting methodology approved by the Department of Environment, Forestry and Fisheries. Emitters will be required to hold a licence for their activities liable for carbon tax and payment of this environmental levy will be due in July of each year. The Minister of Environment, Forestry and Fisheries has published the National Climate Change Bill for public comment. The purpose of the bill is to build an effective climate change response and to ensure the long-term, just transition to a climate resilient and lower carbon economy and society.

The bill provides for the appointment of a ministerial committee on climate change to be tasked with overseeing the necessary activities across all sector departments and spheres of government. The Bill aims to address all priority sectors, including the electricity sector, in order to align with national sectoral emission targets. Other provisions include setting out and achieving national adaptation objectives, determining a national GHG emissions trajectory, prescribing sectoral emissions targets and determining a GHG threshold to inform the allocation of carbon budgets.

A significant High Court judgment was handed down in the matter of Earthlife Africa, Johannesburg v The Minister of Environmental Affairs and others. The judgment was South Africa’s first climate change-related court case. The case is in respect of the environmental authorisation granted for the establishment of the proposed 1.2GW Thabametsi coal-fired power station. The crux of the judgment is that climate change poses a substantial risk to sustainable development in South Africa and is a relevant factor for the Department of Environmental Affairs to consider when granting environmental authorisation for thermal power plants. The judgment requires the developer to undertake an assessment of the climate change impacts in the form of a professionally researched climate change impact assessment report (including mitigation measures) as part of the environmental authorisation approval process.

In addition, South Africa’s National Energy Efficiency Strategy, 2008 aims to develop measures to promote energy saving, reduce the negative impact of energy use on the environment, reduce energy costs to the economy and to contribute towards sustainable development.

Storage

Does the regulatory framework support electricity storage including research and development of storage solutions?

There is currently a very limited regulatory framework for the adoption of electricity storage in South Africa.

The regulatory framework does encourage the use of renewable energy technologies and there is a specific allocation for storage in the latest Draft IRP. The IRP mentions the need for research on thermal energy storage linked to CSP.

At a policy level, South Africa aims to introduce more renewable energy into the energy mix, therefore, adopting energy storage will provide support in this regard. The Department of Minerals and Energy and NERSA play an essential role in the adoption of energy storage onto the grid in that the development of energy storage policy and legislation will need to be developed and administered by the Department of Minerals and Energy and NERSA.

There are no incentives specific to the research and development of storage solutions. Section 12L of the Income Tax Act, 1962 does permit energy efficiency claims; however, these provisions are not specifically for electricity storage.

The Industrial Development Corporation, a state-owned development finance institution, together with various stakeholders, are evaluating potential energy storage technologies to increase access to reliable, affordable electricity in South Africa, encouraging policies to support the adoption of energy storage technologies and exploring opportunities to invest in energy storage projects.

Government policy

Does government policy encourage or discourage development of new nuclear power plants? How?

The National Nuclear Regulator (NNR), established under the National Nuclear Regulator Act 1999, regulates nuclear energy In South Africa. The current assumptions in respect of new nuclear power plants used in the Draft IRP deviates materially from those employed in the existing IRP. The existing IRP assumed that 9.6GW of new nuclear capacity would be installed by 2030. The latest Draft IRP assumes that nuclear will only be considered from 2030 onwards, however it does acknowledge the role of nuclear in the energy mix and calls for a thorough investigation of the implications of nuclear energy, including its costs, financing options, institutional arrangements, safety, environmental costs and benefits, localisation and employment opportunities, uranium-enrichment and fuel-fabrication possibilities.

The National Nuclear Regulator Act sets out the nuclear installation licence requirements in order to procure a site, construct, operate, decontaminate or decommission a nuclear installation. South Africa’s nuclear laws are based on various international conventions to which South Africa is a party and provides for the establishment of internationally endorsed protocols on nuclear safety, political and financial risk and ultimate state liability. The NNR is mandated to provide for the protection of persons, property and the environment against nuclear damage as the competent authority for nuclear regulation in South Africa. The NNR has regulatory requirements developed in accordance with, among other things, the National Regulator Act, the South African Nuclear Energy Policy (2008), Minimum Information Security Standards and IAEA Nuclear Security Series No. 7.

Regulation of electricity utilities – transmission

Authorisations to construct and operate transmission networks

What authorisations are required to construct and operate transmission networks?

A transmission licence is required from NERSA in terms of the ERA for the operation of transmission networks. Eskom currently owns and operates the national transmission networks and holds a transmission licence issued by NERSA.

There is no closed list of authorisations that one needs to obtain in order to construct a transmission network. Refer to question 3 above for a general list of environmental and land related authorisations that are potentially applicable to the construction of transmission networks.

Eligibility to obtain transmission services

Who is eligible to obtain transmission services and what requirements must be met to obtain access?

A customer seeking connection to the transmission services or modifications to existing transmission service connections may apply in writing to the NTC. The South African Grid Code specifies the minimum technical and design requirements that customers must adhere to when connecting or seeking to connect to the transmission services. Accordingly, an applicant who wishes to have access to the transmission services must comply with the technical and design requirements as set out under the Grid Code.

Upon application, the NTC will issue cost estimate letters and budget quotations for new connections to the transmission system and for upgrades to existing connections in accordance with an approved tariff methodology. IPPs typically enter into transmission agreements with Eskom to regulate their access to the transmission network.

Government transmission policy

Are there any government measures to encourage or otherwise require the expansion of the transmission grid?

There are no direct incentives to promote the expansion of the transmission network by the private sector. As mentioned, Eskom owns and operates the transmission system. Eskom does have plans to expand and further develop the transmission grid. In accordance with its transmission licence, Eskom is required to publish an updated Transmission Development Plan (TDP) for a 10-year period.

The periodic TDP focuses on the need to connect IPPs to the grid, plans to develop large-scale transmission corridors at key points in the grid over the long term, and plans for regional major transmission development schemes.

The New Development Bank signed a loan agreement with Eskom in April 2019 for a renewable energy integration and transmission augmentation project. The project will integrate 670MW of renewable energy into the Eskom grid.

Rates and terms for transmission services

Who determines the rates and terms for the provision of transmission services and what legal standard does that entity apply?

In terms of the ERA, NERSA is tasked with the regulation of electricity charges and tariffs. A licensee may charge only the tariffs set or approved by NERSA. NERSA may, in prescribed circumstances, approve a deviation from set or approved tariffs.

The ERA provides tariff principles for economic regulation of the electricity supply industry. In terms of the principles, the licence conditions relating to the setting or approval of prices, charges and tariffs and the regulation of revenues must enable an efficient licensee to recover its costs and provide for or prescribe incentives for the continued improvement of the technical and economic efficiency with which services are to be provided.

In addition, the licence conditions must give end-users proper information regarding the costs that their consumption or use imposes on the licensee’s business and must avoid undue discrimination between customer categories (discrimination between different classes of customers for objectively justifiable and identifiable differences is allowed if approved by NERSA).

The South African Grid Code transmission tariff code sets out the transmission services and pricing and the procedure to be followed in applications to change revenue requirements, tariff structures or both.

Entities responsible for grid reliability

Which entities are responsible for the reliability of the transmission grid and what are their powers and responsibilities?

Eskom is responsible for the reliability of the transmission grid. As the system operator, Eskom is tasked with the responsibility to operate the interconnected power system to achieve the highest degree of reliability practicable. The South African Grid Code also requires the network system operator to co-ordinate voltage control and to operate with sufficient operating reserve capacity to carry its expected load as per the frequency control requirements of the Grid Code.

The network system operator must endeavour to retain international interconnections, to operate the transmission grid in such a way as to minimise adverse effects of disturbances on customers and may shed customer load to maintain system integrity.