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 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 national grid. 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 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 1800MW. 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 (7958MW) 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 DoE has procured 92 renewable energy projects from IPPs, totalling over 6000MW, with just over 3500MW 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 gas will accordingly increase substantially under the Draft IRP with the imposition of the GHG emission constraints.

South Africa is planning to introduce a carbon tax covering fossil fuel combustion emissions. National Treasury published the Second Draft Carbon Tax Bill in December 2017, the first draft having been published for comment in November 2015. Under the current planning, a basic tax-free threshold of around 60 per cent of emissions and additional allowances for specific sectors might result in tax exemptions for up to 95 per cent of emissions during the first phase until 2022. The full carbon tax rate is proposed to be 120 South African Rand per tCO2e (US$8 per tCO2e), after exemptions. The effective tax rate is expected to be between 6 and 48 Rand per tCO2e (US$0.4 and 3 per tCO2e). Given the engagement still required with various stakeholders and the parliamentary processes, it is expected that the finalisation of the Carbon Tax Bill will be further delayed.

The Minister of Environmental Affairs has recently 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 in the Bill 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.

In 2017, 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 1200MW 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 has a National Energy Efficiency Strategy, 2008 that 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 however only pumped energy storage is addressed in the latest Draft IRP. The IRP mentions the need for research on thermal energy storage linked to CSP. The IRP does not mention energy storage in respect of wind and solar PV plants.

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 DoE 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 DoE 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 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 9600MW of new nuclear capacity would be installed by 2030. The Draft IRP does not include any additional nuclear power apart from the installed capacity provided by the Koeberg nuclear power station.

The current government policy accordingly does not encourage the development of any new nuclear power plants in the future.