AMITH SINGH: Embedded generation: the next vital developments to an energy-secure SA
Eskom alone cannot manage the demand and everyone has a part to play to resolve our energy crisis
There is interest from energy consumers looking to access electricity through embedded generation from predominantly renewable energy projects. The interest has ranged from smaller on-site projects to large off-site projects where the electricity will be wheeled across the national electricity grid, from the generating project to wherever the consumer is located in SA.
The energy sector welcomed President Cyril Ramaphosa’s announcement (and the subsequent amendment of the Electricity Regulation Act) to exempt small-scale embedded energy-generation projects of up to 100MW from having to apply for generation licences from the National Energy Regulator of SA (Nersa).
The amendment to the regulatory framework has catalysed a response from many major corporates led, unsurprisingly, by the country’s mining sector and other large energy consumers. Many of these large corporates have unveiled plans for huge energy-generation programmes, with some entities aiming to procure 3GW-5GW within the next five to 10 years.
Given the renewed focus on climate-related issues for a number of corporates, it is also expected that more corporates would look to either develop embedded on-site clean energy sources (behind the meter) where possible, or use wheeling as a source of procuring clean energy.
Nersa’s quick response to registering projects that qualify for the licencing exemption is encouraging. Some of the projects received Nersa registration in a record 19 days. The legislative change took place in October 2021, and since June 7 this year Nersa has approved 217 applications.
Financial institutions have also responded positively to these developments, and we are already seeing aggressive financing terms from the funders, with some closely aligned to Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) style terms. In the corporate & industrial energy space we are also starting to see projects proposing to have multiple power purchase agreements with an aggregate model being established.
Some developed countries also offered their support to SA to help the country’s transition to clean energy. The aim now remains to get the first of these projects completed and to successfully generate much-needed energy that will assist Eskom with the increasing demand and economic recovery after the Covid-19 pandemic.
Generating electricity is only one part of a sustainable energy equation. SA has one of the most complex distribution grids on the continent, and the limitations of that grid are already being revealed through constraints on its ability to carry all the energy now being produced, including the power flowing from the various REIPPP projects.
Though the Northern Cape grid is at capacity, we are now seeing developers exploring other provinces such as North West, Free State and Limpopo, which demonstrates that developers still consider SA to be a key destination for energy investments.
It is evident that grid access is a critical component of rolling out new generation of capacity, and is desperately needed to end the continuous load-shedding in the country. Both private and public sectors are engaging to find a way forward to expand the power grid and accommodate the capacity of new projects, considering also the capacity required to connect REIPPPP bid window 5 and 6 projects, the Risk Mitigation IPP Programme projects, as well as other future programmes and corporate & industrial wheeling projects.
However, to achieve this many of our energy stakeholders must broaden their focus. Targeted private sector investment into grid infrastructure will be key, as will support to municipal generation programmes and organisations with plans to meet the majority of their energy needs themselves. Eskom alone cannot manage the demand. Everyone has a part to play to resolve our energy crisis. During the state of the national address the president also highlighted the government’s need to consider embedded energy generation through net metering and the use of rooftop photovoltaic to ease the pressure on Eskom.
We continue to closely follow the work under way by Eskom and the government to unbundle Eskom into three separate entities focusing on generation, transmission and distribution. This unbundling will result in an independent grid operator that will further enhance the private sector’s investments in the energy sector.
Load-shedding remains a constant concern and the industry estimates it will continue to be a challenge in SA for the next 10—15 years. Renewable energy will be a critical component to help end this crisis, especially when we consider decommissioning of the ageing coal-fired power stations over the next three decades.
We also understand that the government is working to revise the 2019 Integrated Resource Plan (IRP2019) to consider the country's energy requirements, and in future we may see that the bulk of the energy mix will come from renewable energy sources.
• Singh is head of energy finance at Nedbank Corporate & Investment Banking.