What a revolution in SA’s electricity landscape can do for the economy

(Gianluigi Guercia, AFP)
(Gianluigi Guercia, AFP)

Commercial companies, factories and farms in South Africa are fighting for the right to generate their own electricity to keep operating during the rolling blackouts that are threatening their businesses, delaying expansion plans and in some cases forcing them to cut back.

Small-scale embedded generation (SSEG) systems, mainly solar photovoltaic (PV) installations, have already sprung up across the country as companies take steps to ensure stability of power supply and mitigate the prohibitive cost of electricity prices, which have climbed by nearly 400% in the past decade.

But pent-up demand for many more private renewable projects – which would quickly help to address the power shortages hobbling the economy – are being stymmied by red tape and regulations which are both onerous and outdated. 

The constraints are unlikely to ease quickly amid conflicting interests within government, the National Energy Regulator of SA (Nersa) and Eskom.        

“We’re now in a position where we sit watching the unfolding crisis at Eskom and are very aware of the fact that there is a very unclear plan about how that’s going to be resolved and who is going to pay for it,” says Mike Levington, chair of the Green Economy subcommittee at the South African Photovoltaic Industry Association (SAPVIA).

“What business is starting to say is that ‘I now have to take responsibility for my electricity supply’. 

They are seeing that embedded generation is a way in which they can have some control over the operating cost of their business going forward.

”SAPVIA’s programme director, Niveshen Govender, says the industry body has identified 880MW of capacity which could immediately come online from SSEG projects which have already been built by the private sector but are standing idle in the face of the regulatory gridlock.

That exceeds the amount provided by Unit 3 of Eskom’s Kusile power plant, which was synchronised to the grid on 16 April. 

Applications to install another 1?000MW of solar PV are gathering dust at Nersa and Govender estimates another 3?000MW to 4?000MW of capacity is also being constrained.

Put into context, Eskom has 46 292MW of installed capacity, which has to be carefully managed and periodically shut down for maintenance to avoid the kind of recurring national blackouts which paralysed Venezuela in March.

Nearly 4 000MW of the total is renewable energy generated by solar and wind farms built through long-term agreements which Eskom struck during its Renewable Energy Independent Power Producers Programme (REIPPP) between 2011 and 2015.

But that programme, which helped to establish SA as a credible and relatively low-risk renewables market for global investors, was halted by Eskom in 2016, a year after it was forced to impose intensive rolling power cuts, or load shedding.         

Eskom said it would not buy from renewable projects any longer because it had returned to a surplus operating position and could obtain power more cheaply – while setting in motion plans to build a fleet of nuclear plants which would have bankrupted the fiscus.      

That decision quashed a nascent manufacturing industry which had been fostered by mandatory local content requirements in the REIPPP. 

There was an exodus of foreign companies, plants and installation companies were forced to shut down, and thousands of jobs were shed.

“The renewables industry was left hanging as there were no pipeline projects – it affected the whole value chain,” says Viren Gosai, general manager of ARTsolar, a locally owned solar PV manufacturer. 

“In order to survive we had to retrench most of our staff and then focus on the private sector.”

But the tables have turned with the spectacular plunge in the cost of renewable energy over the past few years, which has made solar PV an attractive and viable option for many small- and medium-sized businesses to help keep operating costs in check and ensure secure power supply.

“We’ve seen a massive spike in demand. We’re incredibly busy and are investing in more capital equipment,” says Gosai. 

Other solar PV companies in the country tell a similar story.

“We see a major energy user requesting solar every week,” says Chris Haw, director at Aurora Group SOLA Future Energy. 

“What we are finding is that the initial market started from commercial properties like shopping malls and retail centres and is now starting to move on towards more industrial projects.”

Municipalities are alarmed by what business is describing as “grid defection” and many are lobbying the government for the right to either buy electricity from independent producers themselves or to generate their own power to sell directly to their customers.  

“Relying on Eskom means relying on an old model which is not sustainable anymore,” says Nhlanhla Ngidi, head of energy and electricity for the South African Local Government Association (Salga).

“That is why our position at Salga is that the municipalities must be able to take advantage of the new opportunities to develop their own generation plants, to have their own small-scale embedded generation programmes and also to buy from private producers who have prices which are cheaper than those of Eskom.”

There is mounting pressure for SA to move towards a decentralised electricity model adopted by a growing number of countries in which independent power producers sell their excess capacity into the grid and in some cases ‘wheel’ it across the network directly to their own customers.

Eskom could charge a “delivery fee” to enable the utility to maintain and operate the network and customers would be able to benefit from more efficient pricing of power and the newest technology.

Plans by government to break Eskom up into three entities dealing with generation, transmission and distribution are seen as a step in that direction, but there is great resistance to the idea, particularly from unions.          

Estimates for the extent of existing SSEG capacity vary, with the Council for Scientific and Industrial Research (CSIR) putting it at between 200MW and 300MW in a recent report. 

Govender thinks the real number is “much larger” and said that SAPVIA had hired a company to investigate.

The problem is that applications for projects larger than 1MW cannot go ahead, because under amendments to Schedule 2 of the Electricity Regulation Act published in November 2017, they must have an allocation within the national Integrated Resource Plan for Electricity (IRP) – which dates back to 2010.

As there is no mention of embedded generation in the IRP, the planned project must get permission from the minister of energy and a full generation licence from Nersa, following the same process as that required from a large Eskom power station.  

No licence is required for an installation under 1MW, which would meet the needs of many office buildings, factories and farms. 

But those projects must still register with Nersa and that process has also stalled.

The department of energy (DOE) recently provided Nersa with updated amendments to Schedule 2, but they must be approved by the regulator ahead of a 30-day public consultation period.

When that process is concluded, the new regulations must be signed by the minister of energy – who may be replaced after the 8?May elections.  

“We’re all waiting for the changes in the legislation and it’s really sad that it’s taking so long and holding up such a huge part of the industry which could be creating a lot more jobs, and could be encouraging local manufacturing of equipment,” Haw says. 

“There’s not enough scale at the moment to justify local manufacturing of equipment.”

Shaun Nel, project director at the Energy Intensive Users Group of Southern Africa, says small-scale embedded generation has an important role to play because it would allow more of Eskom’s baseload power to be diverted to heavy industry.  

“Our view is that the market should be opened up so that people can generate power for themselves and put it into the grid – that’ll free up some of the capacity constraints that Eskom is having. Our only concern is that grid stability remains safe, that we don’t have energy flooding in and causing problems.”

Some of SA’s mining companies have begun installing solar PV to cut their energy costs and meet international carbon disclosure requirements.

But Sven Lunsche, vice-president of corporate affairs at Gold Fields, says the miner had revised the scope of a planned 40MW solar PV project at its South Deep gold mine down to 10MW because of changes in regulations around own generation.     

The industry needs the new IRP to move forward. 

The plan was supposed to have been updated every two years, incorporating the latest assumptions for the economy, revised demand forecasts, the status and timing of new capacity coming on to Eskom’s grid and the latest generation technology costs.  

Several attempts to update the IRP in the past few years collapsed. 

The latest version, the updated Draft IRP 2019, has been through a public participation process and was submitted to the National Economic Development and Labour Council (Nedlac) for discussion in March.

For the first time the plan incorporates “distributed” or embedded generation and instead of quantifying an allocation for the category between 2019 and 2022, the updated draft says it will be “allocated to the extent of the short-term capacity and energy gap”.

Between 2023 and 2030 distributed generation has an annual allocation of 500MW, but with no total given for those years. 

“This speaks volumes, and indicates that embedded, distributed generation and the customer form a most critical part of the solution to meeting the electricity supply needs of the future,” says energy analyst Chris Yelland.

The draft acknowledges that public inputs suggested that the allocation for embedded generation had to be increased, saying the DOE was “inundated” with requests from companies, municipalities and private individuals for deviation from the existing IRP to allow Nersa to approve their application for a generation licence.   

The draft also shows that the generation of coal-fired power is expected to fall sharply between now and 2030 while the contribution of solar PV and wind will increase substantially. 

Nuclear capacity is also expected to decline.From Eskom’s perspective, allowing customers to put up their own energy supply sources is positive in the short term as it will ease the pressure on its  infrastructure and does not require state funding. 

But in the long term, it poses a threat to the cash-strapped utility’s revenues, which are already being eroded by efficiency gains and the exodus of good paying customers.   

“Eskom accepts that SSEG is a global trend, and South Africa is no exception. SSEG poses both a threat and an opportunity to traditional utilities,” says Andrew Etzinger, Eskom’s acting head of generation. 

“In Eskom’s case we have installed a number of such opportunities at our own sites, and are actively tracking and evaluating opportunities.”  

One of the biggest obstacles to a shift from coal to renewable energy in SA is the perception that it will lead to massive job losses at Eskom and at coal mines. 

But energy analyst Tobias Bischoff-Niemz, former chief engineer at Eskom, says that there would be 30% more jobs in a fleet of solar PV and windfarms than an energy equivalent coal fleet.

In a recent column, he pointed out that an in-depth study published by the US department of energy showed that the solar PV and wind industries in America employed 475 000 people in 2018 compared with 240 000 in the nuclear and coal sectors combined. 

“That figure becomes all the more impressive when one considers that wind and solar PV are still supplying only 10% of America’s electricity demand, against 60% of nuclear and coal plants.”

According to the CSIR, the REIPPP generated 35?000 jobs for South Africans and attracted R201.8bn of investment, a quarter of which was foreign.

Mariam Isa is a freelance journalist who came to SA in 2000 as chief financial correspondent for Reuters news agency after working in the Middle East, the UK and Sweden, covering topics ranging from war to oil, as well as politics and economics. She joined Business Day as economics editor in 2007 and left in 2014 to write on a wider range of subjects for several publications in SA and in the UK.

This article originally appeared in the 23 April edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.

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