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Cutting red tape could solve SA’s power crisis immediately, report finds

Deregulation and restructuring to facilitate private sector participation and competition within the generation sector will ensure more energy security

Cape Town – A newly released report by Meridian Economics indicates that cutting through the red tape could solve South Africa’s power crisis. The report enlisted six key items that South Africa can do in the immediate term to solve its power crisis. In 2020 South Africa suffered its worst power outages in more than a decade resulting in an economic recession. The report says South Africa has an immediate opportunity to unlock additional power by cutting the red tape for distributed generation supply options in the residential, commercial, agricultural, industrial and mining sectors. 

The requirement to obtain a NERSA generation licence to gain market access (which often includes the need for a prior Ministerial approval) has discouraged new investment in generation projects and protected the monopoly of the incumbents, thereby contributing to capacity shortages and load shedding, the report says. 

Cutting Through Red Tape: A Shortcut to Solving South Africa’s Power Crisis

These are the six items the report listed:

  • Define generation for “own use” in Schedule 2 of the ERA and exempt these projects from market access licensing even if grid-connected, regardless of their size
  • Lift the licence exemption threshold for all other grid-connected projects from 1MW to at least 50MW
  • Simplify and fast track the registration of licence exempt projects (between 100kW and 50MW) by setting up an appropriate online portal to instantly process applications
  • For all projects greater than 50MW, establish an efficient online process for the submission of relevant documents and approvals for generation licence applications.
  • Require NERSA to publish a register of all licences issued on their website adding all new applications within a week of receipt, updating the status of these applications as received, awarded or refused and providing reason for refusal.
  • Exempt battery storage projects from market access registration or licensing, to bring clarity to the regulatory requirements for battery storage.

Without interventions to accelerate current electricity sector investment plans, load shedding is expected to persist until at least 2025, the authors argue. The report further emphasised that implementation of these recommendations do not require new primary legislation and can be implemented rapidly by gazetting new regulations as allowed for in the ERA 4 of 2006 and streamlining rules and processes at Nersa, the report adds.

Renewable disrupting centralised energy systems

With the acceleration of the global energy transition, the cost of renewable energy and storage is deflating. The centralised megaproject business model is being disrupted by the decentralised nature of renewables, combined with an escalating global fossil fuel divestment. The procurement of new build capacity under the Risk Mitigation Independent Power Producer Procurement Programme (RMIPPPP) and other centralised procurement strategies (REIPPPP) are not enough to address South Africa’s critical energy supply gaps. South Africa needs to do more, faster but outdated regulatory paradigms are stumbling blocks to rapidly restoring security of supply, the report says.

Deregulation and restructuring to facilitate private sector participation and competition within the generation sector will ensure more energy security, the authors say.

Government keen to retain the Eskom monopoly 

Speaking during the South Africa Investment Conference on November 17, the South Africa minister of energy, Gwede Mantashe said the idea of deregulating self-generation will throw the country in chaos in the event that the power systems want to wheel excess power into the national grid. 

“There is a new debate now that we should just deregulate self-generation. Our argument is that, if we do, we are going to throw ourselves under the bus and have chaos in the country. We must continue regulating, they must have licences, because when they generate extra, they want to access transmission and we don’t want to allow chaos on the transmission lines of the country,” said Mantashe. 

It remains to be seen whether the government will give in to suggestions of cutting red tape and deregulating. The Electricity Regulation Act (4 of 2006) gives the Minister of the Department of Minerals and Energy powers to rapidly change the capacity threshold for projects that need a generation licence.

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