Generation of electricity for self-consumption in South Africa – has the time finally come?

published on 15th June 2020

​The regulatory framework for power plants used for the generation of electricity for self-consumption has improved significantly in recent months. This means great potential for German companies and thus it is recommended that they enter the market fast.

With its large renewable energy resources and rapidly rising electricity prices, South Africa offers excellent conditions for the generation of electricity for self-consumption. The question therefore arises as to why more companies are not using power plants for the generation of electricity for self-consumption. In many cases, the reason for this lies in the regulatory obstacles, in particular the difficulties in obtaining an electricity licence.

In principle, according to section 7 of the Electricity Regulation Act 4 of 2006 („ERA”), such a licence is required for any type of a generation facility. However, Schedule 2 of the ERA provides for certain exceptions. The criteria for these exceptions have been repeatedly reformed in recent years, most recently in March this year. The reason why these exceptions are so important for the self-consumption market is that until recently it was almost impossible to obtain an electricity licence.

The regulatory framework for power plants used for the generation of electricity for self-consumption has been improved in several steps. The first step was the allocation of 4,000 MW to power plants used for the generation of electricity for self-consumption within the framework of the national electricity development plan, which, among other things, defines the energy mix until 2030 („IRP 2019”).

This is the first time that an IRP has allocated MW for the generation of electricity for self-consumption and this means that the hurdle of obtaining the electricity licence (allocation as part of the IRP) has been removed.

In the second step, grid-connected power plants of up to 1 MW used for the generation of electricity for self-consumption and off-grid power plants used for the generation of electricity for self-consumption (irrespective of their MW capacity) were exempted from the requirement of obtaining an electricity licence by way of an amendment to the ERA. The amendment to the law is currently criticised mainly because there was great hope that the limit for grid-connected power plants would be raised from 1 MW to 10 MW. This criticism is understandable, as the increase in the MW limit is desirable in order to promote the market for the generation of electricity for self-consumption on a larger scale. Nonetheless, the very positive change regarding off-grid power plants goes lost amid all the criticism. The exemption from the requirement of obtaining an electricity licence without any MW limit and, unlike in grid-connected power plants, even without any obligation to register the power plant, is astonishing and very welcome. It is to be expected that this exemption will be used in particular by mining companies in South Africa, as this sector vehemently fought for the possibility of generating electricity for self-consumption.

Generating electricity for self-consumption is important for the industry in South Africa for it to free itself from the continuously steeply rising electricity prices and the ongoing power cuts („load shedding”). Load shedding means planned power cuts in specific areas of the country on a rotating basis with the aim of avoiding a total power failure. According to latest reports and expert opinions, load shedding will continue for at least another 2 to 5 years.
 

Conclusion

The regulatory framework for the generation of electricity for self-consumption has improved significantly. German companies should now position themselves in South Africa, as the mining sector, in particular, will soon be making use of the possibility of generating electricity for self-consumption.