The National Energy Regulator of South Africa (NERSA) has approved the first 100MW renewable power generation projects in the private market. The two projects to receive the NERSA approval are 100MW solar PV projects in the North West province that are being developed, financed, constructed and operated by the Sola Group and its partners.
In a statement, the Sola Group says following the landmark regulatory change announced by president Cyril Ramaphosa in August 2021, where Schedule 2 of the Electricity Regulation Act was amended to extend the limit over which a private power project must apply for a generation licence, from 1MW to 100MW, the first 100MW projects have now been formally registered with NERSA.
The regulation was significant in that the registration process is faster and less onerous than applying for a generation licence, which was previously the requirement, the company statement says.
The move comes as South Africa is facing a heightened energy crisis as the state-owned utility, which produces the majority of the country’s power needs, continues to struggle to keep the lights on. Over the years, this has led to crippling bouts of load-shedding, thereby putting South Africa’s economy as well as energy security at risk.
Poor maintenance of power plants and the ageing coal-fired electricity plants have frequently been blamed for the challenges that Eskom faces. In a statement issued recently, the beleaguered power utility said, “due to the continued shortage of generation capacity, further load-shedding will be implemented”, which we can expect will continue through winter.
Amid the crisis at Eskom, government is making steady progress in introducing renewable energy sources into the national grid. Cities such as Cape Town have also announced bold moves to wean themselves from Eskom by moving to procure their own energy, mostly from renewable energy independent power producers (IPPs).
“The significance of this first move is that it will pave the way for many more large-scale private projects to receive approvals to be able to contribute generation capacity to the grid,” says Dom Wills, CEO of Sola Group. “Further, this is a clear signal to the market that private power is achievable and there are private funders that are excited to finance this market.”
Sola’s largest shareholder and equity partner in the projects is African Rainbow Energy, whose CEO Brian Dames says: “At the recent South Africa Investment Conference, African Rainbow Energy committed to invest R3 billion in the economy. These projects are starting to realise this commitment as well as African Rainbow Energy’s commitment to use new technology to provide large-scale clean power solutions for the economy.”
The projects have also received significant assistance from the presidency, which is keen to see the impact of the new legislation, says Sola Group.
“The raising of the licensing threshold has unlocked a massive pipeline of investment. To fast-track these projects, we have established a joint task team between government and industry, which meets weekly to remove many of the constraints. All of this is important to help alleviate the shortage in electricity supply,” comments Rudi Dicks from the Presidency.
Following this registration, the expected financial close of these projects is in July, following which the projects will require a construction period of 14 months in order to reach commercial operation date.
The projects have an expected lifetime of 30 years.
According to Sola Group, the projects are also making use of the electricity wheeling framework, enabled by Eskom.
Under this mechanism, the energy can be produced by an IPP in one Eskom-connected area and sold to its client in other Eskom-connected areas. Eskom charges a wheeling fee in order to facilitate this bilateral energy trade.
“The advantage of the wheeling framework is that it allows perfect solar regions to be developed and used to provide power to perfect industrial and mining regions,” says Wills. “A perfect solar region is a flat area, with high solar resource, very little environmental or social impact, uncomplicated underground conditions and has access to a strong grid node with good power evacuation potential.”
The company believes large-scale bilateral energy trading is the first step in South Africa’s plan to ultimately open up the grid to allow more flexible electricity trading. It notes that draft legislation has been released which signals the intent to have a consolidated central purchasing agency allowing electricity traders to sell energy using the grid as a conduit.
Responding to the existing and proposed changes in the legislation, Wills expresses his company’s support for changed regulations that raised the licensing threshold for new generation projects to 100MW. “I hope that we can develop and build fast enough. Scale and speed is key.”