“Whilst, historically, South Africa has been heavily reliant on fossil fuels, in the past ten years, the South African government has been investing in renewable energy generation mainly through its Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) in order to diversify its energy mix,” said Bridgett Majola, a banking and finance lawyer who leads the Project Finance division for Energy and Infrastructure at CMS in South Africa.
In August 2020, the government launched the Risk Mitigation Independent Power Producer Procurement Programme in order to urgently bring online approximately 2 000 MW of electricity capacity and reduce reliance on expensive diesel-based peaking open-cycle gas turbines.
As of 2023, about 120 projects had been awarded preferred bidder status and approximately 6 200 MW of installed capacity had come online under the REIPPPP.
In January 2023, the Department of Mineral Resources and Energy amended Schedule 2 of the Electricity Regulation Act, 2006, to remove the cap on capacity to allow for additional embedded generation without the need for a licence from NERSA. This change was aimed at ensuring an increase in investments by the private sector in electricity generation. The commercial and industrial sectors have responded very positively to this, eagerly taking up the opportunity, which also benefits independent power producers.
The Finance Minister also announced a once-off two-year renewable energy incentive. Businesses will be able to reduce their taxable income by 125% of the cost of any investment in renewables made between 1 March 2023 and 1 March 2025.
“The South African Integrated Resources Plan (IRP) is an electricity infrastructure plan which aims to provide an indication of the country’s long term electricity demand, how this demand will be supplied and what it will cost to meet that demand,” explained Majola. “Although IRP 2019 incorporated energy forecasts until the year 2030, the eagerly anticipated revised IRP 2023 released in January 2024 now covers two horizons with the first horizon considering various options for addressing electricity supply shortages to 2030, and the second considering different options for the country’s long term energy needs to 2050. The IRP 2023 has been met with mixed views from energy experts, stemming from its lack of technical detail and a huge focus on large scale investments into gas.”
South Africa’s draft Electricity Regulation Amendment Bill is yet to be finalised by the national legislature, but it seeks to “align the country with the international best practice in energy and provide for the functions of a Transmission System Operator, and for a licensing framework for power generation, transmission, distribution and trading,” explained Majola.
Electricity infrastructure remains a big challenge, making it increasingly difficult to connect new renewable energy projects to the grid.
In response to grid capacity constraints, Eskom published its Transmission Development Plan 2022 (TDP) which is a ten-year plan, outlining how the long-term electricity requirements in South Africa will be met by maintaining the legislated adequacy and reliability of the transmission grid.
“It will take a considerable amount of time to see results from the TDP and the relaxation of the regulatory regime, but it is encouraging to see the South African government and the private sector collaborating to find reliable and cost-effective solutions to addressing the constraints faced by the country in relation to the energy dilemma,” said Majola. “Earlier this year Eskom also announced that it has appointed directors to the board of the National Transmission Company of South Africa which is good progress towards reshaping Eskom and legally separating it into three entities responsible for generation, distribution and transmission. This is the key aspect of Eskom’s turnaround plan.”
The full CMS report on renewable energy in South Africa is available here.
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