The National Energy Regulator of South Africa (Nersa) invites comment on the concurrence with two ministerial determinations for the procurement of new energy generation capacity in South Africa.
On Wednesday 18 March 2020, the regulator published two consultation papers: the first, “Concurrence with the Ministerial Determination on the procurement of new generation capacity from the range of energy technologies” in respect of 2000 MW and for which the closing date for comments is 14 April 2020 (herein “Consultation Paper 1”); and the second, “Concurrence with the Ministerial Determination on the procurement of new generation capacity from Renewables (Wind and Photovoltaic), Storage, Gas and Coal technologies” in respect of 11 813 MW and for which the closing date for comments is 7 May 2020 (herein “Consultation Paper 2”). These consultation papers can be found at http://nersa.org.za/consultation-notices-2/.
This article provides key information on the background and implications of these consultation papers.
In its Request for Information (RFI) in respect of the Design of a Risk Mitigation Power Procurement Programme, published in December 2019, the Department of Mineral Resources and Energy (DMRE) observes that while the Integrated Resource Plan of 2019 (IRP2019), which was published in October 2019, indicated that there was a short-term electricity supply gap of approximately 2000 MW, Eskom had more recently updated this figure to 3000 MW. Eskom and the Council for Scientific and Industrial Research (CSIR) have, however, subsequently indicated that the shortfall may be closer to 7000 MW.
For South African households and industry, this means being exposed rolling power interruptions which stifle economic activity and undermine overall wellbeing. Coupled with the human and economic impact of the COVID-19 pandemic, the need for a long-term electricity supply solution for South Africa has now become urgent. The DMRE published the RFI to identify solutions to South Africa’s electricity supply shortfall with the shortest lead times to produce first power.
In the short term, supply and demand-side interventions will have to be deployed to minimise the risk of load shedding and the excessive use of diesel-powered peaking plants. It is also material that approximately 24 100 MW, currently supplied from older coal-fired power plants, will need to be sourced from new generation as these power plants may be decommissioned within the next twenty years.
On 21 February 2020, Gwede Mantashe, the minister responsible for the DMRE, sent two draft ministerial determinations (the Proposed Determinations), prepared in accordance with section 34 of the Electricity Regulation Act, to Nersa. In accordance with the ruling in the 2017 Western Cape High Court case, “Earthlife Africa Johannesburg and Another vs. the Minister of Energy and Others”, Nersa must base its concurrence with the Proposed Determinations on adequate public participation and consultation. For this reason, the regulator has published Consultation Papers 1 and 2. Nersa has, however, not disclosed the Proposed Determinations to the public.
Consultation Paper 1
In Consultation Paper 1, Nersa invites public comment on whether it should concur with the Minister’s determination on the procurement of 2000 MW of new generation capacity. The Proposed Determination seeks to address the ongoing load shedding challenges in the country by procuring 2000 MW from a range of electricity-generating technologies, for the period to 2022, as per Table 5 of the IRP2019. The capacity limit was adopted to deploy practical options to close the gap in the immediate term and minimise the risk of load shedding and/or extensive usage of diesel-powered peaking plants.
Under this Proposed Determination, Eskom is designated as the buyer of the electricity produced, and DMRE is designated as the procurer. It appears that the Proposed Determination contemplates that all this power will be procured from independent power producers (IPPs).
Deadline for public comment on Consultation Paper 1
The deadline for public comment is set at 14 April 2020. Overall, the regulator indicates that it will take 60 working days for it to provide its concurrence on the 2000 MW Proposed Determination. This is on the basis of a fast-tracked concurrence process which will only take into consideration written comments from stakeholders and will not have a public hearing where presentations may be made by interested or affected parties. Arguably, even in its truncated form, Nersa’s process does not take into account the fact South Africa has an electricity supply emergency.
Consultation Paper 1 has been framed in an unusual way.
In Consultation Paper 2, as in Consultation Paper 1, Nersa sets out specific questions and invites stakeholders to provide inputs in respect of these specific questions, among other comments they may have. This seems to suggest that stakeholders are required to prioritise their inputs regarding those questions specifically instead of providing their general views and comments on the Proposed Determinations. While this is unusual, there is nothing in law to prevent Nersa from providing guidance regarding public responses on key issues. However, bearing in mind that the IRP2019 was itself the product of an extensive public consultation process, some of the regulator’s questions appear duplicative.
We would assume that the answers to some of the questions included in the Consultation Papers can be derived from the RFI responses. It appears to us that, assuming it had access to the RFI responses, Nersa has chosen not to rely on them and is instead seeking the answers directly from the public prior to concurring with the Minister.
Consultation Paper 2
In Consultation Paper 2, Nersa invites public comment on whether it should concur with the Minister’s determination on the procurement of 11 813 MW of new generation capacity, split into:
- 6800 MW from renewable energy sources (photovoltaic and wind), which represents the capacity allocated under the headings “PV” and “Wind”, for the years 2022 to 2024 in Table 5 of the IRP 2019;
- 513 MW from energy storage sources, which represents the capacity allocated under the heading “Storage”, for the year 2022 in Table 5 of the IRP 2019. It should be noted that storage is defined widely and means a complete electric storage system which could be connected to the national grid. It comprises of two major subcomponents: Storage and the necessary electronics for power conversion. It mediates between variable sources and variable loads. Consultation Paper 2 lists storage technologies as battery storage, compressed-air energy storage, flywheel energy storage, and hydrogen fuel cells, amongst others;
- 3000 MW from gas sources, which represents the capacity allocated under the heading “Gas and Diesel”, for the years 2024 to 2027 in Table 5 of the IRP 2019. Here it should be noted that the origin or type of gas is not specified and arguably the responses from the RFI and public comments will inform the decision taken by the DMRE and Nersa in this regard;
- 1500 MW to be generated from coal, which represents the capacity allocated under the heading “Coal”, for the years 2023 to 2027 in Table 5 of the IRP 2019. It is unclear if the power allocated to coal will be procured under a second round of the Coal Baseload IPP Procurement Programme, but we assume that this will, in fact, be the case, due to the fact that the tendering procedure shall constitute IPP procurement programmes as contemplated in the Regulations.
The capacity limit was adopted to deploy practical options to close the gap in the short and medium-term and to minimise the risk of load shedding and/or extensive usage of diesel-powered peaking plants. Due to the expected decommissioning of approximately 24 100 MW of coal-fired power stations in the period beyond 2030 to 2050, Nersa suggests that attention be given to the method to be adopted regarding the mix and preparation work necessary to execute the retirement and replacement of these coal-fired power plants.
Under this Proposed Determination, Eskom is also designated as the buyer of the electricity produced, and DMRE is designated as the procurer. It appears that this Proposed Determination also contemplates that all this power will be procured from IPPs.
Deadline for public comment on Consultation Paper 2
The deadline for public comment for Consultation Paper 2 is set for 7 May 2020. The regulator indicates that it will take 120 working days for it to provide its concurrence on the 11 813 MW Proposed Determination.
In our view, the law gives dispensation for Nersa to attenuate the public consultation process in relation to this Proposed Determination also, on the basis of SA’s electricity supply emergency.
As is the case in Consultation Paper 1, the regulator poses a series of questions in Consultation Paper 2, which the public is invited to answer. We have similar observations in this regard. The number of questions raised by the regulator is far greater in Consultation Paper 2 as they relate to each generation technology. Again, Nersa’s questions appear duplicative in light of the extensive consultation process followed in the preparation of IRP2019.
The process to follow
There will be no hearings in relation to Consultation Paper 1.
Once NERSA has received comments from the public in relation to the Consultation Paper 2, it will announce the date of the hearings in respect of that consultation paper. We understand that these hearings will be held in camera in light of the COVID-19 pandemic.
Nersa will collate the comments received in relation to each consultation paper and take these into account when making its decision on whether or not to concur with the Proposed Determinations. Examining the timetable provided, in relation to the Consultation Paper 1, the regulator will most likely indicate its decision in approximately 40 working days from 18 March 2020, i.e. on or about 19 May 2020; and in relation to Consultation Paper 2, the regulator will probably indicate its decision in approximately 90 working days from 18 March 2020, i.e. on or about 29 July 2020. We question whether this timetable truly reflects the urgency of the need for solutions to South Africa’s electricity generation shortfall.
We trust that the preparation of the requests for qualifications and or proposals under the resulting IPP procurement programmes will be prepared concurrently to avoid time slippage once Nersa has concurred with the Minister.
Should the regulator decline its concurrence with the Minister, the process would need to start afresh, with DMRE producing new draft determinations for concurrence by Nersa. The resulting delay would, in our view, leave South Africa in an undesirable position.
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