Altough government’s decision to allow municipalities to generate their own power is a “breakthrough” it will benefit private investors more than the agricultural sector, says Agri SA’s chairman for economics and trade centre of excellence, Nicol Jansen.
Jansen’s statement to Food For Mzansi follows minister of mineral resources and energy Gwede Mantashe’s announcement of an amendment to electricity regulations on new generation capacity that permit municipalities to generate their own power.
The new regulations were gazetted on Friday, 16 October 2020 to enforce a commitment made by pres. Cyril Ramaphosa during this year’s state of the nation address. Ramaphosa’s vowed that government would enable financially stable municipalities to develop their own power generation projects.
Jansen describes Mantashe’s decision as a “breakthrough” and a “step in the right direction” in managing energy in the future and privatising the generation and the trade of energy.
However, he explains that it will not unlock opportunities for private investors and not the agricultural sector.
“I think the first opportunity that opened in this regard is for private investors that want to invest in energy generating capacity. They could negotiate an offset for that energy to the local municipalities,” he says.
“In terms of the farming sector, I don’t think it will have that of a great effect at this stage. The sector is more interested in generating for own use and to make use of their electricity over a period of a year.”
Jansen notes, however, that the principle is extremely valuable, and should be explored by agriculture. “When you have surplus energy, you can maybe sell it to a next-door farmer, so the principle is very important for the agricultural sector.”
There is a window of opportunity to not be dependent on Eskom. This can be done if a farmer is able to purchase electricity from a neighbour that is generating electricity for personal use.
He adds that in the future farmers could also pay less for electricity than they do now. “On the short term, a lot has to take place in terms of legislation to allow that. So, in future, yes, there is a window of opportunity to not be dependent on Eskom.”
This can be done if a farmer is able to purchase electricity from a neighbour that is generating electricity for personal use.
In a media statement Mantashe says the amendments to the regulations illuminate the system applicable to municipalities when requesting determinations under section 34 of the electricity amendment act.
“This will ensure an orderly development that is in line with the applicable Integrated resource plan and municipal Integrated development plans. Furthermore, the amendments will ensure section 34 determination requests are from municipalities that are in good financial standing with feasible project proposals.”
The department has also put in place an internal standard operating procedure to ensure the requests for section 34 determinations are attended to, in the shortest possible time.
‘Loadshedding harms investor confidence’
Meanwhile some municipalities, including the City of Cape Town, have celebrated Mantashe’s announcement. This after earlier calls on the department of mineral resources and energy to allow them to buy electricity from renewable energy independent power producers (IPPs).
Deidré Baartman, the DA’s Western Cape spokesperson on finance, economic opportunities and tourism, welcomes the news. “The DA has long called on national government to allow municipalities to produce and buy their own power.”
Baartman adds, “Load-shedding has shaken investor confidence and put strain on businesses, particularly SMMEs which are tremendous job-generators. For our economy to be saved, we urgently need uninterrupted power supply.”
The amendments are an important step in ensuring energy security in the province. “The Western Cape has consistently recorded the highest number of municipalities in the country with clean bills of financial health, and these municipalities now have the opportunity to support independent power producers,” she notes.
Still awaiting the final nod
However, Ntombifuthi Ntuli, CEO of the South African Wind Energy Association (SAWEA), a renewable energy industry body, says, “While this amendment to the regulations paves the way for municipalities, with good financial standing, to be able to either develop or obtain their own power-generation capacity from IPPs, which will by and large be renewable energy, the regulation still requires the minister to give the final nod.”
SAWEA believes although the current uptake may be greatly restricted, this decentralised way of procuring power is a step closer to a broader energy transition that the country needs to increase its power generation and the Available Energy Factor, which will sustain local economic activity.
Speaking specifically in relation to the role of the wind energy sector, Ntuli says in the distributed generation space, experts show that distributed generation wind energy projects could be viable at a minimum size of 10MW with a power purchase agreement length of 15 to 20 years.
“This works even better if the smaller projects are built alongside other big projects and they source turbines simultaneously to minimise costs. The opportunity for IPPs to pair up smaller and bigger wind projects will be easier once the renewable energy independent power producer procurement programmes gets under way again.”