Submission on the Draft Regulations Amending the Electricity Regulations on New Generation Capacity
By African Climate Reality Project & Project 90 by 2030
Director-General of the Department of Mineral Resources and Energy
192 Visagie Street
By email: Thembeka.firstname.lastname@example.org
Deputy Director General
Mr Jacob Mbele
Department of Mineral Resources & Energy
By email: NewGenRegs2020@energy.gov.za
4 June 2020
SUBMISSION TO THE DEPARTMENT OF MINERAL RESOURCES AND ENERGY REGARDING DRAFT REGULATIONS AMENDING THE ELECTRICITY REGULATIONS ON NEW GENERATION CAPACITY, 2011
Under the leadership of Food & Trees for Africa, the African Climate Reality Project (ACRP) is the African chapter of former US Vice President Al Gore’s Climate Reality Project. Through its network of trained Africa Climate Leaders representing diverse constituencies (government, NGOs, youth, media, and scientists), ACRP’s aim is to spread awareness, and in doing so, mobilise communities across Africa to take action and find solutions to climate change.
Project 90 by 2030 is a social and environmental justice organisation inspiring and mobilising society towards a sustainably developed and equitable low carbon future. Our priorities are inspiring and mobilising young climate informed leaders and strengthening both community leaders and civil society collaborations working towards a just energy transition.
In this joint submission we address some context and overall concerns before providing comments on the specific amendments. Unless stated otherwise, terms are used as per the 2016  amendments to the new capacity generation regulation definitions of 2011. We further use draft definition amendments  of 4 May 2020 for “Minister” and “sound financial standing”.
1. Overall Comments
Both Project 90 by 2030 and ACRP welcome the proposed amendments to the regulations, as acknowledgement of the important role of municipalities in developing or procuring their own power generation. While the draft regulations may be a step towards decentralised, low-carbon energy production, the length of time taken to make minor adjustments to the regulations with detail lacking in key areas is concerning. The regulations are also not very empowering but rather restrictive and rigid, raising a number of questions and concerns that need to be addressed and clarified.
1.1 Electricity landscape and role of municipalities
The amendments to the regulations must be viewed in the context of the electricity system in South Africa, and the economic circumstances. There is still a large task at hand to provide affordable and accessible electricity to the entire population. Many of the communities that lack electricity will likely be best served via off-grid solutions, and at this level municipalities may be best placed to help determine which solution best meets the needs of the people . For grid based electricity, while Eskom may remain responsible for the majority of transmission of electricity, the generators of electricity are diversifying, and at this utility scale, municipalities should have an expanded role to play.
1.1.1 Utility scale electricity supply
For a long time, municipalities have been involved in the distribution of electricity bought from Eskom. However, as more options of generators become available through Independent Power Producers (IPPs) and other providers, the ability of municipalities to deal directly with IPPs becomes important, and is within the domain of these new generation capacity regulations.
A primary consideration is the ever present danger of load shedding from Eskom. Due to COVID-19, economic activity has drastically reduced, which has in turn significantly reduced electricity demand. Despite this, while the country was still at level 4 lockdown in May, Eskom still could not cope – issuing a warning on 27th May 2020 that the power system is under severe pressure . Before the national lockdown, load shedding had reached the point where Eskom had plans in place for a possible stage 8 (or 8000 MW deficit) . Since then, Camden power station has closed due to potential ash dam collapse , and Kendal power station has been shut down due to violations of air quality . As South Africa tries to recover from the initial COVID-19 effects, the increase in economic activity will require reliable electricity, and yet load shedding risk seems to be higher than ever.
The writing has been on the wall for a long time that South Africa must move away from the virtual monopoly of Eskom for electricity provision, and so the introduction of alternative electricity generators (and the associated system of procurement) should be done in a way that reduces bureaucratic delays and red tape. This is not to say that it should not be managed, but the process must be logical and efficient as the situation is urgent. Therefore municipalities must be allowed to build electricity generation facilities or buy electricity capacity from non-Eskom generators as soon as possible via a suitable framework. This will not only help them ensure a secure supply to their districts, but will reduce demand on Eskom which is clearly struggling to meet demand, and the situation at Eskom continues to deteriorate.
1.1.2 Transition to low carbon electricity
Burning fossil fuels remains the major contributor toward South Africa’s greenhouse gas emissions, with our country remaining the 14th largest emitter globally in 2018, and the largest on the African continent . It has become common cause that South Africa must shift to low carbon sources for electricity generation – for climate change, health, and economic reasons. This imperative to decarbonise means excluding coal from new generation capacity sources, with focus on wind and solar – which are now the cheapest utility scale electricity sources in South Africa. The electricity provided by Eskom is almost entirely from coal fired power stations, so empowering municipalities to source their own low carbon electricity is an important part of a just transition – both in the source of electricity and by municipalities being able to take ownership in decision making. Here again, municipalities are well placed to determine which of the available electricity sources provide the best solution to their needs. As part of integrated development planning, municipalities can work with potential developers to determine the optimal generation facilities to construct or buy electricity from.
We have seen that the national renewable energy (RE) programme has been stalled since July 2016 when Eskom refused to buy power from Redstone Solar . The process has never properly recovered since then, despite promises from various government officials to remove obstacles. Although the programme received international recognition and resulted in rapid RE price decreases, the programme seems to have been targeted by vested interests in the energy sector wanting to maintain the status quo at Eskom and the dominance of coal. Hopefully, this is finally starting to change with the recent draft Ministerial determination for 6 800 MW to be procured from wind and solar between 2022 and 2024 , but if we are to learn from the past four years, the lesson is that we will need additional players that can buy from RE generators if we are to have a genuine energy transition. This is why it is urgent to have a system that promotes the independent uptake of low carbon electricity from RE sources by municipalities.
1.1.3 Reduced reliance on Eskom’s coal fleet
As municipalities start to source their own electricity, Eskom can factor this supply into how they manage and maintain their aging coal power stations. In the short to medium term, the establishment of additional capacity by municipalities should help reduce the risk of loadshedding, as Eskom has indicated this is likely to happen until August 2021 . Since this warning from Eskom, the situation has become more dire (see section 1.1.1). In the longer term, the increase in RE electricity sources in addition to those that Eskom will procure, will mean that the rate of decommissioning of the coal fleet can increase. This must be coupled with a flexible just transition plan and updates to the Integrated Resource Plan (IRP) as discussed below. A more rapid decommissioning of coal fired power stations will assist in meeting climate change obligations, reduce air and water pollution, and decrease the need for Eskom to spend money keeping the older power stations going .
A further consideration is that the ability for Eskom to access international climate finance, via a “Just Energy Transition transaction” which is now part of their strategy to strengthen their balance sheet , has increased the rate of coal phase out as a condition . In other words, this is another reason why a faster rate of decommissioning could help Eskom’s financial crisis.
2. Comments on the proposed amendments to regulation 3
The amendment to regulation 3 extends the objectives of all the new generation capacity regulations “to permit a municipality to apply to the Minister to establish new generation capacity”.
This amendment raises two key concerns, namely: 1) clarification on what “establish new generation capacity” means; and 2) whether municipalities require permission from the Minister to build or buy generation capacity.
2.1 To “establish new generation capacity”must cover buying and building
The meaning of “establish new generation capacity” lacks clarity on whether this entails buying from IPPs, municipalities building their own generation capacity, self-generation of power by municipal customers, or all three. While a definition for “new generation capacity” was updated in the 2016 amendments, we still find it unclear as to what is meant by “establish”. To avoid ambiguity this should be explained. Our recommendation is that regulations must allow for municipalities to:
● buy electricity from IPPs or any other available source (including municipal customers)
● build their own electricity generation capacity
For both buying or building, the electricity or source must be sustainable in terms of cost, carbon emissions, water use, and other pollution.
For the remainder of this submission, we use the word ‘establish’, in reference to electricity capacity, to mean either the buying of electricity or the building of electricity generation facilities.
2.2 The involvement of the Minister is not required at the level of individual applications
We disagree that applications should go to the Minister for a variety of reasons, as outlined below:
In line with their constitutional mandate and statutory responsibilities , municipalities should be free to procure or generate electricity in order to provide citizens with a secure electricity supply. Based on the Municipal Systems Act , municipalities’ have a constitutional right to govern, on their own initiative, the local government affairs of the local community. In doing so, municipalities are responsible for providing essential services to local communities in an equitable, financially, and sustainable manner. At the local level, government is much closer to the people and in this way, is best suited to address local needs and services. They also have a responsibility to promote a safe and healthy environment in the municipality . In this regard, local governments have a critical role to play in protecting human health and the environment by encouraging the transition from “harmful fossil fuel-based electricity to renewable (solar and wind) electricity” .
In its recent court case, the City of Cape Town, represented by the Centre for the Environmental Rights  argues that it has a constitutional duty to provide its citizens with affordable, accessible, and clean electricity that does not lead to water or air pollution, or exacerbate South Africa’s contribution to climate change. In its arguments, the City also highlighted that there are no laws specifically preventing municipalities from buying electricity without the Minister’s permission. Furthermore, the Centre for Environmental Rights  put forth the argument that Section 34 of the Energy Regulation Act  does not prohibit local government from purchasing or developing their own electricity capacity.
Continued centralisation of decision-making when it comes to local level energy generation will remain a barrier to progress, as it prevents municipalities from fulfilling their constitutional obligations. In order to encourage municipalities to procure and generate their own energy, the procedure should be less restrictive through simplified licensing and registration requirements.
The domain of the Minister should be at a national level while management at a provincial or municipal level should be done by entities familiar with the unique circumstances in each case. It is unreasonable to expect the Minister to have enough knowledge of every municipality in the country to know if their application is suitable. We believe it is not logical for all of these decisions to be made at Ministerial level and would also result in unnecessary delays  at a time when we need the process to be as efficient as possible. We suggest that the Minister authorise a system that allows the appropriate people and organisations with the required technical knowledge at the municipal level to fulfill their roles efficiently.
We propose that the following features need to be included in a basic management framework to facilitate independent uptake of renewable energy by municipalities:
● There should be regular consultation between municipalities and the appropriate divisions within Eskom dealing with supply and demand, and the system operator (which may become independent from Eskom in the future) as increased electricity capacity established by municipalities will reduce the reliance on Eskom’s power stations.
● There should be regular consultation between municipalities and the DMRE. The establishment of new electricity capacity by municipalities must be included in energy planning documents such as the IRP.
● There should be regular consultation between municipalities and NERSA as the regulator will have a role to play in both issuing licences (which may depend on the capacity of the generation facility) and also ensuring that there are no negative effects on the price of Eskom electricity during this process.
Once such a management framework is set up and approved by the Minister, there should be no need for the Minister to be involved in individual applications. We recognise that the way in which municipalities establish new generation capacity needs to be managed, but that this management should be at the appropriate level.
Municipalities must be empowered to establish their own generation capacity, and as per suggestions in the City of Cape Town Case, this can be achieved through a coordinated, planned, and credible programme. The programme could provide national oversight of the municipal procurement process, but importantly, it must balance the municipal context and requirements with the national supply and demand dynamics.
Furthermore, the National Treasury or the IPP office could be tasked with national oversight and running of the municipal procurement process. As part of the procurement process, the IRP needs to be updated regularly (refer to comments below), specifically to be responsive to the effect that establishment of new capacity by municipalities has on national planning and the reduced amounts that Eskom needs to generate or procure. Municipalities and investors alike would also benefit from the creation of “standardised contracts and processes” through a nationally coordinated programme .
3. Comments on the proposed amendments to regulation 5
The amendment to regulation 5 extends the objectives of applying to the Minister for new generation capacity (sub-regulation 1) so that municipal applications are aligned to the Integrated Resource Plan (IRP), accompanied by a detailed feasibility study (3a), demonstrate sound financial standing of the municipality (3b), and align with the Municipalities’ Integrated Development Plan (3c).
As outlined below, our key concerns and comments with this amendment concentrate on two aspects: 1) the integrated resource plan and 2) sub-regulation 3 (b) which requires municipalities to demonstrate sound financial standing.
As per our comments in section 2, municipalities should not be making applications to the Minister, but rather a framework should be set up to manage the process at the appropriate local level that is in line with national electricity planning.
3.1 Comments on the Integrated Resource Plan (IRP):
At present, the IRP’s modelling still has a cap on RE which is introduced as an input assumption24. As Project 90 by 2030 has pointed out in submissions on the IRP since 2016 , this is not rational, and does not result in a least-cost electricity plan for the country. Many other organisations and academics agree. The IRP must be updated in a logical way that does not force a cap on RE and where all the modelling assumptions and outputs are available to the public (which is not currently the case). This unrestricted scenario will provide a higher allocation of RE capacity (since it is the least cost new build option) that municipalities can participate in. The IRP is intended to be a “living document” that is updated at least every two years. This will provide an opportunity to be responsive to the role municipalities are playing in the demand for new electricity generation capacity, and the contribution of Eskom can be adjusted accordingly. Therefore it is crucial that the IRP is actually updated regularly as intended, and we must learn from the protracted and obfusticated process that ended up taking nine years for the last update (from the IRP 2010 to the IRP 2019).
3.2 Comments on the requirement for municipalities to demonstrate sound financial standing:
Firstly, clarification is needed on whether the definition provided in regulation 1 for “sound financial standing” also refers to Municipalities’ ability to deliver services and maintain infrastructure without significant increases in rates and taxes.
The second concern of limiting applications to those Municipalities with sound financial standing is that more than 90% of municipalities  may not be able to qualify to procure power from IPPs. This requirement of financial standing would further entrench the inequity of electricity access, while what is really required is a system to support municipalities to both improve their financial standing and ability to contribute to electricity supply.
The amendment to regulation 5 as it stands excludes those municipalities which are struggling the most with electricity access, rather than providing a solution that empowers these municipalities.
While the stringent limitations may encourage Municipalities, especially poorly managed ones, to improve their financial and administrative structures in order to comply with the regulations, they are likely to need assistance as do the thousands of people who desperately need electricity.
Energy poverty is very much linked to climate justice issues. For instance, poor and marginalised communities who cannot afford electricity, or are not connected to the national grid, need to burn coal and wood in their homes. Their livelihood activities not only contribute to greenhouse gas emissions, but also cause indoor air pollution and often lead to health issues. Conservative estimates put the death toll as a result of air pollution across South Africa at 54 people a day, and it is estimated that 50% of these deaths are a result of indoor air pollution . In addition, these communities are often surrounded by polluting industries , resulting in a state of toxic air that has recently been coined as an ‘airpocalypse’.
Statistics relating to unelectrified households and energy poverty in two Gauteng municipalities:
In the City of Johannesburg, 10% of residents do not have access to electricity .
Percentage of citizens without electricity access in the City of Johannesburg by region as of 2018:
As of 2016 in the City of Tshwane, 3% of formal households and 48% of informal households did not have access to electricity. This translates to over 100,000 households without energy access, and they are amongst the most marginalised in the City of Tshwane .
Alternative energy sources used by unelectrified households in the City of Tshwane:
● 78% use candles for lighting
● 15% use paraffin for lighting
● 87% use paraffin as the dominant fuel for cooking
● 6% use Liquid Petroleum Gas as an alternative cooking fuel
● 37% use paraffin for space heating
● 24% use wood fire for space heating
● 32% do not use a space heating fuel, potentially due to already high energy costs, which also reduces welfare and increases vulnerability to illness during winter
● Technologies such as solar lamps have less than 5% penetration levels in these households
From the data, it is clear that these Municipalities need assistance to develop their skills, capacities, and governance systems. While it is outside of the scope of the new generation regulations to outline the form that this assistance can take, these regulations must certainly not exclude Municipalities from a process that could improve electricity access and affordability.
With each passing month without progressive moves to improve electricity access (which the municipality should be involved in), the economic risks of load shedding and debt continue to increase. This will continue to cripple the economy, stunt economic growth, and cost workers their jobs .
Our recommendation is that the amendment (section 4, 3b) that requires sound financial standing be removed, but that the amendment on feasibility studies (section 4, 3a) includes a requirement to provide possible methods of finance. This approach would provide municipalities with the necessary support to improve their ability to fund new generation capacity in a way that is currently outside the definition of ‘sound financial standing’. For instance, innovative and tailored finance solutions that are not yet in place could be developed and included in the feasibility study. This would also enable municipalities to start the process of becoming more electricity independent and secure at an earlier date, than if they must first achieve a status of ‘financial soundness’ as per the definition in the amendments. In fact, increased electricity access could assist municipalities that are currently not classified as having sound financial standing to become so by increased economic activity and opportunities.
Supporting municipalities who are not recognised as having sound financial standing, rather than excluding them from the process, is not only about transitioning to low-carbon electricity. Empowering municipalities’ so they are able to access clean, affordable, and reliable energy is fundamental to inclusive development, particularly reducing poverty, reducing air pollution, improving health, promoting economic growth, and reducing inequality between the rich and poor.
The key concerns raised in this submission regarding the amendments include:
1. Municipalities have an important role to play in the energy transition, and the regulations must allow them to either build new electricity generation facilities or buy electricity from other generators such as IPPs and municipal customers. The wording must be clear so it is not ambiguous on what is meant by “establish new generation capacity”.
2. There should be a system to manage this increased role of municipalities, which includes interaction with important players such as DMRE, Eskom and NERSA, but individual applications do not need to go to the Minister.
3. The IRP 2019 still has a cap on RE, and this must be removed in the next update, which will provide a higher overall RE allocation which municipalities can be part of. The IRP must be a ‘living document”, which is regularly updated so that it can react to changes in the energy landscape as we transition to a low carbon electricity system.
4. The requirement for municipalities to be in sound financial standing will exclude a majority of municipalities and in doing so, further entrench existing inequalities in access to electricity. Municipalities need to be supported through a system that improves their financial standing and their access to electricity supply. Our recommendation is to remove the amendment on sound financial standing (section 4, 3b), and rather include a requirement to indicate possible methods of finance, as part of the amendment on feasibility studies (section 4, 3a). Municipalities not in sound financial standing need to be supported not excluded.
We trust that the DMRE will take into account the comments and information provided in this submission when making final revisions to the ERA amendments.
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