On 7 July 2020, the determination issued by the Minister of Mineral Resources and Energy (“the Minister”), in consultation with the National Energy Regulator of South Africa, under section 34(1) of the Electricity Regulation Act 4 of 2006 ("the Ministerial Determination"), was published in the Government Gazette. The Ministerial Determination allows for 2,000 MW of electricity to be procured from a range of energy source technologies such as biomass, landfill waste, co-generation (the simultaneous generation of electricity and thermal energy, otherwise known as “combined heat and power”), distributed/embedded generation and other energy sources that fall under the heading “Other” in Table 5 of the 2019 Integrated Resource Plan for Electricity (“the 2019 IRP”) from now until 2022.
The publication of the Ministerial Determination comes after both the Minister and President Cyril Ramaphosa have emphasized the need for further new generation capacity to contribute towards strengthening energy security in the country. The Ministerial Determination provides that the electricity produced from the new generation capacity shall be procured through one or more tendering procedures which are fair, equitable, transparent, competitive and cost-effective and shall constitute independent power producer ("IPP") procurement programmes as contemplated in the Electricity Regulations on New Generation Capacity, similar to those followed under the Renewable Energy Independent Power Producer Procurement Programme (“REIPPPP”).
As was also the case under the REIPPPP, the Ministerial Determination provides that:
- the Department of Mineral Resources and Energy (“the Department”) will be the procurer and will be responsible for conducting the procurement programmes; and
- the electricity must be purchased by Eskom Holdings SOC Limited (“Eskom”) (the national power utility) from IPPs.
The Department will be required to prepare requests for proposals and/or any related documentation, negotiate the power purchase agreements to be entered into between Eskom and the relevant IPPs and also facilitate the satisfaction of any conditions precedent to financial close which are within its control.
Given the country’s energy shortages and increased periods of load shedding, the aim of the procurement programme is to achieve connection to the grid for new generation capacity as soon as reasonably possible (in line with the timetable set out in Table 5 of the 2019 IRP) but by no later than December 2021. The Ministerial Determination provides, however, that deviations from the timetable in Table 5 of the 2019 IRP will be permitted to the extent necessary taking into account all relevant factors such as the time required for efficient procurement, the time required for the construction of new generation capacity facilities and the prevailing energy security risks.
The Ministerial Determination, in conjunction with the recent amendments to Schedule 2 of the Electricity Regulation Act (for more information on this, please click here to view our bulletin dated 9 April 2020) and the draft amendments to the Electricity Regulations on New Generation Capacity (for more information on this, please click here to view our bulletin dated 8 May 2020), illustrate government’s drive to increase electricity capacity in the country and alleviate some pressure on the national grid. The success of the REIPPPP and the fact that IPPs have proven to be best-placed to provide short-term generation capacity, suggests that the Ministerial Determination, if properly implemented, should help to address South Africa’s growing energy supply challenge.
Should you have any queries about the Ministerial Determination, please do not hesitate to contact us.
