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Removal of Power Constraints Crucial for Post COVID-19 Recovery

This article originally appeared in the Daily Maverick Opinion Section.

It is difficult to understand why the main limitations to private power generation have not been removed, despite repeated pledges from government to that effect. There is a real danger that while grappling with the immediate crisis, policymakers will shelve the issue indefinitely.

Demand for electricity has plunged with the onset of South Africa’s COVID-19 lockdown, removing the threat of load shedding for its three-week duration. It could be several months before the economy is up and running normally again, but it would be a big mistake to forget the power constraints which plagued SA in the weeks before the pandemic struck.

When Moody’s downgraded SA on 27 March, it pointed out that unreliable electricity supply and its impact on the economy was one of the main reasons for the decision. The ratings agency also pointed out that a strategy to stabilise electricity production in the country has failed to materialise and that as a result, economic growth would remain low for years. Returning to a constrained electricity supply without an adequate government response is the last thing embattled businesses need after COVID-19. 

Against this background, it is difficult to understand why the main limitations to private power generation have not been removed, despite repeated pledges from government to that effect. There is a real danger that while grappling with the immediate crisis, policymakers will shelve the issue indefinitely. In addition, the National Energy Regulator (NERSA) has inexplicably halted all new licensing applications for the duration of the lockdown period. 

For connected projects larger than 1MW — which applies to most of the pent-up demand for corporate generation of electricity — a license is still required from NERSA even if the installation is for a customer’s own use, or established through a bilateral agreement involving only a customer and an independent power producer.

These onerous license application processes were intended for large, utility style power stations, hundreds of MWs in size, and each requires a public participation process with hearings. They have requirements which make the development of smaller project impractical. The official time for NERSA to issue these licenses is 120 days but in practice it takes far longer — with some cases so far taking as long as two years.

NERSA is theoretically able to process license applications, but in practice is inadequately resourced to handle the quantity of smaller applications that are now being made. This regulatory blockage is holding up the roll out of hundreds of MWs of electricity generation, which would be the fastest way to alleviate the power constraints which lead to load shedding. 

This point has been repeatedly made by independent bodies like the Minerals Council of SA, Business Unity SA, the South African Photovoltaic Industry Association, and the Council for Scientific and Industrial Research. It has been recognised by Minerals and Energy Minister Gwede Mantashe, who indicated at the mining Indaba in March 2020 that self-generation of any size would not require licensing. 

Companies in the private sector were hopeful that their pleas for the 1MW cap on licensing for their own electricity generation would be lifted to 10MW, which would include most of the projects they want to implement. And yet, when the eagerly awaited Schedule 2 of the Electricity Regulation Act was published on 26 March, the 1MW threshold for grid-connected facilities exempt from licensing was maintained. 

The shape of the national load profile – when and how much electricity is used – is important to Government because it affects which mix of electricity is most cost effective. Its preferable to have a load profile that allows for the maximum usage of the cheapest resources available to the country. From this angle, the control over who builds what generation is understandable, but even with this argument considered, the amount of solar power in South Africa still represents under 5% of installed capacity, and less than 2% of the consumed energy.

A 10MW solar generator represents 0.006% of annual electricity demand and 150 of such projects would need to be installed to reach 1% of the total demand. Lifting the license exemption threshold to 10MW will initially have negligible effect on the demand profile but a huge effect on lifting red tape in the way of more energy coming onstream and supporting small to medium size businesses. It is always possible for the state to monitor the uptake and lower the threshold for licences at a later stage if necessary.

As the chairperson of a solar PV company, the SOLA Group, I have seen many clients desperate to install larger solar plants than the 1 MVA limit to alleviate their electricity constraints and lower their costs. These projects are practically ready to be rolled out – and could be built within 8-12 months – if the licensing hurdle is removed. 

From my extensive experience in the solar PV industry in South Africa I estimate that, without such restrictions, solar PV companies could build 500 MWs within the next 12 – 18 months. The wasted opportunity due to these arbitrary licence requirements is obvious and destructive.

For the sake of saving businesses and creating jobs post COVID-19, I urge government to:

  • Lift the threshold on requirement for a generation license from 1MW to 10MW until the embedded generation allocation in SA’s new Integrated Resource Plan has been reached.
  • Require that these projects are registered with NERSA upon their commercial operation date through submission of an independent certificate of compliance against which the allocation to embedded generation can be measured, and keep the database of installed MWs public and updated.
  • Ensure that NERSA is provided with, or creates, clear guidelines as to the technical standards that must be met to obtain a generation license for generation projects above 10MW in size.
  • Provide NERSA with the resources, both through budget and staff, to evaluate the applications in a meaningful, prompt and scientific way.
  • Return to processing and receiving licence applications during the lockdown.

The business case for installing embedded power generation remains for the private sector, and the economy will once again start moving when the impact of the pandemic subsides. It would be tragic if its potential to recover is thwarted by continued electricity shortages. 

Solar and wind energy could set South Africa on track for the world’s cheapest electricity

This article originally appeared in the Daily Maverick Opinion Section.

It’s a no-brainer — a move to renewable energy will not only boost the economy and create jobs, it is also the path to providing South Africa with potentially the cheapest electricity in the world given our natural wind and solar resources.

Energy was never this difficult. Energy came from coal in the ground, burnt somewhere, put in a turbine, wires were connected, and cheap energy flowed for many years. However, this was never going to last long, because the amount of coal that forms in a year was being burnt in a minute. The world has now realised that this is unsustainable behaviour, and we’re faced with a set of future alternatives: hydro, nuclear, wind, solar, biomass, coal — each with a sidecar of complexity, and we need to make some decisions.

Ten years ago, the general public didn’t know what a kilowatt-hour (kWh) was, what it cost, where it came from; they didn’t know how many litres of water were spent in a flush or shower, how many dams we had or how many megalitres we use per day.

That’s changed. We’re more knowledgeable now. Why? Because we’ve felt the effects. Electricity is expensive and we’ve even run out of it (many times). We’ve been on water restrictions for years, and Cape Town came close to being the first major city in the world to run out. Authorities are having to find alternative methods to abstract water, domestically and regionally. Unemployment is a major contributor to poverty and addiction, and we witness frequent protests against injustice.

Knowledge, however, can help us to solve problems. If the problem at hand is to solve the electricity crisis, we need deep understanding to find the least cost kWh and invest in the technologies that will deliver that. The “least cost” does not only refer to the financial cost, but also the environmental and social cost. The industry has been poor at recognising the entrenchment of communities reliant on the electricity sector and ensuring that reform is done fairly.

In the long wait for the IRP 2019 to be gazetted, many people have missed a recent study published in the international journal, ScienceDirect, which took a bold step forward in modelling a best electricity policy scenario based on cost, water and employment. The strength of this peer-reviewed article is that it is founded on solid scientific data. And while a cold approach to kWhs might not reflect every sensitivity in our country, the study did pay attention to the largest social item on our agenda: jobs.

The paper, titled Pathway towards achieving 100% renewable electricity by 2050 for South Africa, modelled the costs of renewable and non-renewable electricity generation pathways in South Africa, taking into consideration South Africa’s current energy requirements, the expected population growth, and costs of electricity. The paper highlighted the possible scenarios for South Africa’s electricity future — whether we stay on the Current Policy Scenario, highly reliant on coal — or go aggressively into renewable energy (what the authors term the “Best Policy Scenario”).

Their suggested “Best Policy Scenario” (BPS) includes 71% of overall electricity production coming from solar PV and 22% by wind by 2050. In addition to this, storage technologies, transmission grids and gas power plants would be utilised to provide the elements of consistency for a stable electricity supply.

The BPS is 25% cheaper than the current policy scenario, and this doesn’t take into account the additional benefits of electricity being virtually 100% renewable, such as the reduction in the detrimental effects of carbon and other poisonous gases in Earth’s atmosphere, the distributed nature of the employment, and the lower risk in the technologies.

If you put a cost saving to these benefits, particularly the greenhouse gas emissions, then the 100% renewables case becomes more than 50% cheaper than the Current Policy Scenario.

In addition, the cost reductions in Levelised Cost of Electricity (LCOE) are not the only benefit of this pathway. In addition to their findings on LCOE, the authors assert that the low-carbon pathway will also decrease water consumption by 87% by 2030, and by 99% by 2050, compared to the baseline — which would remain in the Current Policy Scenario.

From an employment perspective, the renewables-rich BPS will grow the jobs created by the energy sector dramatically, almost doubling to 408,000 by 2035 and tapering off to 278,000 by 2050 as construction jobs stabilise. In the Current Policy Scenario, fewer jobs are created, never rising higher than the 200,000 mark, and decreasing to 184,000 jobs in 2050.

What about coal and nuclear?

The arguments to retain a coal-heavy electricity supply are becoming thinner, particularly given the overwhelming evidence toward coal’s contribution to greenhouse gas emissions that cause climate change and the fact that South Africa is one of the world’s worst emitters of CO2, clocking in just behind huge economies like China and the US.

The authors assert that coal and nuclear should be phased out in the BPS, adding that new investments in coal and nuclear could be at risk of becoming stranded assets as more banks tend to opt out of investing in non-renewable technologies.

On nuclear energy, the authors assert that, “results for the fully renewable end-point scenarios indicate that there is no need for high cost and high-risk nuclear energy in the future South African electricity mix”.

From the study, it is clear that South Africa has an important policy decision to make: one that will steer its future toward low-cost, low-carbon electricity that will create jobs and reduce freshwater consumption. It is an option that would be to the benefit of all South Africans — and the world at large.

The “side” benefit is that in this scenario, due to our significant wind and solar resources, we’d probably have the cheapest electricity in the world, adding a strong element of competitiveness to our economy, which we’re also trying to grow. Now more than ever, we need to do the right thing. It’s clear as day.