Open Letter to NERSA regarding the registration of small-scale embedded generation


Next Renewable Generation disagrees and takes issue with the contents of this new registration process due to unclear motives for the registration and uncertain fees associated with the process. We invite NERSA to give more thought to the legislation and provide further details going forward. We understand the need for monitoring generators on the grid, but onerous registration processes should not hinder the continuing development of the energy sector.

As a small-scale Independent Power Producer (IPP) operating in the Commercial and Industrial Private Power Purchase Agreement (PPA) space, we at Next Renewable Generation (NrG) would like to submit this response to the recent “Rules for Registration of Small-Scale Embedded Generation” published by the National Energy Regulator of South Africa (NERSA) on the 26th of April 2018.

The past decade has seen escalating energy tariffs in South Africa, partly as a result of both Eskom and the Municipalities within the country seeking to cover their increasing cost of generation, increasing operational expenses and increasing debt obligations.

This has resulted in greater attention by energy consumers, both commercial and private, to consider small-scale embedded generation (SSEG) power sources as a means of supplying their energy needs, particularly so, as such SSEG systems become increasingly affordable and attractive. Indeed, the benefits of using such power sources extend to mitigating the disruption of the energy supply, a relevant issue in South Africa with its history of load shedding and current reports of widespread coal shortages at the country’s largest power stations, as well as the country’s responsibility to the social and environmental well-being of its citizens.

SSEGs are typically defined as energy generation sources of capacity less than 1 MW and include standard (backup) generators and solar PV systems.

While the small-scale feed-in of energy back into the grid from private consumers is unlikely to have a significant impact on the grid in the short-term, it is nonetheless worth considering how to manage this effectively and in a fair and equitable manner, given that the SSEG generator base is foreseen to grow at an increasing rate should Eskom and municipalities continue to escalate their tariffs at the rates that have seen users opt to supplement or even defect from the grid.

Current regulations require that SSEG systems be agreed to, and be inspected for compliance, by the local distributor, be it Eskom or the municipality, with only systems greater than 1MW capacity requiring a generation license to be issued by NERSA, provided that the system provides electricity to a single customer with no wheeling of power through the national grid.

The new regulations proposed by NERSA require all parties who wish to have an “electricity generator” installed and connected to the grid, at whatever capacity, to apply for a generation license from NERSA. The legislation applies to all SSEG sources, whether they be off-grid, grid-tied, or whether they are to be used for private or public use.

NrG understands the need for NERSA as a regulatory body to have knowledge regarding which SSEG facilities are connected to the grid. NrG also understands the need for the distributor to have knowledge of the connected SSEG base to ensure the safe operation and stability of the distribution network. Given the above, there are a number of points we would like to raise regarding the formulation of the proposed Rules, and the implications for the average South African consumer.

These are as follows:

  • The requirement for both grid-tied and off-grid SSEG systems to apply for NERSA-approved licenses. Embedded generation should refer to just that: systems that are embedded/connected to the grid. The need for “off-grid” facilities to be registered despite them being, by definition, un-connected to the grid infrastructure is an unneeded complexity, and will likely contribute to inefficiencies within the application process. It also raises the questions about how mobile generating equipment, typically used by contractors and the construction industry with no fixed erven, address, or Distributor Point of Connection at which the generator may be registered, will be handled. Enforcement of such regulations may also prove a challenge, particularly in rural areas, or those areas with a limited workforce available to ensure such rules are followed.
  • A lack of consideration to the registration procedure of off-grid SSEG systems. While the set of Rules proposed outlines the process to be followed regarding grid-tied SSEG, little mention is made of the process for off-grid systems. This contributes to uncertainty regarding the rules, and the wider registration process.
  • Unclear definition of SSEG. While the common understanding of SSEG systems relate to energy technologies such as solar PV and standby electric generators, the proposed rules fail to state exactly what comprises those technologies within the <1MW category. As an example, the rules could be interpreted as being applicable to mini solar-powered chargers for cell phones, although it is difficult to imagine that NERSA would be interested in the effect of these technologies on the national grid, or South Africa’s energy sector.
  • The financial implications. Building on the last point, were all South Africans possessing any sort of “electricity generating” technology required to register and pay for a NERSA approved generation license, it would contribute greatly to the ongoing financial stress placed on all South Africans, particularly that of low-income groups. Furthermore, the substantial administrative load of processing such applications would arguably result in NERSA neglecting other more pressing mandates regarding South Africa’s energy future plans.
  • Level of Control. Sections 6.1.a.iii and 7 within the legislation give licensed distributors high levels of control over assets that they do not own. This is a liability to SSEG owners who have very sensitive business cases unable to tolerate a system being used outside of a well-defined operating philosophy or typical System Use Agreement.
  • Timely implementation. Within our experience there have been significant delays and a general disinterest and inability to execute these registration functions while interacting with distributors. If the proposed registration process is not handled timeously it can strongly impact the bankability of project and severely hinder economic growth within the sector.
  • Uncertain liabilities for unknown charges. The undefined charges and tariffs that seem destined to come from this registration process are a big potential liability within the energy market. Renewable energy projects are often borderline feasible, and the unknowns in the financial and administrative obligations will negatively impact the progression of the ongoing energy transition in South Africa. As such, greater clarity is needed regarding the fees and other expenses, together with their purpose and intent, which are likely to be imposed.
  • The socio-economic implications. South Africa is currently facing a high level of unemployment, with the government having stated that job creation is a priority. In order to assist such efforts, any new legislation should be clearly in full support of such a goal. Considering that the enforcement of additional regulation and potential fees may threaten the business case of many small to medium enterprises, and thus limit economic growth within the industry, it seems these regulations may limit job creation if it causes small businesses to struggle financially.

In conclusion, Next Renewable Generation would support NERSA in their endeavour to accurately track and monitor embedded generation in the South African grid. However, the uncertainties and structure of the rules for registration leave a lot to be desired when they could drastically and negatively impact our business operation, and that of the wider (renewable) energy sector. We encourage NERSA to provide greater clarity on the points raised above, to engage extensively with industry stakeholders on how the proposed rules will achieve the objectives stated, how they improve the management of South Africa’s energy supply, and contribute to the ongoing energy transition taking place both in South Africa and globally.