by Michael Ball, Wärtsilä
When President Cyril Ramaphosa delivered the 2021 State of the Nation address, he spoke of Government’s bold plans for the country’s economic recovery. One of the priority interventions outlined by the president was the planned rapid expansion of the country’s electricity generation capacity. As one of the only four priority interventions, there was a clear acknowledgement by Government that a stable and secure electricity supply is a prerequisite for economic recovery and long-term growth.
Reporting back on the progress made over the past 12 months, Ramaphosa highlighted the noteworthy progress being made with the restructuring of Eskom, the RMIPPP and the finalisation of REIPPPP Round 5. Despite this progress, he spoke of a potential electricity supply shortfall of between 4000 and 6000 MW over the next five years. There were also suggestions that further electricity tariff increases could be on the cards, as he spoke of the need to “review tariff paths” to reflect costs and implement measures to resolve the problem of municipal debt.
To alleviate the impact of further load shedding on households and businesses, President Ramaphosa announced that the government would be moving ahead with long-awaited amendments to Schedule 2 of the Electricity Regulation Act. These amendments would ease licensing requirements for households and businesses wishing to generate their own electricity through embedded generation.
At present, only embedded generation below 1 MW is exempt from holding a generation license. Those wishing to install capacity exceeding 1 MW are required to hold a generation license which entails significant costs, time, and bureaucratic red tape. Recent statements from Andre de Ruyter, Eskom’s CEO, suggest that the license exemption threshold could be increased to as high as 50 MW. The impact of such a move would enable South Africa’s economic recovery to move more quickly.
South Africa’s energy-intensive industries, such as mining and manufacturing, contribute significantly to economic activity and employment. These industries have been particularly hard hit by electricity supply disruptions and rising electricity tariffs. By supporting investment in embedded generation, the government would enable growth in these industries through greater power reliability and lower energy costs. Furthermore, by using renewable technologies, such as wind and solar power, these industries would dramatically reduce the carbon intensity of their operations.
Given the sharp declines in cost, it is expected that most of the newly installed embedded generation will take the form of solar PV capacity. As a result, we might see a significant increase in intermittent generating capacity connected to the country’s distribution network over the coming years. Therefore, it will be important for those considering investment in large embedded generation facilities to explore options such as battery energy storage to avoid technical issues such as power instability, network overloading, power quality deviations and forced curtailment during periods of load shedding to comply with safety requirements. Larger battery storage solutions may also support with energy shifting which could reduce grid consumption during peak tariff hours and further reduce energy costs.
Despite reducing the demand for Eskom’s electricity supply, embedded generation may deliver several indirect benefits to the parastatal. By reducing the current electricity supply deficit, embedded generation would reduce Eskom’s dependency on expensive diesel fired open cycle gas turbines. The distributed nature of embedded generation may also help to reduce transmission and distribution losses and could support the deferment of expensive grid network upgrades.
While delivering significant benefits, the rapid expansion of embedded renewable generation may also pose new challenges. It is well known that Eskom’s ageing coal fleet will increasingly struggle to balance the system as renewable intermittency grows. Eskom will, therefore, be under pressure to fast-track procurement of flexible capacity to ensure system stability.
Overall, the easing of these embedded generation regulations is a significant step in the right direction. As outlined in the IRP 2019, embedded generation is a key piece of the puzzle for South Africa to overcome the current power crisis.
Contact Wayne Glossop, Wärtsilä, Tel 021 511-1230, wayne.glossop@wartsila.com
