Memorandum on amendment to Schedule 2 of the Electricity Regulation Act (Exemptions)

Mmamoloko Kubayi, in her position as Minister of Energy (the Minister), signed an amendment to the Electricity Regulation Act, 2006 (ERA) into law, which was issued under Government Gazette No. 41237 of 10 November 2017. 

The effect is to amend Schedule 2 of the ERA which relates to exemptions of certain activities from having to obtain an electricity generation licence, in terms of section 7 of the ERA (the Amended Exemptions).

The Notice in the Government Gazette states that:

“I, Mmamoloko Kubayi, the Minister of Energy, hereby, -

(a)    under section 36(4) of the Electricity Regulation Act, 2006 (Act No. 4 of 2006) (“the Act”), and after consultation with the National Energy Regulator (“Regulator”) and any person who may be affected, amend Schedule 2 to the Act by substituting it with the Schedule (“the Schedule”) set out in the Annexure hereto; and

(b)    under section 9(1) of the Act, and in consultation with the Regulator, determine that a person who operates a generation facility contemplated in items 2.1, 2.2, 2.3, 2.4, 2.5 or 2.6 of the Schedule, or a person who performs the activities of a reseller as contemplated in item 2.8 of the Schedule, must register with the Regulator.”

[signed by the Minister]

______________________________________________________________________

ANNEXURE

SCHEDULE 2

EXEMPTION FROM OBLIGATION TO APPLY FOR AND HOLD A LICENCE

1.    For purposes of item 1:

1.1. ‘electricity meter’ means a device that is used to measure the flow of electricity that flows out of or into the national grid and has been installed by or on behalf of a licensed distributor.

1.2. ‘existing generation facility’ means a generation facility which was in operation on or immediately prior to the date of commencement of this Schedule;

1.3. ‘national grid’ means the publicly-owned interconnected network of transmission and distribution power systems used for the supply of electricity to customers across the territory of the Republic, and includes any portion thereof;

1.4. ‘point of connection’ means the point at which a generator or cusomer connects to the national grid;

1.5. ‘property’ means:

1.5.1.    a farm, agricultural holding, erf or sectional title unit; and

1.5.2.    a building located on that farm, agricultural holding, erf or sectional title unit notwithstanding that the building extends beyond the boundary of that farm, agricultural holding, erf or sectional title unit;

1.6. ‘related customers’ means customers which are related and inter-related to each other within the meaning contemplated in section 2 of the Companies Act, 2008 (Act No. 71 of 2008); and

[NOTE : "related, in terms of section 2 of the Companies Act means :

""related when used in respect of two persons, means persons who are connected to one another in any manner contemplated in section 2(1)(a) to (c)"

"2(1) For all purposes of this Act -

a) an individual is related to another individual if they -

i) are married, or live together in a relationship similar to a marriage; or

ii) are separated by no more than two degrees of natural or adopted consanguinity or affinity;

b) an individual is related to a juristic person if the individual directly or indirectly controls the juristic person, as determined in accordance with subsection (2); and

c) a juristic person is related to another juristic person if -

i) either of them directly or indirectly controls the other, or the business of the other, as determined in accordance with subsection (2);

ii) either is a subsidiary of the other; or

iii) a person directly or indirectly controls each of them, or the business of each of them, as determined in accordance with subsection (2).

2(2) For the purpose of subsection (1), a person who controls a juristic person, or its business, if -

a) in the case of a juristic person that is a company -

i) that juristic person is a subsidiary of that first person, as determined in accordance with section 3(1)(a); [NOTE : see definition of "subsidiary" below] or

ii) that first person, together with any related or inter-related person, is -

aa) directly or indirectly able to exercise control or exercise the majority of the voting rights associated with securities of that company, whether pursuant to a shareholder agreement or otherwise; or

bb) has the right to appoint or elect, or control the appointment or election of, directors of that company who control a majority of the votes at a meeting of the board;

b) in the case of a juristic person that is a close corporation, that first person owns the majority of the members' interest, or controls directly, or has the right to control, the majority of members' votes in the close corporation;

c) in the case of a juristic person that is a trust, that first person has the ability to control the majority of the votes of the trustees or to appoint the majority of the trustees, or to appoint or change the majority of the beneficiaries of the trust; or

d) that first person has the ability to materially influence the policy of the juristic person in a manner comparable to a person who, in ordinary commercial practice, would be able to exercise an element of control referred to in paragraph (a), (b) or (c).

3 With respect to any particular matter arising in terms of this Act, a court, the Companies Tribunal or the Panel may exempt any person from the application of a provision of this Act that would apply to that person because of a relationship contemplated in subsection (1) if the person can show that, in respect of that particular matter, there is sufficient evidence to conclude that the person acts independently of any related or inter-related person."

[NOTE : Definition of "subsidiary" in the Companies Act :

"Cl 3 Subsidiary Relationships

1) a company is -

a) a subsidiary of another juristic person if that juristic person, one or more other subsidiaries of that juristic person, or one or more nominees of that juristic person or any of its subsidiaries is, alone or in combination -

i) is or are directly able to exercise, or control the exercise of, a majority of the general voting rights associated with issued securities of that company, whether pursuant to a shareholder agreement or otherwise; or

ii) has or have the right to appoint or elect, or control the appointment or election of, directors of the company who control a majority of the votes at a meeting of the board; or

b) a wholly owned subsidiary of another juristic person if all of the general voting rights associated with issued securities of the company are held or controlled, alone or in any combination, by persons contemplated in paragraph (a).

2) For the purpose of determining whether a person controls all or a majority of the general voting rights associated with issued securities of a company -

a) voting rights that are exercisable only in certain circumstances are to be taken into account only –

i)         when those circumstances have arisen, and for so long as they continue; or

ii)        when those voting rights are under the control of the person holding the voting    rights;

b)    voting rights that are exercisable only on the instructions or with the consent or  concurrence of another person are to be treated as being held by a nominee for           that other person; and

c)    voting held by –

i)         a person as nominee for another person are to be treated as held by that other person;  or

ii)        a person in a fiduciary capacity are to be treated as held by the beneficiary of those voting rights.

3)  For the purposes of subsection (2), ‘hold’, or any derivative of it, refers to the                                         registered or direct or indirect beneficial holder of securities conferring a right to                                         vote.”]

1.7. ‘reseller’ means a person who purchases electricity from a distribution licensee in order to sell such electricity to a customer.

2.    The following activities are exempt from the requirement to apply for and hold a licence under the Act, however these activities must be registered with the National Energy Regulator:

2.1. The operation of a generation facility with an installed capacity of no more than 1 MW which is connected to the national grid, in circumstances in which –

2.1.1.    the generation facility supplies electricity to a single customer and there is no wheeling of that electricity through the national grid;

2.1.2.    the generator or single customer has entered into a connection and user-of-system agreement with, or obtained approval from, the holder of the relevant distribution licence; and

2.1.3.    as at the date on which the connection and user-or-system agreement is entered into or the approval is obtained, the Minister has not published a notice in the Government Gazette stating that the amount of megawatts (MW) allocated in the integrated resource plan for embedded generation of this nature has been reached.

2.2. The operation of a generation facility with an installed capacity of no more than 1MW which is connected to the national grid, in circumstances in which –

2.2.1.    the generation facility is operated solely to supply a single customer or related customers by wheeling electricity through the national grid;

2.2.2.    the generator has entered into a connection and use-of-system agreement with the holder of the distribution or transmission licence in respect of the power system over which the electricity is to be transported; and

2.2.3.    as at the date on which the connection and use-of-system agreement is entered into, the Minister has not published a notice in the Government Gazette stating that the amount of MW allocated in the integrated resource plan for embedded generation of this nature has been reached.

2.3. The operation of a generation facility with an installed capacity of no more than 1MW which is not connected to the national grid or having an interconnection agreement, in circumstances in which –

2.3.1.    the generation facility is operated solely to supply electricity to the owner of the generation facility in question;

2.3.2.    the generation facility is operated solely to supply electricity for consumption by a customer who is related to the generator or owner of the generation facility; or

2.3.3.    the electricity is supplied to a customer for consumption on the same property on which the generation facility is located.

2.4. The operation of a generation facility for demonstration purposes only, whether or not the facility is connected to a transmission or distribution power system, in circumstances in which –

2.4.1.    the electricity produced by the generation facility is not sold; and

2.4.2.    if the facility is connected to the national grid, the generator has entered into a connection and use-of-system agreement with, or obtained approval from, the holder of the relevant transmission or distribution licence; and

2.4.3.    the facility will be in operation for not more than 36 months.

2.5. The operation of a generation facility where the electricity produced from a co-product, by-product, waste product or residual product of an underlying industrial process, in circumstances in which –

2.5.1.    the generation facility is operated solely to supply electricity to the owner of the generation facility in question;

2.5.2.    the generation facility is operated solely to supply electricity for consumption by a customer who is related to the generator or owner of the generation facility within the meaning contemplated in section 2 of the Companies Act, 2008 (Act No. 71 of 2008); or

2.5.3.    the electricity is supplied to a customer for consumption on the same property on which the generation facility is located.

2.6. The operation of a generation facility for the sole purpose of providing standby or back-up electricity in the event of, and for a duration no longer than, an electricity supply interruption.

2.7. The continued operation of an existing generation facility which, immediately prior to the date of commencement of this Schedule, was exempt from the requirement to apply for and hold a licence under the Act.

2.8. The continued operation of an existing generation facility which prior to the date of commencement of this Schedule was in operation, and within 3 months of the commencement of this Schedule had declared non-compliance with the Schedule to the Regulator (NERSA) and signed an agreement to comply within a time frame as specified by the Regulator.

2.9. The operation of a distribution facility that is connected to a generation facility contemplated in items 2.1 to 2.6 and is used exclusively for the wheeling of electricity from that facility to –

2.9.1.    the customer, if the electricity is not to be transported through the national grid; or

2.9.2.    the point of connection, if the electricity is to be transported through the national grid.

2.10.      the sale of electricity by a reseller in circumstances in which –

2.10.1. the tariff or price charged by the reseller to customers does not exceed the tariff or price that would have been charged to such customers for the electricity if it had been purchased from the holder of a distribution licence for the area in which the electricity is supplied to the customer; and/or an operator of a licensed distribution facility wherein the bulk point is connected or such customers would have been connected;

2.10.2. the reseller has entered into an agreement with the holder of a distribution licence over such area which regulates the relationship between the reseller and the holder of the distribution licence; and

2.10.3. the general conditions of the service delivery agreement must have been approved by the National Energy Regulator.

______________________________________________________________________

SOME BACKGROUND TO ELECTRICITY GENERATION BY INDEPENDENT POWER PRODUCERS, MINISTERIAL DETERMINATIONS, LICENSING REQUIREMENTS AND EXEMPTIONS

The Minister of Energy (the Minister) has wide powers to determine new generation capacity (Determination) in terms of section 34 of the Electricity Regulation Act of 2006 (the ERA).

The Minister exercises these powers through the Determination process which has its basis in the then most recently promulgated Integrated Resource Plan for Electricity (IRP). This plan is the country’s plan for the allocation of technologies, timing and electrical generation capacity over the following 20 year period.

Although this plan is intended to be updated every 2 years, the last IRP in force to date is the IRP2010, which should have been updated in 2012. A draft IRP was circulated for comment in 2013, but was never finalised.

The draft assumptions for the proposed IRP 2016 (IRP 2016) were circulated for the purpose of public consultations which ended on the 31st of March 2017, and, according to news reports, the IRP 2016 will be published very soon (apparently during this month – November 2017).

Following a Determination, independent power producers (IPPs) wishing to generate and sell electrical energy elect whether or not to take part in a national procurement process in terms of which bids are submitted for technologies qualifying in terms of the relevant Determination and the bid documents issued pursuant thereto.

The bid documents specify a pricing cap, maximum number of MegaWatts (MW) to be bid, and other qualification criteria, including, but not limited to social and economic development criteria.

Determinations thus far (excluding nuclear) have specified the Department of Energy (DoE) as the procurer of the electrical generation capacity and the resultant electrical energy, and Eskom Holdings (SOC) Limited (Eskom) as the buyer thereof.

Preferred bidders are selected from amongst the bidders taking part in the particular procurement process, and, if all the necessary requirements are satisfied by financial / commercial close, the suite of documents bringing into effect, amongst other agreements, the power purchase agreement (PPA) between Eskom, the DoE and the IPP which has been allocated preferred bidder status, are signed and become effective.

The National Energy Regulator of South Africa (NERSA) is, amongst other things, tasked with issuing licences for certain activities, including generation and distribution, but, importantly, must, in terms of the ERA, issue licences to preferred bidders who qualify as such under the relevant national procurement programme. These IPPs therefore do not have to undergo the onerous licensing process which applies to all other IPPs seeking licences for their generation and sale of electrical energy, effectively requiring consent from the Minister to the grant of such licences.

Other Generation by IPPs

There are various generation activities undertaken by IPPs, where IPPs, for one reason or another do not participate in a national procurement programme.

This type of situation could arise where the IPP concerned, amongst other things, :

·      uses generation technology which has not been provided for in the IRP, or

·      will not meet the qualification requirements of the relevant Determination and ensuing Request for Proposal (RFP) or Request for Bid (RFB) issued by the DoE, or

·      elects not to participate in the RFP or RFB for financial or other reasons (including the significant upfront costs of preparing the bid, which are also at risk if the project does not come to fruition), or

·      was not granted preferred bidder status under the appropriate RFP or RFB.

In such case the IPP may wish to sell electrical energy, including but not limited, to:

·      Eskom or a municipality, or

·      a third party purchaser, not being a State Owned Enterprise or a municipality (the “willing seller / willing buyer” or “bilateral”) scenario, or

·      a member of its own group of companies, or

·      a trader of electrical energy, or

·      an off-taker in another country.

Generation Licences

In all of the scenarios set out above, s7 of the ERA provides that the generator must apply to NERSA for a generation licence.

It is necessary to bear in mind that, as set out above, NERSA is obliged to grant generation licences to generators who have been selected as preferred bidders in a national procurement programme.

However, in all other cases, NERSA is not bound to issue generation licences to applicants.

Very importantly, the obligation for a generator to hold a generation licence is subject to the licence exemptions contained in Schedule 2 to the ERA.

A generator is not required to apply for a licence when the generation activity is exempt. IPPs, quite obviously, prefer to rely on the exemption provisions of Schedule 2 of the ERA rather than having to apply for a licence.

The Previous Exemptions (the Schedule 2 previously in existence which have just been amended by the Amended Exemptions)

The Previous Exemptions were:

Exemption 1 : Any generation plant constructed and operated for demonstration purposes only and not connected to an inter connected power supply.

Exemption 2 : Any generation plant constructed and operated for own use.

Exemption 3 : Non-grid connected supply of electricity except for commercial use.

The 2nd exemption was often relied upon by IPPs who construct and operate generation plants for their own use. Such generation often runs into dozens, and perhaps more, of MW. Some further salient points to be taken into consideration with regard to the previous “own use” exemption are that:

·      there was no limitation on “own use” in the Previous Exemptions. Generators who generated electricity for their own use could rely on this exemption no matter how many MW they generated.

·      “own use” is not currently defined in the ERA (or any other relevant electricity legislation). Thus the term has been open to wide interpretation.

·      the use of this exemption by small solar rooftop photovoltaic generators has arguably created difficulty for NERSA and distributors, both from an administration perspective and because of the potential impact on human safety, sub-standard installations, potential impacts on the grid, and various other considerations. In addition to this, the DoE has not been able to obtain accurate figures on generators and generation capacity being used for “own use” due to the fact that, prior to the Amended Schedule being gazetted, there has been no requirement for those who have relied on this exemption to register their facilities.

The Licensing Process

The licensing process is difficult because:

·      the application for a generation licence generally only happens at a fairly late stage in the development process relating to a proposed generation facility, once pre-feasibility studies and then feasibility studies have been concluded, various agreements, permits and governmental approvals have been granted, prices determined and agreed, construction milestones (with appropriate penalties and damages provided for) have been set out in the relevant contract/s, equipment prices have been agreed (which will be escalated by the length of any delay in issuing the generation licence), a connection and use-of-system has been entered into and so forth;

·      NERSA, in terms of s13 of the ERA, must decide on a licence application within 120 days. However, the period of 120 days is not fixed from the date of application for the licence. The period begins to run after the public participation process has been concluded, if no objections have been received, or after receiving any additional information NERSA has requested from the applicant which it deems necessary to consider the application properly. There is no time limit set out within the ERA which specifies when NERSA must have called for additional information, and therefore there is no definitive time period within which generation licences must be granted or declined. NERSA is also not required to advise the prospective licencee when it has received all outstanding information, nor to request all information in one batch;

·      s10(2)(g) of the ERA provides that an application for a licence must include, amongst other things, evidence of compliance with any integrated resource plan applicable at that point in time or provide reasons for any deviation for the approval of the Minister;

·      it has been NERSA’s practice that it will not begin to consider a generation licence application unless the Minister has consented to a deviation from the IRP, it being assumed that any generation of electrical energy by a generator which is not in terms of a national procurement plan is a deviation from the IRP;

·      it has been the case historically that it is extremely difficult in practice to obtain consent to deviation from the IRP from the Minister. This has the effect of potentially putting the proposed generation project at risk because of (1) the risk of failure by the Minister to consent to the deviation at all, or (2) delay in this process, and/or (3) indeterminate time periods for the granting of the licence by NERSA. The project may not be considered to be bankable by the financiers because recoupment of the costs of the project and future return on investment may not be possible due to delays or due to the generator in question not being licensed to sell all or any of the electrical energy proposed to be generated.

·      the consent required in terms of s10(2)(g) of the ERA (read in the context of the national procurement programmes given effect to by Determinations) effectively allows the Minister to control the extent of private sector participation in the electricity supply industry. The only exception to this is the exempt activities in terms of Schedule 2 to the ERA.

THE AMENDED EXEMPTIONS

The introductory paragraphs of the Government Gazette containing the Amended Exemptions provide:

·      in the first paragraph what the legislative basis for the exemptions is, and indicates that the Schedule 2 to ERA is amended, and

·      in the second paragraph, the legislative basis for registration, and that certain of the exempted activities contained in the Amended Exemptions are required to be registered with NERSA. However, there appears to be a mistake in this paragraph, exemptions 1 to 6 and 8 are referred to as requiring registration only. Exemption 8 refers to resellers, however this is Exemption 10 in the Amended Exemptions. The Amended Exemption Schedule itself requires that all exempt activities must be registered, so there is a discrepancy in the documents.

The purpose of the Amended Exemptions is to exempt various categories of generation facilities and electricity resellers from the requirement to hold a licence under the ERA, and to require these activities to rather be registered with NERSA. It does so by amending the existing Schedule 2 to the ERA (exemptions) and requiring these exempt activities to be registered.

The Amended Exemptions exempt 10 categories of generation facilities or activities from the licensing requirement, in certain circumstances: embedded generation where no wheeling takes place, facilities that wheel through the grid, off-grid generation, facilities used for demonstration purposes, co-generation, back-up generation, existing exempt facilities, “non-compliant” generation, private distribution networks and resellers.

The first three categories of generation facilities are only exempt from the licensing requirement if their installed capacity is no more than 1MW.

In the case of the first two categories, a facility will not be eligible for exemption if the Minister has published a notice in the Gazette stating that the amount of MWs allocated in the IRP for embedded generation of this nature has been reached.

The intention was previously that the IRP would specify an allocation for embedded generation facilities of up to 10MW in installed capacity. It was intended that this provision in the IRP would facilitate the licensing or registration of these facilities and do away with the need for the Minister on a case by case basis to grant approval for deviations from the IRP in terms of section 10(2)(g) of the ERA for the relevant facilities. Unfortunately, this has not been carried through to the Amended Exemptions, but perhaps the IRP will still allocate capacity for embedded generation of up to 10 MWs in installed capacity.

Exemption 1 applies to a national grid-connected generation facility with an installed capacity which is no more than 1 MW, where:

·      electricity is supplied to a single customer and there is no wheeling through the national grid;

·      the generator or single customer has entered into a connection and use-of-system agreement, or obtained approval from the distributor, and

·      when the connection and use of system agreement or approval is obtained the Minister has not published a notice in the Government Gazette that the allocated amount of megawatts in the IRP for embedded generation of this nature has been reached.

Note:

· although there is national grid connection no wheeling is allowed

·      there is no definition of “wheeling”

·      only a single customer may be supplied

·      it is not clear what “embedded generation of this nature” is,

·      traditionally entering into a connection and use-of-system agreement with Eskom or municipalities has taken an extended amount of time. Eskom requires a Cost Estimate Letter (CEL) to have been accepted by the generator, then a Budget Quote and then the connection and use-of-system agreement is entered into. One of the difficulties with regard to an Eskom connection and use-of-system agreement is that it passes almost all risk to the generator, and a number of municipalities do not have connection and-use-of systems agreements in place. The Eskom connection and use-of-system agreement contains an annexure entitled Standard for the Interconnection of Embedded Generation, which ostensibly ensures compliance with the Distribution Code. Renewable generation facilities must also comply with the Renewable Generation Code, and it has been found that significant upgrades are sometimes required for facilities to comply with these codes. These codes are apparently in the process of being upgraded and consolidated so that any discrepancies are resolved. Otherwise, exemptions may be sought from NERSA and the Eskom exemption panel, and amendments negotiated with Eskom to the connection and use of system agreement, but these have proven to be very time consuming. Interestingly, a number of older Eskom plants do not comply with the Codes

·      according to an “Explanatory Memorandum” which is a document apparently prepared by the DoE with regard to the draft preceding the Amended Exemptions, and which may or may not be relevant (NB please take note of this caveat), this exemption:

o   exempts the operation of generation facilities with an installed capacity of no more than 1MW which are connected to the grid at the same point as the load that they serve (i.e. which do not require wheeling)

o   the exemption is intended, amongst other things, to provide a clearer legal basis for the already prevalent practice of rooftop solar installations of less than 1MW which connect to distribution networks (i.e. small-scale embedded generation). While these generators will be exempt from the requirement to hold a generation licence, it is nonetheless necessary that distribution licensees are aware of their existence and the extent of their proliferation, and that they in turn report this to NERSA, so that this is appropriately factored into generation planning. The procedure and requirements for the approval or connection agreement to be sought from the distributor or transmitter, and the requirements for furnishing relevant information to NERSA, will be dealt with in the relevant rules to be put in place by NERSA

o   it is envisaged that these NERSA rules would deal with any other operational requirements which are sought to be imposed on the operation of these exempted facilities. Importantly, the NERSA rules would also deal with the circumstances in which these generators will be allowed to bank the energy they feed into the grid which exceeds their own consumption and the relevant billing practices to be put in place by the distribution licensees. This could include a requirement that the generator must be a zero or negative nett effect consumer

o   the requirement that the Minister has not published a notification that the MW allocation has been exceeded, has been introduced to address the concern that there needs to be some mechanism to ensure that consumers do not install their own facilities to such an extent that this undermines the ability of the DoE to plan generation supply. The Department’s thinking is that the IRP and Determination mechanism works well in the context of independent power producers and that a similar mechanism should be introduced for embedded generation so that only a specified amount of MW is available for the development of these type of facilities over any given period

Exemption 2 applies to a national grid-connected generation facility with an installed capacity which is no more than 1 MW, where:

·      the generation facility supplies a single customer or related customers (the definition in the Companies Act applies) by wheeling electricity through the national grid,

·      the generator has entered into a connection and use-of-system agreement with the distributor or transmitter (note, this exemption doesn’t refer to approval from the distributor as the first exemption does, which is probably an omission and may be problematic), and

·      when the connection and use-of-system agreement is entered into the Minister has not published a notice in the Government Gazette that the allocated amount of MWs in the IRP for embedded generation of this nature has been reached.

Note:

·      this is a wheeling scenario,

·      there is no definition of “wheeling”

·      a single customer or customers related to this customer may be supplied

·      “related” refers to the definition of this term in the Companies Act (see the Companies Act definition under the definition of “related” earlier on in this memorandum)

·      it is not clear what “embedded generation of this nature” is

·      see note under Exemption 1 with regard to connection and use-of-system agreements

·      according to the “Explanatory Memorandum” referred to in the note under Exemption 1 above (please see caveat there), this exemption is intended to enable or create a clearer regulatory regime for generation facilities which are essentially private and serve dedicated loads but which require wheeling. Importantly, the requirement that these facilities conclude a use-of-system agreement ensures that any possible impact of the operation of such facilities is appropriately factored in and dealt with by the distributor in question

Exemption 3 applies to the operation of a generation facility with an installed capacity of no more than 1MW which is not connected to the national grid or having an interconnection agreement, where –

·      the generation facility is operated solely to supply electricity to its owner;

·      the generation facility is operated solely to supply electricity for consumption by a customer who is related to the generator or owner of the generation facility; or

·      the electricity is supplied to a customer on the same property on which the generation facility is located.

Note:

·      this exemption replaces the 3rd of the Previous Exemptions which specified that non-grid connected supply of electricity except for commercial use was exempted

·      the Previous Exemption was completely different to the 3rd Amended Exemption in that:

o   it related only to non-grid connected supply of electricity

o   commercial use was allowed

·      the Amended Exemption allows an exempt situation where :

o   the facility is operated to supply its owner (only), or

o   the facility is operated solely to supply electricity to a customer (one) who is related to the generator or owner (“generator” is not defined, so is open to interpretation. This may be intended to apply to the operator of the facility)

o   the electricity is supplied to a customer on the same property as the generation facility

·      “related” refers to the definition of this term in the Companies Act (see extended definition of “related” above, including the Companies Act definition)

·      it is not clear what the relevance of “or having an interconnection agreement” or what an “interconnection agreement” is. “Interconnection agreement” is not defined, so is vague. It probably relates to a connection and use-of-system agreement, but this term is unclear. Because of the “or” the exemption may not be used in both the situation where the facility is connected to the national grid and where the facility has an interconnection agreement (presumably, because the wording of the latter provision is a bit clumsy)

·      this exemption is worded in such a way that it would only apply to a facility which is completely “off grid”

Exemption 4 applies to the operation of a generation facility for demonstration purposes only (not defined), whether or not the facility is connected to a transmission or distribution power system, where –

·      the electricity is not sold; and

·      if the facility is connected to the national grid, the generator has entered into a connection and use-of-system agreement with, or obtained approval from, the transmitter or distributor; and

·      the facility will be in operation for not more than 36 months

Note:

·      the facility may be connected to a “transmission or distribution power system” (the term is not defined, but this is immaterial in the context of the provision), but does not have to be

·      the electricity may not be sold

·      see note regarding Exemption 1 with regard to connection and use-of-system agreements and the caveat contained in the note

·      the facility may not be in operation for more than 36 months (it is not clear why this provision has been inserted, but this is possibly a major constraint)

·      the “demonstration facility” exemption under the Previous Exemptions relates to facilities for demonstration purposes only and which are not connected to the national grid. It also provides that the electricity generated may be sold.

Exemption 5 is a welcome provision and recent insertion relating to co-generation facilities. This is a watered down version of the “own use” exemption (uncapped) which has been severely constrained, and now only relate to those exemptions contained in the Amended Exemptions. Co-generators have historically been large consumers of electricity, consuming their own electricity produced during the manufacturing process relating to their core business activity. The exemption relates to the operation of a generation facility where the electricity is produced from a co-product, by-product, waste product or residual product of an underlying industrial process, where –

·      the generation facility is operated only to supply electricity to its owner;

·      the generation facility is operated only to supply electricity to a customer who is related to the generator or owner of the generation facility; or

·      the electricity is supplied to a customer on the same property as the generation facility

Note:

·      this a much welcomed co-generation provision

·      the facility is only be operated for the supply of electricity to its owner, or

·      the facility is only operated to supply a customer which is related to the generator or owner. (“Generator” is not defined, but presumably means the operator of the facility. “Related” has the same meaning as the definition in the Companies Act), or

·      the electricity is supplied to a customer on the same property

·      note the use of the word “only”. Only one of the 3 scenarios may be selected. This is not an “and” provision.

Exemption 6 relates to the operation of a generation facility for the sole purpose of providing standby or back-up electricity in the event of, and for a duration no longer than, an electricity supply interruption.

Exemption 7 is for the continued operation of an existing generation facility which, immediately prior to the date of commencement of Amended Exemptions was exempt from licensing.

Note:

·      it will be interesting to see whether or not rooftop solar PV facilities take the view that they were exempt from licensing under the Previous Exemptions or not. There may or may not be a risk in taking this position

Exemption 8 is an interesting (new) exemption relating to the continued operation of an existing generation facility which –

·      was in operation before the Amended Exemptions

·      within 3 months of the Amended Exemptions declares non-compliance with the Schedule to NERSA, and

·      signs an agreement to comply within a time frame specified by NERSA.

Note:

·      it is not clear under what situation non-compliance will be declared

·      it is also not clear which Schedule is being referred to (i.e. the Schedule relating to the Previous Exemptions or the Schedule relating to the Amended Exemptions)

·      it will be interesting to see how it is anticipated that compliance will be achieved if the facility was not compliant (perhaps licensing, but this presupposes that the facility complies with the IRP, or the Minister will consent to deviation from the IRP)

·      this exemption will apply to registration of certain previously non-compliant facilities

Exemption 9 relates to the operation of a distribution facility connected to a generation facility contemplated in the first 6 exemptions and which is used exclusively for the wheeling of electricity from that facility to –

·      the customer, if the electricity is not to be transported through the national grid; or

·      the point of connection, if the electricity is to be transported through the national grid.

Note:

·      this is a welcome new exemption which was not contained in the Previous Exemptions. It will add clarity for operators of private distribution networks who were not sure in the past whether or not they were required to licence their distribution network

·      this exemption only applies to the first 6 exemptions, but because the Amended Exemptions now provide for 10 exemptions, and not 8 as previously contemplated in the draft, the question arises as to whether or not this exemption was intended to provide for exemptions 1 to 8, and not 1 to 6 only

Exemption 10 is a new, welcome, exemption, which provides for the sale of electricity by resellers (who buy electricity from distribution licensees and on-sell to customers), where:

·      the tariff or price charged by the reseller must not exceed the tariff or price that would have been charged if the customers had bought the electricity from a distributor, and/or an operator of a licensed distribution facility to which the bulk point is connected, or where the customers would have been connected

·      a service delivery agreement has been entered into with the distributor

·      the general conditions of the service delivery agreement must have been approved by NERSA

Note:

·      this probably doesn’t apply to sectional title complexes, unless the electricity is resold to the individual owners of the units

·      the service delivery agreement is a requirement for municipalities under the Local Government : Municipal Systems Act

·      hopefully the conclusion of the service delivery agreement, and thereafter its approval by NERSA will not take a long time, as this could potentially delay the use of this exemption

REGISTRATION

·      S9(2) of the ERA stipulates that any person who has to register with the Regulator must do so in the form and in accordance with the prescribed procedure, and an application for registration must be accompanied by the prescribed registration fee: Provided that any person holding a valid licence at the date of a determination contemplated in section 8 must be issued with a registration certificate without complying with the prescribed procedure.

·      It is very important that the “prescribed procedure” be finalised urgently. This especially given the fact that no registration procedure currently exists. It is also important that this procedure be “user friendly”, quick and easy to implement, registrations be processed quickly and that the registration fee is reasonable.

·      Consideration must also be given to :

o   the prescribed application period, the stage during the development of the project by when applicants must register – this impacts costing, timing and viability of the project; and

o   a regularly updated technological interface with the public advising potential generators of the remaining MWs available for allocation.