MechChem Africa September-October 2021

Embedded Generation: opportunities from the 100 MW threshold increase ‘The 100 MW Embedded Generation Threshold increase and associated opportunities require an enabling environmental regulatory framework and support’, according to this report from CDH’s (Cliffe Dekker Hofmeyr) environmental law specialists, Margo-Ann Werner, Alecia Pienaar, Laura Wilson and Anton Ackermann. T he insecurity around the risks to South Africa’s energy security, coupled to the economic impacts of COVID-19, has intensified the

business sector’s long-standing call for increased private power generation capac- ity. Following President Cyril Ramaphosa’s announcement in June 2021, the Minister of Mineral Resources and Energy gazetted amendments to Schedule 2 of the Electricity Regulation Act 4 of 2006 (ERA) on 12 August 2021 to increase the exemption threshold for an electricity generation licence (Exemption Threshold) to 100 MW, with self-generating operations now being able to ‘wheel electricity through the trans- mission grid, subject to wheeling charges and connection agreements with Eskomand relevant municipalities’. There is no limitation as to the type of technology to which this capacity exemp- tion applies. Energy landscape and challenges The energy landscape is informed by the 2019 Integrated Resource Plan (2019 IRP), which contains capacity allocations for electricity generated from different technologies, including coal, hydro, stor- age, PV, wind, CSP, diesel and gas. Based on these allocations, the Minister issues ministerial determinations under section 34 of the ERA, specifying the new electrical en- ergy generation capacity requirements and whether an organ of state or independent power producer (IPP) will be responsible for establishing the new generation capac- ity. These ministerial determinations have given effect to various IPP procurement programmes over the years. Whilst load shedding and the associated capacity constraints generally take centre stage in the energy security dialogue, the objections and challenges to environmental permission for energy projects are starting to come to the fore because such challenges have bearing on project development and investor appetite in the energy sector. Alternative technologies to coal-fired energy facilities, such as gas and renew- able technologies, are not immune to environmental challenges with increasing

The Kathu Solar Park in the Northern Cape, which is a dispatchable CSP IPP project with a combined generation and storage capacity of 100 MW. With the lifting of the embedded generation threshold to 100 MW, self-generating operations of this size become possible, with the electricity able to be ‘wheeled’ through the transmission grid, subject to wheeling charges and connection agreements with Eskom and relevant municipalities.

Environmental regulatory developments

objections and appeals lodged in respect of the environmental permits granted to LPG and LNG, solar and wind projects that have been or are to be bid in IPP procure- ment programme rounds. In respect of renewables, this is of particular concern in light of the release of the Renewable Energy IPP Procurement Programme Bid Window 5 Request for Proposals in April 2021, for which bids were submitted on 16 August 2021. Considering the long lead times and extensive costs associated with environ- mental permitting application and amend- ment processes, the legal challenges have the capacity to compromise the projects in their entirety, as they may impact on their ability tomeet IPP procurement programme bid requirements; private sector requests for proposals; and reach financial close. With all of these setbacks amidst a power supply crisis, the increase in the Exemption Threshold is welcomed in encouraging a boom to embedded generation develop- ments as added energy security sources in addition to IPP Programme projects. But this development is only a single piece of a larger integrated regulatory puzzle, with an enabling environmental and associated permitting framework being an equally ma- terial part before benefits of the Exemption Threshold increase can be realised.

The misalignment with timing in environ- mental permitting applications processes, project development, and bidding, has cre- ated practical challenges. This is occasioned by capacity constraints of environmental permitting authorities which may delay approval of applications particularly for environmental authorisation (EA) andwater use licences (WUL). From an EA perspec- tive, and in light of the requirement for an EA for energy generation facilities where the generation capacity exceeds 10 MW (save for PV facilities of up to 10 MW in urban areas or to be developed on existing infrastructure), there have been a number of regulatory updates that streamline and expedite timeframes for certain energy development projects in designated areas. Pursuant to the implementation of vari- ous strategic environmental assessments, the Department of Forestry, Fisheries and the Environment (DFFE) has published various notices in terms of the National Environmental Management Act 107 of 1998 (NEMA), which cater for the identi- fication of: • Geographical areas important for the development of strategic gas transmis- sion pipeline infrastructure, specifi-

30 ¦ MechChem Africa • September-October 2021