South Africa lifts license rules for Private Power Generators

Abolition of license requirements to build power plants of any size

To combat the country's energy crisis, South Africa's President Cyril Ramaphosa announced the lifting of private power generation thresholds, making it easier for private companies to build private power plants of any size and sell it to the national grid. The President is confident that the announcement will lead to increases private investors within the energy sector.

The removal of licence requirements to build private power plants means that the electricity generated by private companies can be used for private consumption as well as contribute to the national power grid. Additionally, Ramaphosa mentioned in his address on Monday, the 25th of July 2022 that owners of rooftop solar panels on houses and buildings will also be able to sell the generated electricity to the grid.

The government has previously been reluctant to reduce its control over the provision of electricity but following recent power shortages, it conceded that more action needs to be taken in order not to threaten economic growth and to continue to attract investment.

In June 2021, the limit for a private power generation permit was raised from 1 MW to 100 MW which already meant a significant increase of the ability of private companies to generate electricity. Just one year after the increase of the threshold, the permit requirement is now fully abolished.

Upcoming power supply tender to be doubled

In his address, President Ramaphosa further announced the doubling of an upcoming tender for renewable energy procurement under the so-called “bid window six” tender. This will increase the tender to 5.200 MW and accelerate South Africa’s transition away from its heavy reliance on coal. Currently, roughly 80% of electricity in the country is generated from coal. The country is now accelerating the transition towards the utilisation of its abundant wind and solar resources.

Change of policy

The Minister of Energy and former coal union leader, Gwede Mantashe has previously delayed the approval for more renewables and has expressed scepticism about the offer from some of the largest economies of the world to finance South Africa’s transition away from coal with US$ 8.5 Billion.

The latest announcement by the President highlights the government’s willingness to tackle the energy transition. The announced measures, if implemented properly, will assist South Africa in reaching its goal of becoming energy independent.

Upcoming steps

In a presentation on Monday, the presidency promoted the need to open up further for private investment in new generation capacity. Further steps that have been announced include:

  • Promoting the recruitment of skilled workers at the state-owned electricity utility Eskom
  • Increasing Eskom’s critical maintenance budget over the next 12 months to ensure reliability
  • Combating sabotage and theft at Eskom
  • Granting Eskom permission to buy surplus electricity from private generators
  • Strengthening the grid by repurposing coal-fired plants for renewable energy generation
  • Import of surplus electricity from neighbouring countries
  • Plan to settle Eskom’s debt by October 2022
  • Holding tenders for the provision of battery storage and natural gas power

Reactions to latest developments

The announcement was received well by businesses in South Africa – several commentators said that the plans are promising but note that transparency in the implementation is key. Cas Coovadia, CEO of Business Unity South Africa (BUSA) said that a clear execution plan, set against hard deadlines and accountability for delivery is required to reach the announced goals. He added that the country and its business sector will benefit greatly from regular and transparent progress reports to ensure businesses abilities to track and plan properly.

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