On Wednesday 18 March 2020, the National Energy Regulator of South Africa ("NERSA") published two consultation papers: the first, entitled "Concurrence with the Ministerial Determination on the procurement of new generation capacity from the range of energy technologies" in respect of 2,000MW and for which the closing dates for comments is 14 April 2020 (the "Consultation Paper 1"); and the second, entitled "Concurrence with the Ministerial Determination on the procurement of new generation capacity from Renewables (Wind and Photovoltaic), Storage, Gas and Coal technologies" in respect of 11,813MW and for which the closing date for comments is 7 May 2020 (the "Consultation Paper 2"). These consultation papers can be found at http://nersa.org.za/consultation-notices-2/. The purpose of this note is to provide key takeaways on the background and implications of these consultation papers.
Background
In its Request for Information ("RFI") in respect of the Design of a Risk Mitigation Power Procurement Programme, published in December 2019, the Department of Mineral Resources and Energy ("DMRE") observes that the Integrated Resource Plan 2019 ("IRP2019") indicates that there is a short term electricity supply gap of approximately 2,000MW and that Eskom recently updated this figure to 3,000MW. Eskom and CSIR have indicated that the shortfall may be closer to 7,000MW.
For South African households and industry, practically, this means being exposed rolling power blackouts, stifling economic activity and overall wellbeing. Coupled with the human and economic impact of the COVID-19 pandemic, the need for a long term electricity supply solution for South Africa is now beyond urgent. The DMRE published the RFI to identify solutions to South Africa's electricity supply shortfall with the shortest lead times to produce first power.
In the short term, supply and demand side interventions will have to be deployed to minimise the risk of load shedding and excessive use of South Africa's diesel peaking plants. It is also material that approximately 24,100MW of coal fired power plants will be decommissioned in the period from 2030 to 2050, and their retirement and replacement must be properly planned for urgently.
On 21 February 2020, the Minister of Mineral Resources and Energy, Gwede Mantashe (the "Minister"), sent the two draft ministerial determinations (the "Proposed Determinations"), prepared in accordance with section 34 of the Electricity Regulation Act, to NERSA. In accordance with the ruling in the 2017 Western Cape High Court case, Earthlife Africa Johannesburg and Another v Minister of Energy and others, NERSA must base its concurrence with the Proposed Determinations on adequate public participation and consultation. For this reason, NERSA has, approximately one month later, published Consultation Paper 1 and Consultation Paper 2.
We note that NERSA has not disclosed the Proposed Determinations to the public.
Consultation Paper 1
In Consultation Paper 1, NERSA invites public comment on whether it should concur with the Minister's determination on the procurement of 2,000MW of new generation capacity. The Proposed Determination is trying to address the ongoing load shedding challenges in the country by procuring 2,000MW from a range of energy source technologies, for the years 2019 to 2022, as per in Table 5 of the IRP2019. The capacity limit was adopted to deploy practical options to close the gap in the immediate term and minimise the risk of load shedding and/or extensive usage of diesel peaking plants.
Under this Proposed Determination, Eskom is designated as the buyer of the electricity produced, and DMRE is designated as the procurer. It appears that the Proposed Determination contemplates that all this power will be procured from independent power producers ("IPPs").
The deadline for public comment is set at 14 April 2020, just short of a month from the date of this note. Overall, NERSA indicates that it will take 60 working days or approximately three months for it to provide its concurrence on the 2,000MW Proposed Determination. This is on the basis of a fast tracked concurrence process that will only take into consideration written comments from stakeholders but will not have a public hearing where presentations may be made by interested or affected parties. Arguably, even in its truncated form, NERSA's process does not take into account the degree to which South Africa finds itself in an electricity supply emergency.
Consultation Paper 1 has been framed in an unusual way as NERSA sets out specific questions and invites stakeholders to provide inputs in respect of the specific questions, among other comments they may have. This seems to suggest that stakeholders are required to prioritise providing inputs regarding those questions specifically instead of providing their general views and comments on the Proposed Determinations. While this is unusual, there is nothing in law that prevents NERSA from providing guidance on key issues that require comment and they have not limited the scope of the responses to the questions they have posed. However, bearing in mind that IRP2019 was itself the product of an extensive public consultation process, certain of the questions posed by NERSA appear duplicative.
We would assume that the answers to some of the questions included in the Consultation Papers can be derived from the RFI responses. It appears to us that, if it had access to the RFI responses, NERSA has chosen not to rely on them and is instead seeking the answers it requires to concur with the Minister directly from the public.
Consultation Paper 2
In Consultation Paper 2, NERSA invites public comment on whether it should concur with the Minister's determination on the procurement of 11,813MW of new generation capacity, split into:
- 6,800MW to be procured from renewable energy sources (photovoltaic and wind), which represents the capacity allocated under the headings “PV” and “Wind, for the years 2022 to 2024 in Table 5 of the IRP 2019;
- 513MW to be procured from storage sources, which represents the capacity allocated under the heading “Storage”, for the year 2022 in Table 5 of the IRP 2019. It should be noted that storage is defined widely and means a complete electric storage system that can be connected to the Grid. It comprises of two major subcomponents: storage and the power conversion electronics. It mediates between variable sources and variable loads. Consultation Paper 2 lists storage technologies as battery storage, compressed-air energy storage, fly wheel energy storage, and hydrogen fuel cells, amongst others;
- 3,000MW to be procured from gas sources, which represents the capacity allocated under the heading “Gas and Diesel”, for the years 2024 to 2027 in Table 5 of the IRP 2019. It should be noted that the origin or type of gas is not specified and arguably the responses from the RFI and public comments will inform the decision taken by the Department and NERSA on this aspect; and
- 1,500MW to be generated from coal, which represents the capacity allocated under the heading “Coal”, for the years 2023 to 2027 in Table 5 of the IRP 2019. It is unclear if the MWs allocated to coal will be procured under a second round of the Coal Baseload IPP Procurement Programme, but we assume that this will in fact be the case, due to the fact that the tendering procedure shall constitute Independent Power Producer (IPP) procurement programmes as contemplated in the Regulations.
The capacity limit was adopted to deploy practical options to close the gap in the short and medium term and minimise the risk of load shedding and/or extensive usage of diesel peaking plants. Due to the expected decommissioning of approximately 24,100 MW of coal power plants in the period beyond 2030 to 2050, NERSA suggests that attention must be given to the path adopted to give effect to the mix and the preparation work necessary to execute the retirement and replacement of the plants.
Under this Proposed Determination, Eskom is also designated as the buyer of the electricity produced, and DMRE is designated as the procurer. It appears that this Proposed Determination also contemplates that all this power will be procured from IPPs.
The deadline for public comment is set at 7 May 2020. Overall, NERSA indicates that it will take 120 working days or approximately 6 months for it to provide its concurrence on the 11,813MW Proposed Determination.
In our view, the law gives dispensation for NERSA to attenuate the public consultation process in relation to this Proposed Determination also, on the basis of the broader electricity supply emergency that South Africa is experiencing.
As is the case in Consultation Paper 1, NERSA poses a series of questions for consideration by the public in Consultation Paper 2 also and we have similar observations in this regard. The number of questions raised by NERSA is far greater in Consultation Paper 2 as they relate to each generation technology. Again, NERSA's questions appear duplicative in light of the extensive consultation process followed in the preparation of IRP2019.
The process to follow
There will be no hearings in relation to the Consultation Paper 1.
Once NERSA has received comments from the public in relation to the Consultation Paper 2, it will announce the date of the hearings in respect of that consultation paper. We understand that these hearings will be held in camera in light of the COVID-19 pandemic.
NERSA will collate the comments received in relation to each consultation paper and take these into consideration when making its decision on whether or not to concur with the Proposed Determinations. Examining the timetable provided, in relation to the Consultation Paper 1, NERSA will indicate whether or not it concurs in approximately 40 working days from 18 March 2020, i.e. on or about 19 May 2020, and in relation to Consultation Paper 2, NERSA will indicate whether or not it concurs in approximately 90 working days from 18 March 2020, i.e. on or about 29 July 2020. We question whether this timetable truly reflects the urgency of the need for solutions to South Africa's electricity generation shortfall.
We trust that the preparation of the requests for qualifications and or proposals under the resulting IPP procurement programmes will be prepared concurrently to avoid time slippage once NERSA has concurred with the Minister.
Should NERSA decline its concurrence with the Minister, the process would need to start afresh, with DMRE producing new draft determinations for concurrence by NERSA. The resulting delay would, in our view, leave South Africa and its people in a weak and undesirable position.
