New government regulations around renewable energy solutions have opened a world of opportunities for independent power producers (IPPs). What does this mean for the sector, and how can operators leverage it?
First, let’s look at why the government is backing renewables. Protracted load shedding first started impacting South African businesses in 2008. More than a decade later, the challenge hasn’t gone away, and new generation capacity is urgently required to prevent increased load shedding, which is negatively impacting industries across the board, as well as South Africa’s economy. To deal with the issue, the government gazetted the Integrated Resource Plan in 2019, outlining a roadmap for South Africa in terms of future energy supply.
Unfortunately, the rollout has been slow, culminating in load shedding reaching its worst levels in 2021 and all indications are that 2022 will be worse. The good news is that, while load shedding is never positive, the problems facing the national energy grid have prompted the government to shift from supporting centralised power generation to decentralised power generation. They’ve done this by increasing the licensing-exemption threshold for companies to produce their own electricity from 1 MW to 100 MW, opening the doorway to exploring renewable energy solutions.
At a local level, there are over 170 separate municipalities in South Africa and more than 50 have applied to NERSA for feeding tariffs. This means that municipalities are putting the processes and procedures in place to support grid-tied solutions, which will boost the use of renewable energy even further and – hopefully – take some pressure off the national grid as well.
This opens substantial investment and growth opportunities in the renewable energies sector, which should give a much-welcomed boost to the economy.
At a global level, trends such as decentralisation, decarbonisation, and digitisation are also impacting energy production, consumption and how businesses and consumers engage with each other. South Africa’s new focus on the renewable energy sector aligns the country with trends that are shaping the rest of the world.
The opportunity for IPP
The new licensing-exemption threshold offers two key opportunities. First, by increasing the threshold, the Department of Mineral Resources and Energy (DMRE) is encouraging substantial investment into the energy generation sector, which will in turn support economic growth.
The second is the urgent need to diversify energy generation sources away from a single risk entity in Eskom.
So, where are the opportunities? Let’s use mining as an example. Under the new guidelines, a mining company that utilises between 500 and 1,000 megawatts can now generate their own energy and they can even use the national electricity grid to transport the 100 megawatts they produce from one site to another.
Mining houses have been applying for licenses to generate their own electricity for many years, both to ensure energy security and to boost their environmental and sustainability footprints, and so this is definitely a cause for them to celebrate. It’s also an excellent opportunity for IPPs to increase their customer bases and grow their footprints.
For businesses such as mining companies that are also extremely focused on ESG (environment, sustainability, governance), renewable energy like solar power is an important element of ESG strategies as well. From a sustainability perspective, the ability to offset carbon footprints with renewable energy is critical.
Leveraging development zones
Renewable Energy Development Zones (REDZ) are playing a key role in South Africa’s renewable energy opportunities. REDZ are geographical areas where wind and solar PV development can occur in concentrated zones, creating priority areas for investment. Currently, these areas include Atlantis in the Western Cape, Saldanha in the Northern Cape, Gqeberha, East London and Richards Bay. The challenge IPPs are facing is access to skills. Renewable energy projects are highly specialised, and REDZs do not necessarily align with where the skills are. At BLU, we have been working with IPPs to access the skills and expertise they need to begin planning and implementing the projects that will make this one of the sectors to watch over the next few years.
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