Picture: NickyPe/Pixabay
Picture: NickyPe/Pixabay

The downside of unregulated independent power generation

By Dominic Naidoo Time of article published Jun 15, 2021

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While there has been a broad welcome for President Cyril Ramaphosa’s announcement that independent power generators will be able to provide the country with electricity up to a maximum of 100-megawatt hours each, not everyone is delighted.

Allowing independent power producers (IPP) to generate and sell power will ease pressures on Eskom, introduce more competition into the market and allow for renewable energy to become an economically viable, long-term option.

The new regulations will exempt IPPs from the extensive and often laborious red tape that comes with licensing a power generator with the National Energy Regulator of South Africa (Nersa).

The decision will give smaller power producers a chance to break Eskom’s monopoly on the country’s power supply, and create a competitive market which in turn could push down electricity prices and open the door to larger renewable energy investment opportunities.

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But could there be downsides to unregulated independent power generation?

Avena Jacklin, head of Climate and Energy Justice at groundWork and Friends of the Earth South Africa, believes there could.

“While we welcome the president’s announcement… we do have several concerns.

“The embedded generation allowance is not exclusively for renewable energy generation.

“The burning of liquid natural gas, diesel or other fossil fuels is considered carbon-intensive energy generation that will add to greenhouse gas emissions responsible for the acceleration of climate change. This may also have implications for the new carbon tax regulations.

“Clarity must be obtained on whether embedded generation will include incineration projects which are highly problematic for their greenhouse gas emissions as well as toxic carcinogenic air emissions,” said Jacklin.

There was also the potential for corruption when it came to municipalities, she said. GroundWork was concerned that allowing municipalities the discretion to approve grid connection applications from IPPs in their networks, based on an assessment of the impact on their grid, could provide opportunities for corruption and bribes.

“In addition, the inconsistency in tariff charges across the country, including storage tariffs and new tariffs that may be imposed, will exacerbate high and uneven tariff structures. Wheeling charges and connection fees are uncertain at this stage, and this is expected to impact on the cost of self-generation.”

She said the initial cost of embedded generation – the small-scale production of power by private entities – was high. This would make it potentially affordable to corporates and high to middle-income earners but exclude close to 60% of South Africans who simply would not be able to afford to generate their own power.

She pointed out that heavy industry and large manufacturers use most of the electricity generated by Eskom – and pay most for it. This allows for a relatively cheaper residential power supply because the cost is shared by all users. If the large power users opt-out of the grid, the costs of power generation will be transferred to consumers who cannot self-generate.

“The government needs to introduce a policy to prevent a situation where high-income groups and corporates leave the grid, leaving low-income groups to pay for it. This will create energy slums as the poor will not be able to afford high tariffs and the grid will not be utilised or paid for.”

Jacklin said support for socially-owned renewable energy systems for poor communities would have to be included in the government’s Economic Reconstruction and Recovery Plan, as part of the presidential commitment to a just transition to renewable energy.

This should include livelihood and job opportunities from local manufacture of renewable energy components, with opportunities for installation, repair, recycling and maintenance.

“Communities and workers from the fossil fuels sector can be given new opportunities in a cleaner energy future that addresses the poor and marginalised of South Africa.”

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