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South Africa

Governmental Framework

Enabling Environment

There is a range of stakeholders active in the renewable energy sector in South Africa. Department of Energy (DoE) is mandated with implementing national energy policy. NERSA acts as the independent regulator of the energy sector, inclusive of the electricity sub-sector. Transmission, distribution and a majority of generation assets are owned and operated by the state utility, Eskom. The utility has an obligation to purchase power from independent power producers, inclusive of the REIPPPP that has so far procured/contracted 6,300 MW of renewables which will be implemented up to 2021.

 

Government Institutions and Major Stakeholders

Department of Energy (DoE)

DoE is responsible for energy planning, policy formulation and implementation, relevant sub-sectors include electricity generation, transmission/distribution, energy efficiency and electrification. It is within its mandate to draft the Integrated Resource Plan (IRP) that determines required generation capacity and distinguishes between capacity to be implemented by Eskom and IPPs. Its IPP office manages the public procurement programme for IPP projects based on coal, gas and renewable energy generation. Following the unprecedented number of contracts signed with IPPs, a formal Independent Power Producer Office is to be created to manage the obligations under these contracts in a more structured manner.

 

National Energy Regulator of South Africa (NERSA)

The electricity, gas and petroleum pipeline industries are regulated by NERSA, an independent regulator established under the 2004 National Energy Regulatory Act. NERSA issues, among others, generation licenses and enforces their compliance, regulates all tariff increases proposed by Eskom, provides national grid codes, develops regulatory rules for relevant industries and determines the applicable standards.

 

South African National Energy Development Institute (SANEDI)

SANEDI is a state-owned institute, acting as DoE’s implementation agency to reach energy goals. SANEDI’s main function is to direct, monitor and conduct applied energy research, development, demonstration, and deployment as well to undertake specific measures to promote the uptake of green, low-carbon energy and energy efficiency in South Africa.

 

Eskom

The national utility Eskom is responsible for generation, transmission and distribution of electricity to industrial, mining, commercial, agricultural and residential customers and redistributors. Eskom is a single buyer of electricity produced by numerous IPPs and it oversees all grid operations, including the connection of new customers and provision of continuous service.

 

Municipalities

137 municipalities are currently distributing electricity in certain areas of the country where Eskom is not directly supplying electricity to end-users. Historically more than 500 municipalities were engaged in electricity distribution. Certain municipalities also hold coal, gas and pumped storage generation capacity.

 

Relevant IPP Associations

South African Renewable Energy Council (SAREC)

The main objective of SAREC is to promote the renewable energy sector in South Africa by acting as an umbrella body to the industry associations representing specific renewable energy technologies (e.g. wind, solar, biogas). SAREC facilitates public-private sector coordination and provides expert outcomes relevant for development of the RE industry in South Africa.

 

South African Wind Energy Association (SAWEA)

Representing the wind industry, membership is made up of national and international entities in the entire wind energy supply chain. The association is affiliated to the Global Wind Energy Council (GWEC). SAWEA has been instrumental in securing a large share of the total planned capacity for wind energy in the IRP 2010.

 

South Africa PV Industry Association (SAPVIA)

A not-for-profit association representing members largely made up of developers, manufacturers and service providers operating within the Photovoltaic (PV) industry. The association is devoted to promoting the growth of South Africa’s Solar PV electricity market and representing the industry to provincial and national Governments.

 

Southern African Solar Thermal and Electricity Association (SASTELA)

SASTELA is an association promoting the deployment of Concentrated Solar Power (CSP) stations, as well as the localization and industrialization of CSP components, in the SADC Region.

 

Sustainable Energy Society of South Africa (SESSA)

SESSA is the longest standing sustainable energy association in South Africa, founded in 1974. It is a member of the International Solar Energy Society (ISES). SESSA supports energy efficiency and RE with a focus on Solar Water Heating and small-scale (residential) PV installations.

 

South African Independent Power Producers Association (SAIPPA)

The association promotes the interest of IPPs, and considers all forms of energy Generation.

 

Southern Africa Biogas Industry Association (SABIA)

Established to represent the biogas industry in South Africa, SABIA aims to promote the needs of industry stakeholders and facilitate the development of a prosperous biogas industry in Southern Africa.

 

Strategies, Policies, Acts, and Regulations

The energy sector is regulated by a number of policies, laws and regulations to ensure diversification, affordability and availability of energy resources and to provide access to reliable energy services. Since the 2006 Electricity Regulations Act in conjunction with 2011 regulations on new capacity, independent power producers are allowed to participate in a public bidding programme to install generation capacity from both renewable and non-renewable energy sources. Based on an Integrated Resource Plan (IRP) from 2010, an initial 3,392 MW have been connected to the grid. In November 2016, Cabinet approved the revision the Integrated Energy Plan (IEP) and the Integrated Resource Plan (IRP) that is currently undergoing public consultation.

 

White Paper on Energy Policy (1998) and White Paper on Renewable Energy (2003)

The 1998 White Paper defines specific objectives for energy sector:

  • Increase access to affordable energy services;
  • Improve energy governance;
  • Secure supply through diversity;
  • Stimulate economic development, and
  • Manage energy-related environmental and health Impacts.

The Policy calls for achieving a more sustainable energy mix by development of the country’s renewable energy potential and outlines challenges in energy supply and demand. The White Paper of 2003 mentions a non-mandatory renewable energy target for the first time.

 

National Energy Act 34/2008

The Act addresses security of energy supply, optimization and utilization of energy production and integrated energy planning. The Act supports the implementation of energy efficiency measures and creates the South African National Energy Development Institute as a public entity to undertake research for advancing energy development. The Act was later accompanied by regulations on mandatory provision of energy data.

 

2006 Electricity Regulations Act 20011 – Regulation on New Generation Capacity (ERA, amended in 2015)

The regulation on new generation capacity (2011) establishes rules and guidelines that are applicable to the undertaking of an IPP Bid Programme and the procurement of an IPP for new generation capacity for coal, gas and renewables. It also facilitates the fair treatment and non-discrimination between IPPs and the buyer of the energy. The regulation is thus the legal backbone of the REIPPP.

The amendment provides an extended definition of new generation facilities to include existing generation facilities not previously supplying electricity to the national grid and/or an extension or renewal of existing supply agreements from existing generation facilities for an additional period.

 

South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP)

REIPPPP, overseen by the DoE IPP office, replaced the feed-in tariff mechanism in 2011 and consists of a number of technology specific tenders for renewable energy. Since its inception, 6,590 MW were procured in 4+ bidding rounds to date, awarding 95 onshore wind, solar PV, concentrated solar and small biomass and hydro projects. As of October 2016, 54 power plants with the capacity of ~2,800 MW were fully operational and 15% of the delivered energy was supplied into the grid during system peak periods, alleviating pressure on the power system. The bidders offer prices for 20-year Power Purchase Agreements (PPA) with Eskom with governmental guarantees, with requirements on local content and black ownership. Eskom is currently, however, insisting to not sign PPAs in addition to the already existing ones, stating that additional generation would lead to capacity excess and negative implications for its future financial performance.

Specific rules for the renewable energy IPP programme are:

  • 30 % of total bid value attributed to non-financial indicators such as economic development
  • At least 40% of each project be owned by a South African entity with Level 5 contributor status (as defined by the final B-BBEE Codes of Good Practice, operational as of the date of publication in Government Gazette, No. 29617, 9 February 2007)
  • Bid requirements also include shareholding by black South Africans across the value chain
  • A minimum ownership of 2.5% by local communities is required as procurement condition
  • No more than 60 percent of project capital investment consists of foreign currency.
  • Local content requirements above 40%

 

2011 Integrated Resource Plan (IRP) 2010-2030 (updated in December 2016)

The IRP was adopted in 2011 as the official long-term government plan for new electricity generation capacity, including timing and quantities of electricity sources contributing to the county’s generation mix. It aims to double the electricity generation capacity through a diversified energy mix: mainly coal, gas, nuclear and renewables. IRP includes a strong reliance on renewables: 42% of all added capacity by 2030 should be by renewable generation, equivalent of 17,800 MW (compared to 9,600 MW planned addition to country’s nuclear capacity). To achieve this goal, the government has opened several bidding rounds to procure renewable energy under its REIPPPP. The second update of IRP has been released for public comment and engagement in December 2016. The IRP development and update is based on reduced electricity demand forecasts and thus reduced capacity needs. Renewables and gas are the most important capacity additions with nuclear power additions delayed to beyond 2030.

 

2015 Integrated Energy Plan (IEP, not yet approved)

In line with terms set in the 1998 White Paper and in 2008 National Energy Act, the Minister of Energy is mandated to develop and, on an annual basis, review and publish the IEP in the Government Gazette. Compared to the IRP that focuses on electricity generation, IEP outlines a holistic energy plan for the country and aims to guide the development of energy policies and, where relevant, set the framework for energy sector regulations. The purpose of the IEP is to provide the future landscape of energy infrastructure investments and policy development. IEP addresses energy demand balanced with energy supply, transformation, economic and environmental considerations regarding available resources. This Plan was also released for public comments in December 2016.

 

Integrated National Electrification Programme (INEP, updated in 2016)

INEP has been running since 2001 under the DoE as a complementary measure to the 1998 Energy White Paper with an objective to deliver universal energy access to rural households. Policy guidelines for implementing agencies (Eskom, municipalities and non-grid service providers) were released in March 2016 to provide a uniform set of standardized supply options and connection fees, as well as a uniform approach to tariffs and subsidies for customers of all licensed electricity providers. The Free Basic Electricity tariff was introduced under this programme in 2004.

 

New Households Electrification Strategy (2013)

The Cabinet approved NHES in June 2013 with a target of providing 300,000 rural households for off-grid electrification through SHS installations and other cost-effective, non-grid RE technologies (e.g. mini-grid or hybrid systems). Under the NHES, all efforts are directed at aligning the programme with the goals of the UN’s SE4All initiative.

 

2030 National Development Plan (NDP, 2013)

The NDP outlines a long-term plan to eliminate poverty and reduce inequality in South Africa by 2030. In terms of energy, it calls for improving energy infrastructure in a sustainable way, increasing investments in energy efficiency, reducing carbon emissions by diversifying the energy mix and procuring of at least 20 GW of renewable energy by 2030. The NDP emphasizes the revision of the national electrification plan to ensure 90% grid access by 2030 with balance met through quality off-grid technologies.

 

Small Projects Renewable Energy Independent Power Producers (IPPs) Programme

On 1 April 2014, the South African government launched stage one of its small-scale renewable energy tender programme, with 200 MW available across various technologies. The total allotment for small projects was later expanded to 400 MW. In October 2016, the energy minister announced the 10 preferred bidders for the first round of the Small Projects Renewable Energy Procurement Programme. Future rounds have not yet been announced.

Under the rules of the bidding programme each project will have a capacity of 1 – 5 MW. The price cap for each technology on 1 April 2013 was:

  • Onshore wind – ZAR 1,000/MWh ($108.2)
  • Solar PV – ZAR 1,400/MWh ($152.39)
  • Biomass – ZAR 1,400/MWh ($152.39)
  • Landfill gas – ZAR 940/MWh ($102.38)

The programme intends to strengthen the local supply chain through stringent local content regulations. The implementation has faced challenges given that financiers have been hesitant to finance small-scale power Projects.

 

2007 Biofuels Industrial Strategy and 2012 Biofuel Mandatory Blending Regulation

The South African Cabinet approved the national Biofuels Industrial Strategy in December 2007 to ensure the sustainable development of the biofuels industry. The regulation for mandatory blending of bio-ethanol (2 – 10%) and biodiesel (>5%) came into effect in October 2015.

 

Carbon Tax

The levy was set out in its second carbon tax policy paper in May 2013, which established timelines and pricing, originally for implementation in 2015. The treasury published on 2 November 2015 a draft carbon tax bill for public comment, followed by draft regulations on the use of carbon offsets on 20 June 2016 and a modelling report on 10 November 2016. In October, finance minister Pravin Gordhan suggested that it would be implemented in 2017. An initial marginal carbon tax rate of ZAR 120/tCO2 will apply. However, taking into account tax-free thresholds, the effective carbon tax rate will vary between ZAR 6 and ZAR 48/tCO2. In phase 2 (from 2021), these thresholds may be reduced or replaced with absolute emission thresholds.

 

Investment Considerations

Laws and Regulations Governing Foreign Direct Investment

The government of South Africa is generally open to foreign investment, however scrutinizes merger- and acquisition-related foreign direct investment regarding its impact on jobs and local industry. Certain sectors require government approval for foreign participation, including the energy sector.

South Africa’s Broad-Based Black Economic Empowerment (B-BBEE) program has a significant effect on foreign investment. A BEE “Scorecard” rates a firm’s commitment to economic transformation using five different dimensions—ownership, management control, skills development, enterprise and supplier development, and socio-economic development. Non-compliance with certain thresholds can result in penalty.

Non-residents may freely transfer capital in and out of South Africa, however transactions must be reported to authorities. Special Economic Zones were approved in 2014 and are in the process of being created. These zones will provide tax and tariff incentives for manufacturing in specified Locations.

 

Potential Investment Incentives

South Africa Energy Efficiency Tax Deduction

On 1 November 2013, legislation was implemented whereby a tax deduction was approved for businesses that achieve energy savings. Draft regulations published in July 2015 indicate that the rebate will be increased from ZAR 0.45/kWh to ZAR 0.95/kWh. All businesses can apply to take part in energy reduction savings measures which will be deducted from their taxable income.

 

Accelerated Depreciation Allowance

Renewable energy and biofuels producers receive a three-year accelerated depreciation allowance for capital equipment. Draft regulations published in July 2015 indicate that some types of PV plants may qualify for a shorter one-year, 100% depreciation. In particular, it is proposed to improve this incentive from three years to one year, for embedded PV plants with capacity up to 1 MW for self-consumption.

 

Green Energy Efficiency Fund

The fund provides long-term credit financing to small- and medium-sized enterprises that are looking to become more energy efficient and introduce the use of renewable energy in their businesses. Companies that qualify for funding can receive a loan of between ZAR 1-50m ($0.13-6.28m) at the prime lending rate (9% as of the end of March 2014) less 2% for larger amounts, with a tenor of 15 years.

ZAR 500m ($62.8m) is available under the programme, which is sponsored by the Industrial Development Corporation and KfW. Disbursements from the fund have included various rooftop PV systems and a 7.8MW CHP plant, which has reduced its CO2 emissions by 46,000 tons per annum.

 

Green Fund

The Green Fund is a $74m fund with a mandate to provide early stage financing for green initiatives and be a catalyst for job creation and poverty reduction. The initial allocation of the fund was ZAR 800m ($74m). The total allocation available to a single project is up to ZAR 70m, which occurs across three stages: during stage 1 (R&D) a business can be awarded up to ZAR 15m, in stage 2 and 3 (preparation and implementation) ZAR 35m, and in stage 4 (expansion) ZAR 20m.

There are three themes under which the fund invests: green cities and towns, the low carbon economy, and environmental and natural resources management. The main focus areas under the green cities and towns and low carbon economy are sustainable transport, renewable energy, biogas and biofuels, and energy efficiency/demand side management.

Funding instruments available include: grants (recoverable and non-recoverable), loans, equity (preference and ordinary) and financial guarantees.

 

South Africa - Electricity Sector

Available statistics:
Capital
Pretoria
Official language
11 official languages, however English commonly used Government language
Population (2015)
54.957 million
Population growth (2015), %
1.6
Median age of population (2015), years
26.5
Urbanization rate (2015), % p.a.
2.4
Urban population (2015), % of total
64
Rural population (2015), % of total
36
Population density (capita.km2)
45.3
HDI (2015)
0.666
National Currency
South African Rand
Exchange rate (01/2017), USD
13.7531
GDP (2015), USD billion current
314.57
GDP growth (2015), %
1.3
Mean GDP growth (2010-2015), %
2.28
GDP growth forecast (2016-2020), %
1.36
GNI per capita, PPP (2015), USD (current international $)
12,880
Inflation (2015), %
4%
Foreign Investment (2014), USD billion
1.575
ODA (2014), USD billion
1.070
Budget deficit (2016), %
- 3.3
TI Corruption Index (2015), rank out of 167
4.4, rank 61
Rural Population below poverty line (2010), %
77
Urban population below poverty line (2010), %
39.2
Commercial lending rate (2015), %
9.4
Installed Generation Capacity (MW, 2016), Eskom:
45,075
Installed Generation Capacity (MW, 2016), IPPs:
3,392
Installed Generation Capacity (MW, 2016), Municipal:
1,850
Installed Generation Capacity (MW, 2016), Total
50,317
Effective Fossil Fuel Capacity (MW, 2016)
40,556
Effective Hydro Capacity (MW, 2016)
2,184 inclusive of pumped storage
Other RE Capacity (MW, 2016)
2,235
Renewable electricity output as % of total electricity output excl. hydro (2016)
~3
Avg. distribution and transmission losses as % of output (2016)
8.6
Net electricity imports (GWh, 2016)
- 3,762
Electrification rate, total (%, 2013)
85
Electrification rate, urban (%, 2013)
95
Electrification rate, rural (%, 2013)
77
Peak demand (MW, 2016)
34,481
Per capita electricity consumption (kWh, 2013)
4,326
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