TurnerLegal Regulatory Consulting & Compliance (Pty) Ltd. Reg. No: 2013/110067/07

Legislation helps towns get in on power generation

Legislation helps towns get in on power generation

Alexis Levor The renewable energy independent power purchaser procurement programme has been an enormous success at national level. Now the broad legal framework exists to enable municipalities to enter into smaller versions of the big renewables projects the government has concluded in terms of the programme.

Section 151 of the Constitution provides the framework for municipalities to take advantage of the programme and boost their revenues. It gives them the broad power to govern their own affairs, as regulated in detail by the Municipal Finance Management Act, Municipal Structures Act and Municipal Systems Act. This legislation permits local utilities to conclude power purchase agreements with independent power producers (IPP).

The Electricity Regulation Act does not exclude the possibility of local authorities making money from electricity jointly with IPPs. The National Electricity Regulator of South Africa (Nersa) recently issued for comment a paper on the rules pertaining to such projects. There should have been a decision on the rules for embedded generation, but we await their publication on the Nersa website. Already there is a sharp increase in the number of projects being proposed by foreign investors to local authorities. Notable examples include the Western Cape municipalities of Beaufort West, Cederberg and Witzenberg.

The Darling wind farm is an example of a commercial renewable energy project set up by a municipality (the City of Cape Town) and an IPP. It is a partnership between the Central Energy Fund, the Develop ment Bank of South Africa, the Danish government, the private Darling Independent Power Producer, and Cape Town. Its annual generation of eight gigawatt hours from four wind turbines is fed into the nearby Eskom electrical network. In KwaZulu-Natal, the eThekwini municipality is pioneering the generation of electricity from landfill sites at Marianhill and Bisasar Road.

The potential for municipalities to become generators of their own power is significant because it decentralises power generation, which is emerging as a key risk-mitigation strategy around the globe. Another important consideration is that generating power closer to where it will be used makes sense in terms of physics: the longer the transmission lines, the greater the loss of energy. Long power lines also add a heavy maintenance burden, which is why modern power generation plans focus on small-scale plants, connected by a smart grid. If municipalities integrate local economic development with their projects, in line with government supply-chain regulations, local suppliers get work, skills are transferred and long-term jobs are created.

The recent threats that Eskom will not abide by its financial obligations in terms of the programme’s power purchase agreements lends additional weight to go this route. The legal framework for it exists. Alexis Levor is the head of commercial and renewable energy at Turner Legal Consulting, a legislative development and regulatory compliance consulting service provider