[SSEG][IPP]Cape Town proposes national renewables procurement scheme for municipalities as it pushes ahead with IPP legal case

Cape Town proposes national renewables procurement scheme for municipalities as it pushes ahead with IPP legal case
26TH MAY 2020
The City of Cape Town is proposing the creation of a nationally coordinated renewable-energy procurement programme through which municipalities are empowered to procure electricity from independent power producers (IPPs).
The City has adopted this position notwithstanding its long-running legal dispute with the National Energy Regulator of South Africa (Nersa) and the Minister of Mineral Resources and Energy dealing with a number of issues around the generation and procurement of renewable energy by municipalities. ADVERTISEMENT
Judgment in the case, which was heard in the North Gauteng High Court on May 11 and 12, has been reserved.
The City of Cape Town is seeking an order declaring that it does not need a Ministerial determination as per Section 34 of the Electricity Regulation Act, alternatively that this section is unconstitutional. Nersa and the Ministry of Energy take the position that a municipality requires a determination in terms of this section before transacting to generate or procure renewable energy. ADVERTISEMENT
The City’s made its views on a possible municipal procurement programme known ahead of a deadline for public comment on draft amendments to the Electricity Regulations on New Generation Capacity that could open the way for municipalities “in good financial standing” to develop or procure their own power generation. It is currently preparing its comments on the draft regulations.
Mineral Resources and Energy Minister *Gwede Mantashe* published the draft amendments on May 5, only days before the court case with the city was due to be heard, and provided for a 30-day comment period.
City of Cape Town Energy and Climate Change Directorate executive director *Kadri Nassiep* has indicated that the City welcomes the acknowledgement, contained in the draft regulations, that municipalities have a role to play in new generation development.
He states, however, that the proposed regulations raise more questions than answers and have fallen well short of providing the clarity the city is seeking through its court action. It is pressing ahead with the legal challenge, therefore, while also preparing a response to the regulations.
In addition, the City has indicated its willingness to engage with both Nersa and the DMRE on the creation of a “sustained, credible, planned and coordinated” framework for a municipal renewable-energy procurement programme – one that takes account of both national supply and demand dynamics and specific municipal requirements.
The City has suggested that the municipal procurement process be run centrally under the aegis of the National Treasury, or the IPP Office, and that any procurement be based on a specific allocation for municipalities in a regularly updated Integrated Resource Plan.
One of the benefits of such a programme, Nassiep avers, is that standardised contracts and processes could be created, which would be helpful to municipalities and investors alike.
It has also been suggested that the Minister of Finance could provide blanket Section 33 Municipal Finance Management Act approvals for those local authorities that are able to meet clearly outlined criteria. Section 33 approvals are essential for agreements in terms of which municipalities commit budget for longer than three years, which would apply to power purchase agreements.
Projects for procurement of energy by municipalities from IPPs would still require the normal licences and permits and could be included as part of the broader Renewable Energy Independent Power Producer Procurement Programme, or REIPPPP.
Given that the projects could fall outside of municipal boundaries, the City may seek adjustments to the socioeconomic development criteria used when evaluating bids and will probably favour value flowing to customers rather than specific community projects associated with the power plants.
Nassiep insists that the city is not motivated, either in its legal challenge or its proposals, by a desire to “go it alone”. Instead it is keen to create the policy and regulatory certainty that all municipalities and IPP investors desire.
He stresses, too, that it could take up to five years for any large-scale municipal IPP procurement programme to materialise not only because of the prevailing uncertainty but also because of the intensive preparations that are required for implementing such a scheme.
The City is also pursuing a range of smaller renewables and energy efficiency programmes in parallel to procuring from IPPs with larger projects. These can be implemented sooner and in line with its objective of becoming a low-carbon city.
There are already plans afoot to enhance the city’s small-scale embedded generation programme as well as to pursue larger-scale distributed generation options of up to 10 MW, which could be City or privately owned.
Initiatives are also being developed to improve energy efficiency across Cape Town, for example it is the City’s objective to have buildings carbon neutral by 2050.