the energy landscape in south africa: policy and legislation · african mining & metals deal of...

Norton Rose Fulbright South Africa Inc

November 2019

The Energy landscapein South Africa: Policy and legislation

Jackie Midlane

Director

Renewable energy in South Africa

In Brief:

Norton Rose Fulbright has + 7000 people

worldwide, + 4000 lawyers worldwide, +1100

professionals in 56 offices across the world.

Ranked in the Top 5 globally

We are actively involved in numerous

developments in the Energy sector and in

particular on the Africa continent. Mozambique

being a key jurisdiction and in which we

participate in advising sponsors, lenders and

government across all aspects of the energy

value chain.

Head of Projects and Banking and Finance

Director

Tel +27 11 685 8678

[email protected]

Jackie Midlane

Introduction

South African REIPP Procurement

Programme

Overview - There have been 5 successful procurement windows

since the inception of the programme in 2011. We have been

involved in all 5 rounds across all technologies:

Round1 - Of the 27 Preferred Bidders announced, Norton Rose

Fulbright advised Preferred Bidders on eleven solar PV projects,

3 wind projects and 1 CSP Projects.

Round 2 – we advised on 3 wind projects,5 solar PV projects and

one hydro project

Round 3 – we advised on 1 CSP project, 2 wind projects and 2

solar pv projects

Round 3.5 CSP - we advised on 2 CSP projects

Round 4 - Of the 13 Preferred Bidders announced by the

Department of Energy in April 2015, Norton Rose Fulbright

advised Preferred Bidders on nine solar PV projects and one

biomass project.

Recent award winning deals

▪ Project Finance Deal of the year: Enel Green Power RSA

2018 Bonds, Loans & Sukuk Africa Awards 2019

▪ African Solar Deal of the Year - Kita 50.2MW solar PV,

Sikasso, Mali Infrastructure Journal Global Awards, 2019

2

Overview of current Energy mix• Eskom (National Utility) generates approximately 90% of the

electricity used in the country from a number of energy

sources

• South Africa has transitioned from a country reliant on coal,

hydro and nuclear to the current energy mix. Critical

contributor has been the IRP Model

• Balance of electricity is generated by IPPs (mostly solar and

wind) and we also import electricity from Cahora Bassa

• Distribution (final delivery of electricity to end users) is

currently undertaken by Eskom together with various local

municipalities

• South Africa has an abundance of coal, hence the many

existing and newly developed coal powered power stations

• With the responsibility to produce clean energy and

abundance solar and wind resource renewable energy is a

major contributor to the South African energy mix

• South Africa is presently rated as the 12th most attractive

investment for renewable energy

Coal77%

Hydro3% Gas Turbines

6%

Nuclear4%

Renewables7%

Imports3%

Energy Mix South Africa

3

South African Gas resourcesObjectives for Gas

• Developing a gas economy in South Africa

• Encouraging use of gas from indigenous resources and imports from SADC region

• Development of gas utilisation in the

– industrial

– commercial

– transport and

– residential sectors

• Anchor demand

• Note:

– minimum risk to the State and minimum burden on the fiscus.

– Not to impede the development of indigenous gas or development of a regional gas pipeline network.

Available GasSouth Africa has limited gas resources and two main

producers of gas

Most of the gas has come from Mozambique gas fields of

Pande and Temane via the ROMPCO pipeline

Petro SA Gas Production in Mossel Bay4

The Future of Gas to Power in SA

Future Gas

The future of gas of South Africa relies on

regional gas masterplan as there is

substantial scope for the growth of the gas

industry in Southern Africa and greater

scope of Gas in the IRP to be viable

• In February 2019, a massive gas reserve

was discovered off the coast of South

Africa by Total.

• The gas field, called Brulpadda Block,

covers an area of 19 000 km.sq under the

Indian Ocean between George and

Jeffreys Bay.

• Rovuma Gas

Gas is ideally placed to play a leading role in

power generation in South Africa

Legal Considerations:

Electricity regulation Act Gas Act National Ports Act Public Finance Management Act Preferred Procurement Policy

Framework Act Broad-based black economic

empowerment Act Sea Shore Act National Environmental Management

Act Air Quality Act National Water Act Currency and Exchange Act

Additional Legal considerations

Petroleum Products Act Liquid Fuels Charter International Trade Administration Act5


• 7 February 2019 - President announced Eskom would be

unbundled into three separate state owned entities –

responsible for generation, transmission and distribution.

• Need due to poor financial, structural and operational

performance of Eskom

• Recommendation from a President appointed task team

• Task team found that unbundling Eskom would assist in the

allocation of costs and responsibility within the national utility

• Eskom will undergo a formal legal unbundling into three

separate legal entities to be controlled by a holding

company.

• Eskom’s largest source of debt relates to coal purchase and

plant maintenance which falls into generation. Separating

Transmission and and Distribution will enable each entity to

borrow money, secure debt and raise investments separately

• 29 May 2019 - President Ramaphosa announced the

appointment of reconfigured national executive following

2019 South African general elections. President

committed to process of further reforms to promote

coherence better co-ordination and improved efficiency.

• Accordingly - Department of Mineral Resources and

Department of Energy merged into one single

department.

• Department of Mineral Resources and Energy

• Mr Gwede Mantashe appointed as the Minister of the

new consolidated department

Changes in the Energy Landscape

Change in Ministerial responsibility Unbundling of the National Utility

6


South African Integrated

Resource Plan

• Is an electricity capacity plan which

sets out an indication of the country’s

anticipated electricity demand, how

such demand is to be addressed and

the cost thereof.

• IRP provides insight into the

development of the nation’s energy

mix

On 18 October 2019

• IRP 2019 was released and publish

under government gazette

• The Department of Energy

implements the IRP by issuing

ministerial determinations in terms of

section 34 of the ERA

• IRP 2019 confirms that existing

Ministerial determinations will be

revised in line with IRP 2019 and

awaiting new determination to unlock

procurement

In terms of the Electricity

Regulations Act (ERA)

• the National Energy Regulator of

South Africa (NERSA) is required to

issue rules designed to implement the

Integrated Resource Plan.

Integrated Resource

PlanIRP 2019

Electricity Regulations

Act.

Developments in Government Policy

7


• Uncapped procurement of Distributed Generation up to

and including 2020 and then capped at 500Mw/year to

2030

• Includes projects of between 1Mw to 10Mw

• In excess though of 10Mw – requires Ministerial deviation

in accordance with Electricity Regulation Act

• Developers need to apply and obtain exemption in terms

of section 10(2)(g) of ERA before application for license

can be reviewed by NERSA.

• Opportunity cost for mines, commercial and

manufacturing entities?

• Eskom’s restructure called for reconsideration of

Independent Market Operator Bill

• Proposed Bill tabled in October 2019 provides for the

establishment of independent market operator (IEMO)

which will be tasked with the operation of the national

grid and purchase and sale of electricity from generators

to consumers

Developments in legislation or regulation

8

Independent Electricity Management

Operator Bill (Cheaper Electricity Bill)

Ministerial deviation from IRP in respect

of Small Scale embedded generation


Rollout of energy Storage

Electricity prices and

Transmission prices

Petroleum Resources

Development Bill

Challenges to the Single

Buyer Model

Major Events

9


• Support the IPP Office and department with the policy determined

• Implementation of the updated IRP

• Enabling legal framework for gas, renewables, embedded generation

• Finding the best way to make energy cost effective

• Eskom’s successful turn around strategy

• Power generation and evacuation infrastructure (IPP/ITP/ Gas

Infrastructure, Gas availability)

• For brownfields projects, EIAs, PPA reviews, dual fuel tariffs need

consideration

• Promotion of small scale renewable energy generation

• Provision of Energy storage and mini grids

• Government facilitating a competitive and investor friendly regulatory

environment

• Investment – funding of energy project to ensure electricity reaches

all parts of South Africa and Africa

How to succeed

10

Renewable energy in South Africa11

• One firm, one team approach

• Dedicated global network

• 500+ energy lawyers

• Global reputation

• Proven track record

• Market knowledge

• Client focused

• Results driven

• Make a difference

Practice groups

• Business law

• Banking and finance

• Corporate, M&A and securities

• Dispute resolution and litigation

• IP

• Employment and labour

• Real estate

• Tax

• Antitrust and competition

Hybrid industry/practice groups:

• Risk advisory

Norton Rose –a full service Energy practice

Global Law firm of the yearIJGlobal 2018

Africa Law firm of the yearIJGlobal 2018

Project Finance Deal of the year: Enel

Green Power RSABonds, Loans & Sukuk Africa Awards 2019

African Mining & Metals deal of the

year – Pangaea metal purchase with

LonminIJ Global Awards, 2019

Kita 50.2MW solar photovoltaic plant

in Sikasso, MaliIJ Global African Solar Deal of the Year award

in 2019

Africa Biomass Deal of the Year

Ngodwana Energy BusinessIJGlobal 2018

Awards


Global platform

12

* associate office

** alliance

Asia Pacific

Bangkok

Beijing

Brisbane

Canberra

Hong Kong

Jakarta*

Melbourne

Port Moresby

(Papua New Guinea)

Perth

Shanghai

Singapore

Sydney

Tokyo

Europe

Amsterdam

Athens

Brussels

Frankfurt

Hamburg

Istanbul

London

Luxembourg

Milan

Monaco

Moscow

Munich

Paris

Piraeus

Warsaw

Canada

Calgary

Montréal

Ottawa

Québec

Toronto

Vancouver

Latin America

Mexico City

Rio de Janeiro

São Paulo

Africa

Bujumbura**

Cape Town

Casablanca

Durban

Harare**

Johannesburg

Kampala**

Nairobi**

Middle East

Bahrain

Dubai

Riyadh*

USA

Austin

Dallas

Denver

Houston

Los Angeles

Minneapolis

New York

San Antonio

San Francisco

St Louis

Washington DC

Law around the world

nortonrosefulbright.com

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The purpose of this communication is to provide general information of a legal nature. It does not contain a full analysis of the law nor does it constitute an opinion of any Norton Rose Fulbright entity on the points of law discussed. You must take specific legal advice on any particular matter which concerns you. If you require any advice or further information, please speak to your usual contact at

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the energy landscape in south africa: policy and legislation · african mining & metals deal of...

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