This article is an update on the renewable energy article published in March 2017 (see here)

Government needs to set the rules to favour renewable energy. The legal and regulatory framework forms the foundation for building a sustainable renewable energy infrastructure. In countries such as China, environmental issues have become the reasons for mass demonstrations. As a result, the Chinese government changed its plan for renewable energy and China is now experiencing a renewable energy boom. In Germany, at least 30% of electricity generated is from solar and wind, with over 2 million citizens delivering to the grid with household renewable systems.

In South Africa the growth of renewable energy projects by independent power producers (IPPs) is however being held back due to the 2007 determination by the Minister of Energy in terms of Section 34 of the Electricity Regulation Act 4 of 2006 (ERA). This determination only allows ESKOM to be the sole purchaser of electricity thus preventing Municipalities from purchasing electricity directly from IPPs. If a Municipality or an IPP were to produce its own electricity, it would have to do so for its own consumption. ESKOM Holdings Soc Limited is accordingly the sole entity empowered to purchase energy and enter into power purchase agreements with IPPs.

The functions and powers of Municipalities are set out in Chapter 5 of the Municipal Structures Act of 1998, which states in Section 84(1) that: “A district municipality has the following functions and powers: […] (c) Bulk supply of electricity that affects a significant proportion of municipalities in the district.” The definition of bulk supply of electricity should be interpreted to include not only the transmission and distribution of electricity, but also the generation of electricity. This however contradicts the responsibility of municipalities as set out in the Constitution of South Africa 1996 Section 156(1) to only reticulate electricity (including the trade or distribution and services associated therewith).

The emergence of IPPs was not anticipated when the applicable legislation was passed, and since Municipalities are responsible for electricity supply to their constituents, they should be able to access energy from sources other than ESKOM. It is for this reason that the City of Cape Town applied for a Section 34 determination in 2015 to allow them to procure renewable energy directly from IPPs. The Minister of Energy recently informed the City of Cape Town that she had placed a hold on all new determinations.

In light of the stance taken by the Minister of Energy, the City of Cape Town launched a High Court application last week, seeking the following substantive orders:

• Declaring that a determination by the Minister of Energy in terms of Section 34 of the ERA is not required for an IPP to create new capacity for the generation of electricity; to produce electricity by the capacity so created; and to sell the electricity so produced to the City of Cape Town;

• If it is held that such a determination is required, then the City of Cape Town claims an order declaring that Section 34 is unconstitutional and invalid;

• If it is held that such a determination is required but Section 34 is not declared invalid with immediate effect, then the City of Cape Town claims an order that the Minister of Energy determine the City of Cape Town’s application for such a determination, made on 3 November 2015, within one month of the order.

The outcome of the City of Cape Town’s application will pave the way for the future of renewable energy IPP projects in South Africa.

References:

• Before The Flood. (2016). USA: Fisher Stevens.

Brett Cotterell
C & A Friedlander Inc.

This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)

The legal challenges of selling clean electricity directly to municipalities
Tagged on: