LICENSING PROCESS AND REQUIREMENTS

LICENSING PROCESS AND
    REQUIREMENTS

OUTLINE OF THE PRESENTATION

•   BACKGROUND AND LEGISLATIVE MANDATE

•   REQUIREMENTS FOR LICENSING

•   DESCRIPTION OF THE APPLICANT AND ADMISNISTRATIVE ABILITY

•   PERMITTING AND TECHNICAL INFORMATION

•   FINANCIAL INFORMATION AND ANALYSIS

•   ECONOMIC INFORMATION AND LEGAL ANALYSIS

•   REGISTRATION PROCESS

•   CONCLUSION

BACKGROUND AND LEGISLATIVE MANDATE

 Section 10(1)(a) of the Electricity Regulation Act (the Act) states that: “A
  person who has to hold a licence in terms of section 7 must apply to the
  Regulator for such licence in the form and in accordance with the
  prescribed procedure”

 Section 10(1)(b), states that: “Such an application must be accompanied
  by the prescribed application fee”

 However, the prescribed licensing fee has waivered because generation
  facilities pay licensing fee once licensed and they are operational

 Section 10(2) (a) to (h) specifies all the requirements that must be included
  when applying for a generation licence
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BACKGROUND AND LEGISLATIVE MANDATE (cont.)

   One of the most important requirement for licensing is Section 10(2)(g)
    states that: “evidence of compliance with any integrated resource plan
    applicable at that point in time or provide reasons for any deviation for
    the approval of the Minister”

   On 2 may 2019, NERSA received a letter from the then Minister of Energy
    granting deviation from the existing IRP 2010-2030 for licensing of
    operation for generation facilities ranging above 1MW up to 10MW

   The MW allocation for this category of generation is 500MW annually

   It is important to clarify that the Minister did not direct NERSA to
    automatically approve licence applications for operation of small-scale
    generation facilities without following due process
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BACKGROUND AND LEGISLATIVE MANDATE (cont.)

 In terms of section 10(2)(g) of the Electricity Regulation Act, 2006 (Act No.
  4 of 2006), the Minister has powers to approve deviation from compliance
  with the Integrated Resource Plan, and with this letter, the Minister
  exercised these powers

 To give effect to this deviation, NERSA will follow due process, and adhere
  to the legal prescripts in evaluating all licence applications embedded
  generation, as contemplated in section 10 of the National Energy Regulator
  Act, 2004 (Act No. 40 of 2004), read with the Promotion of Administrative
  Justice Act, 2000 (Act No. 3 of 2000) and the Electricity Regulation Act of
  2006

 NERSA has been inundated with a number of queries from various
  stakeholders seeking clarity on the Minister of Energy’s letter approving
  deviation from the Integrated Resource Plan (IRP) 2010-2030                     5

BACKGROUND AND LEGISLATIVE MANDATE (cont.)

    Section 13(1) of the Electricity Regulation Act: “The Regulator must
     decide on an application in the prescribed manner within 120 days-

A.   (1) After the expiration of the advertisement period, if no
B.     objections have been received; or

C.   (2) After receiving the additional information that may be
D.     necessary to consider the application

 To ensure efficiency in evaluation of generation licence applications;
  NERSA designed a generation licence application form that guides the
  applicants on the information to be provided

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REQUIREMENT FOR LICENSING

• NERSA evaluates generation licence applications on the following seven
  aspects:

       a description of the applicant
       Evidence of administrative ability
       Permitting including environment and land permits
       Technical information and analysis
       Financial information and analysis
       Economic information and analysis
       Regulatory and Legal analysis

DESCRIPTION OF THE APPLICANT AND
                ADMISTRATIVE ABILITY

• A description of the applicant, including vertical and horizontal
  relationships with other persons engaged in the operation of generation
  facility

• Including location, GPS co-ordinates, maps and diagrams where appropriate

• The administrative ability includes the structure of the applicant (project
  company) in terms of the owners of the generation facility

• All shareholding should be divulged and relationships clearly specified

• Evidence of the ability to operate the plant should be demostrated

PERMITTING & TECHNICAL INFO

• All the permits should accompany the licence application such as :
        Land acquisition through purchase or lease or any land usage agreement
        Environmental Impact Assessment (EIA)
        Record of Decision (ROD) for Environmental Authorization
        Permits from South African Civil Aviation Authority
        Water rights

•   Technical information of the project that include the following amongst others:
      Technology used
      Technical feasibility studies e.g. radiation studies for Solar projects or wind studies for
       Wind projects
      Connection to the grid arrangements/ wheeling agreements where applicable
      Single line diagrams of the network connection as well as single line diagrams of the
       generation station
      Fuel to be used and the concluded fuel supply

FINANCIAL INFO AND ANALYSIS

• Financial information includes the following amongst others :
        Project finance or corporate finance
        Financial model
        Capital cost of the project
        Operational and fixed costs
        Internal rate of return
        Pay-back period
        Cost of debt and debt period
        Debt and equity ratio

•   A signed Power Purchase Agreement (PPA) showing the agreed tariff should be part
    of financial agreements

ECONOMIC INFO AND LEGAL ANALYSIS

• Economic information includes the following amongst others :
    economic benefits of the project to the local community and South
     Africa as a whole
    Economic indicators such as shareholding that includes community
     involvement
    Jobs created during construction and operation
    Skill levels and skills transfers
    Where possible, indirect jobs may also be stated if they can be
     quantified

•   All the information supplied should comply with the Laws of South Africa
    including regulatory compliance

LICENSING PROCESS
                                 NERSA receives application

                            Checks for information adequacy

If information is adequate, NERSA informs the applicant and start processing the application
(it happens sometimes that NERSA only realize the inadequacy of information when it starts
             processing the application, e.g. that the PPA has defective clauses)

          Applicant is advised to advertise the application in local newspapers

         NERSA analyze the objections/complements in the Aide Memoir

              NERSA advertise and hold a public hearing

      Information gathered from public hearings is incorporated in the Aide Memoir

The Submission is tabled before the Electricity Subcommittee where it
       will be considered and recommended to the Energy Regulator

The submission is considered by the Energy Regulator where a final decision is taken

The applicant is informed of the Energy Regulator’s decision.

CONCLUSION

• For projects above 1MW up to 10MW, the Minister of Energy gave a
  blanket approval to deviate from IRP so the last requirement is licensing
  process which include public participation

• For project above 1MW, evidence of compliance with the Integrated
  Resource Plan (IRP) should be submitted

• If the proposed generation facility is above 10MW and it is not in the IRP,
  reasons for deviation should be submitted for approval by the Minister in
  accordance with Section 10(2)g of the Electricity Regulation Act

• Regulation on new generation capacity is still valid for projects above
  10MW as gazetted (11 May 2011)

Thank You

Any Questions