Eskom had in May this year applied to reserve and/or preserve grid connection for IPP projects participating in the procurement programmes of the Department of Mineral Resources and Energy.
Eskom’s efforts to “protect public procurement programmes and improve their prospects of success” have been dealt a blow as private independent power producer (IPP) projects race to grab up already limited grid space, after the National Energy Regulator of SA (Nersa) rejected Eskom’s application for grid capacity reservation.
Eskom had in May this year applied to reserve and/or preserve grid connection for IPP projects participating in the procurement programmes of the Department of Mineral Resources and Energy (DMRE) (section 34 IPP projects).
This comes as the Seventh Bid Submission Phase of the DMRE Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to facilitate the procurement of up to 5 000 megawatts is currently open and expected to close on August 15.
In its application, Eskom said: “It is in the public interest that government’s energy procurement programmes should succeed. Recent amendments to Schedule 2 of the Electricity Regulation Act 4 of 2006 (ERA) have opened competition for limited grid capacity between section 34 IPPs and private IPPs. This development has led to private IPPs moving at a much faster pace to secure grid connection capacity and bring new generation capacity online. This has been at the expense of section 34 IPPs, which must go through a moribund DMRE energy procurement process.
Without any form of protection, public procurement programmes remain incapable of competing with the much more agile and well-funded private sector energy procurement programmes.
“Grid connection capacity constraints culminated in the disappointing outcome of the REIPPPP Bid Window 6, with the DMRE IPPO only able to award 1 000MW to solar photovoltaic (PV) projects and 0MW to wind projects out of the 3 200MW that the Bid Window 6 request for proposals (RFP) contemplated. The basis for this outcome was the uptake of available grid connection capacity by private IPPs (Schedule 2 IPPs) that had applied for budget quotations (BQs) in advance of the publicly procured/section 34 IPP projects.”
While Eskom said that it had implemented Interim Grid Capacity Allocation Rules (IGCAR) to mitigate this risk, by assessing the readiness of projects, “they remain underpinned by the principle of open and non-discriminatory access to the grid”.
“Therefore, a need arose to consider additional interventions to protect public procurement programmes and improve their prospects of success.”
In its decision, Nersa said Eskom had not identified the specific customers, or classes of customers, “that it intends to discriminate against, which is required for the Energy Regulator to approve the application”.
“Eskom did not present objectively justifiable and identifiable differences regarding such customers, which is required for the Energy Regulator to approve the application,” Nersa found.
The South African Wind Energy Association (SAWEA) expressed concern about the outcome, given the failure of the REIPPPP Bid Window 6 for wind energy.
“SAWEA has consistently advocated for a balanced approach to grid capacity allocation, ensuring both public and private procurement processes work synergistically. The association is of the opinion that a foundational public procurement programme is instrumental in stimulating socio-economic development and contributing towards energy security as we transition to a low carbon energy system. The failure to address grid allocation processes has resulted in significant delays and financial losses, devastating investor confidence and jeopardising the success of wind energy projects. With no solution in sight, the grid challenges will continue to undermine the open electricity market envisaged by the Electricity Regulation Act Amendment Bill.”
Eskom said it was assessing the implications of Nersa’s decision.
“Eskom respects the outcome of the Nersa process. The application for grid reservation was in support of section 34 BW7 process. Eskom's view was captured on Eskom's application.
“Eskom believes that it provided all the information required by Nersa to make a decision. Eskom is currently making an assessment on the implications of the decision including working with the relevant stakeholders,” Eskom said.
Alternative Information and Development Centre (AIDC) economic justice coordinator Dominic Brown said Eskom would want to reserve grid space for public IPPs to protect Eskom and its finances from competition with private users who would reduce demand from Eskom and come with added costs from purchasing power from private energy producers.
“The impact of declining demand and rising costs would be the increased risk of the accelerated collapse of Eskom, growing levels of debt and placing energy supply in jeopardy. The fact that Nersa has not approved Eskom’s application would mean that current private IPPs would be able to take advantage of being in the market longer, leading to a probable scenario where it could potentially (win) the majority of bids, leading to further market concentration of a handful of renewable energy independent power producers. Private IPPs want guaranteed profits, resulting in growing levels of public debt and increased risks to government finances,” said Brown.
Energy analyst Hugo Kruger added: “My interpretation is that the government doesn’t want to be honest with the implications of unbundling.
“(Un)bundling is about bringing in private sector participation, competition and inevitably bankruptcies for bad performing actors. They presented it as if electricity is going to be sold like a cartel, where every tech or competitor has their own slice of the market.
“That is the opposite of what is occurring right now. Eskom is being replaced systematically and in the long run it will have to maintain a top performance or it will become obsolete.”
Cape Times