Eskom is ‘usurping Nersa’s authority’ with its interim grid access rules

G7 Renewable Energies will on Tuesday tell the High Court in Johannesburg why it believes Eskom should be interdicted from implementing its interim grid capacity allocation (IGCA) rules.

This is just days before it may lose its entitlement to grid connections for two wind farms.

Eskom is opposing the application. It is unclear what position energy regulator Nersa, the second respondent in the case, is taking.

The application comes after Eskom announced the interim rules on 27 June during a PowerPoint presentation to industry players. It has since called on existing applicants to provide additional information and documents – and plans to make the allocations by 31 July.

G7 says while it is far advanced in the applications process and has a legitimate expectation of success, it now fears its projects may be disqualified.

After the announcement, industry bodies were critical of the new rules, saying they require increased investment before Eskom can even give certainty that it has the capacity to connect the projects to the grid.

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This would drastically increase the risk to the investor.

Why new rules?

The rules were developed following the debacle in December 2022 when none of the 23 proposed wind projects in the sixth bid window of government’s renewable energy independent power producer procurement (Reippp) programme achieved preferred bidder status due to the unavailability of connections to the Eskom grid.

The wind projects relied on Eskom’s Generation Connection Capacity Assessment, which was published in March 2022 and indicated that there was enough capacity. But while they were engaged in government’s Reippp programme, this capacity was taken up by independent power producers (IPPs) aimed at selling to clients in the private sector.

The 23 wind projects collectively invested about R100 million in the failed projects.

Unless government can give assurances that the same problem won’t occur in Bid Window 7 – due to kick off at the end of July – market interest may be dampened.

In his founding affidavit, G7 CEO Kilian Hagemann says grid access rules are part of the grid code that only Nersa has the authority to change, and only after following a proper process.

He says Eskom is usurping Nersa’s authority by purporting to have issued new rules on 27 June and takes issue with the retrospective application of the interim rules.

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He describes how G7’s 320MW Kudusberg wind farm between Ceres in the Western Cape and Sutherland in the Northern Cape and the 140MW Karreebosch wind farm between Matjiesfontein in the Western Cape and Sutherland both submitted applications for access to the Eskom grid in May 2022.

Both reached the first milestone in terms of the Nersa-approved rules at the time and received a Cost Estimate Letter from Eskom.

Both also submitted everything Eskom required and paid their Budget Quote application fees to Eskom – each more than R6 million.

Nevertheless, in both cases, the process was not concluded by G7 as expected.

From first come to first ready, first served

In February, Eskom submitted to Nersa proposed changes to the grid code that would fundamentally change the way access to the grid is allocated.

While the existing, Nersa-approved rules were on a first come, first served basis, the proposed rules would be on a first ready, first served basis.

IPPs that do not adhere to strict timelines could be removed from the queue, and allocations that have been made could be revoked.

There was no indication that the amendments would apply to projects that have already submitted their application in terms of the existing rules.

Industry bodies provided extensive comment, but Nersa has not yet announced a decision on the proposed amendments.

Sudden, immediate implementation

On 27 June, Eskom announced the sudden and immediate implementation of the IGCA rules – which closely mirror the proposed grid code amendments – without taking into consideration the industry comments.

Applicants were given just eight working days, until 7 July, to submit “lengthy and extremely onerous documentation” required under the purported new IGCA rules.

Eskom further indicated that the new rules would apply retrospectively to applications already submitted and at an advanced stage in terms of the Nersa-approved rules.

According to Hagemann, Eskom has not yet formally published the complete set of rules, and all that is available to the industry is a summary of a PowerPoint presentation from the 27 June event. There is mention of a Grid Capacity Allocation Guarantee an IPP would be required to pay.

However, there is no clarity on the amount, and no information is given about the conditions under which an IPP would forfeit the guarantee.

According to Hagemann, G7 has a legitimate expectation that its applications for a grid connection for the two wind farms will be successful, adding that it will be hugely prejudiced if it is disqualified or kicked to the back of the line in terms of the purported new rules.

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Unsuccessful applicants – who were on the verge of getting allocations before the proposed new rules were implemented – will not be able to meet project deadlines and may incur severe penalties and immeasurable damage to their reputations.

He warns that allocating grid capacity in terms of unlawful rules will lead to chaos that will delay the addition of sorely needed new generation capacity to the Eskom grid.

What government says

During the weekly update on government’s energy action plan on Sunday, Rudi Dicks, head of project management in the Presidency, denied that industry players were critical of Eskom’s interim rules. He said a meeting was held between government and industry on 13 July, and Eskom is taking suggestions made on board.

He said efforts will be made to settle the matter out of court, but “we have to get more megawatts on the grid and the rules are designed to achieve that”.

Electricity Minister Kgosientsho Ramokgopa said the rules are an effort to expedite the on-streaming of renewable energy, and government would liaise with the parties to find a solution that puts the interest of the country first without interfering with the court process.

Listen to Fifi Peters’s interview with Sapvia spokesperson Frank Spencer about Eskom’s new grid capacity allocation rules:

You can also listen to this podcast on iono.fm here.