Interim grid access rules increase risk

The additional requirements contained Eskom’s interim grid access rules will increase the amount investors in independent power producer (IPP) projects must spend before knowing if they will be able to use the national grid to evacuate the energy to their buyer – considerably.

That will increase the risk significantly. “They will rather go to other countries,” says Brian Day, chair of the South African Independent Power Producers Association (Saippa).

Read: IPP investment will dry up if Eskom position prevails – Saippa

This does not bode well for the rapid deployment of privately generated electricity to end load shedding and comes shortly after the virtual failure of Bid Window 6 (BW6) of government’s Renewable Energy Independent Power Producer Procurement Programme (Reippp) late last year.

Intention

The interim rules announced by Eskom were developed to prevent a repeat of BW6 when none of the participating 23 wind projects made it to preferred bidder status, because they were overtaken by projects for the private market that took up all the remaining grid capacity in the Northern, Southern and Western Cape.

Eskom has until now allocated grid connections on a ‘first come, first served’ basis.

In terms of the interim rules, access will be limited to “shovel-ready” projects and Eskom has the right to reserve some grid capacity for Reippp bid windows.

This means developers must now complete several additional processes before they qualify for an allocation.

In its presentation to the industry, Eskom listed the following:

• The allocations will be valid for a limited period and, if not utilised, Eskom will revoke them and the capacity will go back into the pool; and
• Eskom will also draw on the Grid Capacity Allocation Guarantee payable by developers.

Day says it can cost up to R30 million to get a project to financial close.

In terms of the existing allocations system, developers will spend about 20% at risk before knowing if they will get a grid connection. The additional requirement could push this to about two-thirds.

IPPs must therefore decide if they are prepared to take the risk of spending up to R20 million only to hear they cannot use the grid to evacuate the electricity to their buyer.

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Niveshen Govender, CEO of the South African Wind Energy Association (Sawea), also raised concern about the new rules.

He said the requirement of two years’ wind data is unnecessary and unreasonable and could delay new wind projects.

Sawea pointed out that investor confidence in the South African energy sector continues to dwindle and that from an economic standpoint, urgent consideration of the investor perspective is essential.

Onerous requirements 

Dr Rethabile Melamu, CEO of the South African Photovoltaic Industry Association (Savia), said the increased onerous requirements and capital requirements only serve to raise the hurdle rate (the minimum rate of return required by an investor), encouraging the dominance of larger established players.

“The rules need to ensure there is space and opportunity created for small-scale developers, so we ensure the continuation of market transformation and diversity,” she said.

According to Melamu, there is industry concern around Eskom being a truly independent judge in the matter given that this role typically resides with Nersa (the National Energy Regulator of South Africa).

Saippa’s Day says this just shows how important it is for Eskom’s transmission division to become truly independent – so it can change its way of thinking “from that of a protected monopoly” to an entity that facilitates the workings of an open market.

He believes the only change that is needed is for Eskom to consistently revoke the rights to grid access not utilised within the specified period.

Instead, the utility keeps extending such deadlines for Reippp projects – and that delays getting new generation capacity onto the network.

Regarding the 23 wind projects, Sawea senior technical advisor Santosh Sookgrim says BW6 closed when preferred bidders were announced on 8 December 2022.

“The procurement process prevents the BW6 projects from being allocated grid capacity at this stage, following the conclusion of the announcement of the preferred bidders.

“Projects that were submitted as part of BW6 must resubmit for BW7 if they wish to still be part of the Reippp,” says Sookgrim.

“Should the BW6 projects be selected as preferred bidders for BW7, Eskom will allocate the capacity according to the Interim Grid Capacity Allocation Rules.”

Bid Window 7

BW7, for 5 000MW of wind and solar generation capacity, is expected to kick off at the end of July.

Day however points out that Eskom cannot allocate what it doesn’t have.

Unless some of the allocated capacity in the Cape provinces is revoked and reallocated, there will still be no capacity available for these projects.

The only other options are to either allow wind and solar projects to share a specific allocation of grid capacity, which is something the industry has been asking for, or to build more batteries and store the electricity for later use.

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