Turf war over electricity distribution intensifies

The turf war over electricity distribution is intensifying, with at least one independent power producer (IPP) entering the ring and more expected to follow. This as Eskom and municipalities are already going head-to-head on the right to distribute.

Apart from determining who gets the revenue stream from electricity sales in a specific area, the matter of who the distributor is will also be crucial when it comes to the tariffs consumers will have to pay.

Greenstone Energy has applied to energy regulator Nersa for permission to distribute the electricity it generates from its gas-fired power station in Linbro Park, Johannesburg, to 18 properties managed by the Adamjee Property Company (APC).

Read:
Municipalities want a piece of Eskom’s distribution pie
SA to allow municipalities to source their own power
Municipalities want another slice of the pie, this time from IPPs

66 days without power

In a presentation at a public hearing on the matter held by Nersa, Greenstone stated that residents of these properties were, in addition to load shedding, subjected to 1 594 hours without electricity in the past 12 months. That is about 66 days.

The properties include two schools, two churches, a hotel, a conference centre, one mixed use public area, three office blocks and seven residential estates with 1 781 homes and various amenities.

The area is currently supplied by Eskom directly and Greenstone proposes an independent distribution grid which, if approved, will see end users disconnecting from Eskom completely.

Eskom is opposing the application.

Greenstone has already registered its gas-fired generation facility with Nersa in terms of the licensing exemption granted for plants up to 100 megawatts (MW).

Read: Companies can produce up to 100MW of power – Ramaphosa

Distribution licence

It is the first such facility to also apply for a distribution licence – and according to Tommy Garner, chair of the South African Independent Power Producers’ Association (Saippa), it won’t be the last.

Garner said he personally knows of at least two similar applications that are being prepared.

Greenstone indicated that Adamjee Energy, part of APC, will be the single buyer of all the energy generated at the plant. It is expected to apply to Nersa for a trading licence.

According to APC’s own presentation to Nersa it has been battling to retain tenants in its properties due to the frequent power failures and this has impacted its finances.

“The client has been looking for alternative options for electrical supply due to loadshedding, infrastructure theft, infrastructure failure, high tariff escalations and capacity charges,” Greenstone stated. It has considered several decentralised options, but due to economies of scale and efficiency benefits, it favours centralised power generation with a reticulation system to distribute the electricity to end users.

The 1MW gas generation facility will eventually be increased to 10 units with a combined capacity of 5.8MW, with 24-hour control and monitoring.

According to Greenstone’s schedule the commissioning of the generating plant and distribution network should be completed by July.

Eskom is however not impressed. It told Nersa it is currently supplying 220 customers in the Linbro Park area, comprising residential and industrial users.

It argues that it is Eskom’s licensed area of supply and Nersa’s rules determine that development at the edge of a licensed area of supply is not available to a new licencee. Eskom maintains it is capable and mandated to distribute electricity to the properties.

“It is a prohibited activity for two licencees to supply customers within the same area of supply,” Eskom stated.

Nersa will be contradicting its own rules if it approves Greenstone’s application, Eskom said.

The utility further points out that having two sets of cables in the same road reserve poses safety hazards.

‘Only’ 29 days without power

Eskom also disputes the extent of the power failures in the area. According to its records it was, “only” 29 days, in addition to load shedding.

Garner says that by failing to provide a proper service to end users, Eskom is contravening the conditions of its own distribution licence, but Nersa is failing to enforce those conditions.

He says there are technical solutions for the safety issues.

According to Garner, Nersa fails to proactively adjust its rules to suit the rapidly changing electricity supply industry. He believes the regulator lacks the right skills and capacity to do so.

Nersa reports to the reluctant Department of Mineral Resources and Energy where the political will is lacking, says Garner.

He says supporting the current poor power supply using diesel generators costs residents about R5.50 per kilowatt hour (kWh). Gas generation will cost between R2.50 and R3.50 per kWh and renewables between 70c and R1 per kWh.

However the latter is intermittent and needs support from other technologies.

Eskom versus municipalities 

Moneyweb recently reported that Eskom has applied to Nersa for an amendment to its distribution licence for the supply of electricity to the Mooikloof Smart City outside Pretoria. The City of Tshwane is opposing this application, because it will deprive it of the opportunity to earn revenue of about R1.5 billion for electricity sales to end users in the development. Nersa has not yet decided the matter.

Read: Tshwane challenges Eskom’s plans to supply Mooikloof Mega City

In the meantime the South African Local Government Association (Salga) has applied to the Pretoria High Court for a declaratory order to confirm that municipalities have the exclusive right to electricity distribution in their areas of jurisdiction.

If successful, Eskom will have to enter into a service delivery agreement with municipalities where it supplies end users directly and municipalities will be able to levy a surcharge on top of Eskom tariffs.

This will negatively affect mines and farmers in particular.

Eskom is opposing the application. No date has been set for the hearing the matter.