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Aug 24, 2012

Power developers deeply frustrated by ‘regulatory obfuscation’

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Engineering|Africa|CoAL|Environment|Eskom|Industrial|PROJECT|Projects|System|Africa|South Africa|Electricity Supply|Energy|Mining|Power Generation|Power-generation|Doug Kuni|Infrastructure|Pieter Van Dam|Power|South Africa
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Regulatory uncertainties are continu- ing to hamper the development of much-needed private power capacity in South Africa, the head of the South African Independent Power Producers Association has warned.

In fact, MD Doug Kuni said last week that efforts currently being pursued to “keep the lights on”, which included power buy-backs from smelters and incentives for companies and individuals to reduce consumption, were creating the “illusion” that the power crisis was in hand.

He estimated that South Africa still had a 5 000 MW supply gap to close, over and above the projects being implemented by State utility Eskom. But the lack of urgency being shown in clearing the hurdles for independent power producers (IPPs) was undermining investment, which, in turn, was depressing the country’s growth and job creation outlook.

South Africa’s growth outlook for 2012 had already been downgraded by a number of economists, including the National Treasury, which had warned that it was unlikely that the country would expand by the 2.7% it had forecast in February. In addition, in its latest economic update on South Africa, the World Bank said the bottlenecks in electricity supply were an important constraint to a faster pickup in growth.

“Eskom is doing all it can to keep the lights burning, but at what cost?” Kuni mused.

Developers and their funders were particularly concerned about the level of Ministerial discretion that had been included in the Electricity Regulations on New Generation Capacity, as well as the Electricity Regulation Second Amendment Bill and the Independent System and Market Operator Bill.

The prevailing regulations stipulate that a Ministerial determination, or exemption, be obtained by an IPP ahead of licensing by the National Energy Regulator of South Africa (Nersa).

However, Kuni said the preconditions for gaining a determination were not well defined – a risk that was making it impossible for developers to secure funding support from lenders.

Nersa full-time member for electricity Thembani Bukula confirmed with Engineering News that a Ministerial determination, or exemption, was indeed a requirement for the licensing of an IPP.

He also confirmed that several coal-fired power station licence applications had been turned away in recent months owing to the fact that the applicant was not in possession of such documentation.

Also hampering projects was the current lack of certainty surrounding the ability to wheel power produced by an IPP over Eskom’s transmission infrastructure.

The uncertainty was preventing a number of projects from proceeding, as most developments would have capacity surplus to the needs of the industrial or mining customer on whose site the project would be developed.

Infrastructure and energy consultant Pieter van Dam said there were several viable projects being held up primarily by the absence of a wheeling framework. Private capital, he said, was being “tied up” by the fact that there was no “enabling mechanism” to facilitate wheeling.

Kuni stressed that the 1998 policy that envisaged the introduction of IPPs was being undermined by the “obfuscation of the regulatory environment”.

“If we want to make up the backlog in power generation capacity, we cannot rely on Eskom alone. So, the point of making life absolutely difficult for private power producers is a question that remains unanswered,” Kuni lamented.

Edited by: Martin Zhuwakinyu
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