By: Eric le Grange

The power supply stack in developed energy markets normally comprises baseload generators, midmerit generators, peaking generators and renewable-energy generators.

Baseload generators supply the minimum continuous load and typically run at close to their rated output for most of the year. Midmerit generators typically come on line when the daily electricity demand picks up in the mornings and shuts down when the demand drops off in the evenings. Peaking generators only come on line during periods of heightened and sustained peak demand, when additional generation is required at short notice and there are grid constraints that hamper the use of such additional generation. Renewable gene- rators are normally nondespatching and the electricity they generate is put into the grid when it becomes available.

In the South African energy stack, there are no midmerit generators available and, as renewable energy begins to become available from 2014 onwards, more strain may be placed on the existing Eskom generator baseload fleet, not as a consequence of demand exceeding supply, but as a consequence of cycling. Cycling occurs when a baseload power plant’s output is varied by either reducing output or shutting down. Baseload generators are not designed for repetitive cycling and it has been shown that cycling reduces the life span of plant and equipment significantly. The non- baseload nature of renewable energy also means that, in most cases, it cannot function as a substitute for baseload capacity.

Without the midmerit component in the South African energy stack, the cost of having renewable generators on one end of the spectrum and baseload generators on the other end still needs to be calculated. The actual cost over the short term may be mitigated by the gradual decommissioning of the older units in the baseload fleet and the use of pumped-storage water schemes, but the fact of the matter remains that South Africa needs to introduce midmerit power plants to minimise the detrimental effects of cycling and, at the same time, allow for flexibility to fully exploit the environmental benefits of the renewable-energy generators.

The Ministerial determinations issued in December 2012 seemingly had the establishment of midmerit power stations in mind. Midmerit generators are normally gas-fired power plants, which renders them more environment friendly than coal-fired baseload plants. They are, however, dependent on certainty of gas supply and currently the existing and possible additional future gas supply from Mozambique is probably the best source of supply for use in the production of midmerit electricity generation.

A further potential deterrent for the development of midmerit gene- rators is funding constraints. From the system operator perspective, flexibility is key. There should not be constraints to the ability to have power available at short notice. Further, there should be no obligation to despatch a midmerit power plant or face payment of capacity charges whether the plant runs or not. Financiers, on the other hand, would require at least a minimum despatch or the payment of capacity charges in order to make financing available, particularly where the financing is dependent on the generators’ cash flows. The moment this happens, the system operator’s flexibility is impeded.

The question, ultimately, is how the balance will be achieved. The independent systems and market operator, when it is finally settled and introduced in a workable form, will have to deal with this and, as the South African electricity market gradually shifts towards liberation, midmerit generators may ultimately find the ability to raise finance based on market risk. This is, however, still some way off and in the meantime it may be that the single-buyer office may need to commit to buying mid- merit capacity instead of only midmerit energy.

• Le Grange is head of projects at law firm Edward Nathan Sonnenbergs.