New framework needed to accommodate third-party electricity generators on the national grid

28th July 2021 By: Donna Slater - Creamer Media Contributing Editor and Photographer

The wheeling and trading of electricity produced by third parties into the national grid is a complex issue that requires frameworks and grid capacity building, State-owned power utility retail pricing corporate specialist Shirley Salvoldi has said.

She spoke during a webinar on the topic of President Cyril Ramaphosa’s announcement that the licensing-exemption threshold for distributed generation projects would be increased from 1 MW to 100 MW, and how this could benefit South Africa’s commercial and industrial sectors.

While there are regulatory details to iron out, the announcement signals, in theory, that it will become easier for companies to enter into power purchase agreements with private entities.

As things stand, updating the Electricity Regulation Act Schedule 2 is currently a matter of gazetting the required paperwork by Mineral Resources and Energy Minister Gwede Mantashe.

At the time of Ramaphosa’s announcement of the lifting of the threshold in June, he gave Mantashe 60 days to gazette the amendment.

Currently a few critical questions remain unanswered.

In terms of accepting new generators into the grid, Salvoldi explained that Eskom had policies and regulation, for example policies to deal with wheeling, and agreements and tariffs that facilitate this.

However, she said a national framework was needed to determine how wheeling should be done. Eskom and other parties are collaborating on determining what this framework could be.

For example, Salvoldi said, one of the major issues with introducing third-party generators into the grid was how to charge for the use of the grid by both generators and offtakers of electricity.

In this regard, she said, Eskom has standard tariffs that are applied for use of the grid, but different distributors and licensees might have a different view of how that should be approached.

Therefore, Salvoldi said it was important to have a framework, to align all customers in terms of how tariffs are charged for wheeling, as well as for the way wheeling is actually done.

As an example of how this could work, she said, Eskom currently subtracts on the customer’s bill any generation contribution they make into the grid.

Nonetheless, she acknowledged that, from a regulatory perspective, the electricity generation, distribution and trading environment was changing.

Therefore, Salvoldi said generators using the grid would have to start paying a contribution to using the grid for both wheeling and the consumption of electricity.

In this regard, she said Eskom has generator or user system charges, but these are not necessarily cost-reflective.

Eskom, therefore, needs to look at the generator or user system charges in a new light.

Salvoldi added that parties wanting to wheel electricity would still have to achieve grid code compliance and would have to sign all the required and associated agreements.

Grid capacity would have to be considered and planning to accommodate the required increased investment into the grid would also be necessary.