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Electricity trading is alive and growing in South Africa

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South Africa’s only independent electricity trader PowerX, has just applied to energy regulator Nersa to add six generators and 29 customers to its license.

The decision is still pending, but it seems to be a clear sign that independent electricity trading is a growing feature of the changing power landscape in the country.

PowerX could even be a model for an open electricity market in a post-Eskom era, says PowerX CEO Thembani Bukula.

Bukula is better known in his former role as Nersa regulator member for electricity, where he commanded respect with his vast knowledge and steadfast position even when faced by an attack from Brian Molefe in a public hearing about Eskom’s tariff increase.

PowerX deals only in green power and started its life around 2006 as a pilot project of the then Department of Minerals and Energy. The aim was to determine the viability of a market for trading in green or clean power.

Amatola Green Power, as PowerX was initially known, obtained a trading license from Nersa in 2009. The license was limited to a period of five years. During this phase the costs of using the existing Eskom or municipal grids to wheel (transport) electricity from the generator to the customer were waived.

At that stage Eskom had a supply shortage and called on its customers, including municipalities, to reduce their demand by 10%. The Nelson Mandela Bay metro based in Port Elizabeth chose to rather buy that 10% from Amatola.

By 2013/14 Amatola got a full trading license and had to start paying the full wheeling fees.

Once again, the Eskom supply was restricted and Nelson Mandela Bay chose to fill the gap that Eskom left, with power purchased from Amatola.

It concluded a use-of-system agreement with Amatola and Amatola contracted its first power from a new independent power producer (IPP) when it signed up Electrawinds, situated outside of Port Elizabeth.

In 2016 a group of South African investors bought Amatola and rebranded it as PowerX.

The trader’s business model is to buy clean electricity from generators – anything from as little as 100kW, be it rooftop solar, wind or hydro. It offers long-term contracts, which appeal to investors with CPI-linked annual increases.

End-users who are in a municipal supply area pay the Nersa approved municipal tariffs, but get a discount for longer-term off-take agreements.

Bukula says the municipal margin is big enough for PowerX to negotiate a discount that generates a satisfactory return for its investors, while still attractive to its end-users.

The current environment with Eskom having an over-supply of electricity has left co-generators who previously had short-term or medium-term supply agreements with Eskom in a position where they risk sitting with stranded assets. It puts PowerX in a strong negotiating position where it can offer these companies some income, rather than nothing.

At the same time, municipalities are faced with increased grid defection. Bukula says municipalities are increasingly realising that clients switch to solar or other renewable self-generation options, especially those with plants smaller than 1MW, who are exempted from having to obtain generation licenses. Instead of completely losing the revenue from such clients, the PowerX model offers the municipalities the opportunity to still earn revenue from them and cover overheads by allowing PowerX the use of the distribution network to wheel the electricity between the buyer and seller.

For this purpose PowerX concludes use-of-system agreements with the municipalities or in an Eskom distribution area, with Eskom.

So far neither municipal nor Eskom use-of-system costs have been prohibitive, Bukula says.

PowerX’s license allows it to trade anywhere in South Africa. Currently it is predominantly in Nelson Mandela Bay, Umjindi Local Municipality based in Barberton and Mandeni Local Municipality near Durban. It is also working on agreements with the Makana Local Municipality in Grahamstown, Mbombela in Nelspruit and the Tshwane metro for the provision of green power to the industrial area of Rosslyn where manufacturers like BMW need to comply with environmental standards.

The trader’s end-users include industrial clients like tyre manufacturer Bridgestone in Nelson Mandela Bay, some KFC fastfood outlets, law firms and it also supplies into the municipal prepaid platform.

PowerX provides clients with certificates proving that they use green power, should they need it.

PowerX’s sister company bought the 5.2MW Darling Wind Farm last year and the trader’s application to add that capacity to its offering has been with Nersa since last year. “We applied in April and still have no approval. It is costing us millions,” he says.

Most of the IPPs who are part of government’s stalled Renewable Energy Independent Power Producer Procurement (REIPPP) Programme have been in contact with PowerX, but Bukula says the projects were designed with a government guarantee in mind. It would be difficult for a small trader like PowerX to step in, he says.

Bukula says in other countries the trading model has been implemented with much success and Nersa has received applications from other companies also interested in trading licenses, not necessarily limited to green energy.

 


 

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