By Larry Claasen
THE reliability of metros as partners will be a key factor when it comes to the development of an energy market in South Africa, says Independent Energy Pool (IEP) CEO Holger Janke.
IEP was formed three years ago, and offers a business-to-business energy pool, allowing electricity consumers, generators, and traders to buy and sell electricity.
Three to four of the country’s metros account for 60% of the overall electricity consumption. Even so, several of the largest cities have serious financial and governance issues.
This is a problem when it comes to facilitating wheeling, which is the practice of transmitting electricity from an independent power producer via a metro’s grid to a client business.
Wheeling electricity challenges in non-bankable metros
Janke says as some municipalities are not bankable and that makes wheeling transactions really complicated.
If a metro is unable to facilitate wheeling, it could jeopardise other parties in the power arrangement.
“So that’s why you can actually do the wheeling only in certain municipalities where you can rest assured that the municipality as party to this structure is going to pull its weight.”
Wheeling electricity opportunities post-Eskom monopoly
Though the bankability of some metros regarding wheeling is concerning, South Africa’s move away from having a monopoly electricity generator in Eskom, it is opening up the power market.
There is currently between 25 and 30 gigawatts of installed capacity from Eskom in South Africa. We know that that capacity is going to reduce over time due to the decommissioning of the coal-fired power plants and whenever that’s going to happen,” says Janke.
“And at the same token, you have actually the situation that renewable energies are increasing. Now, we’re sitting at around 6 gigawatts and that’s going to go up to 10, 15, 18 gigawatts in the next few years,” he adds.
NTCSA split spurs new wholesale electricity markets
The splitting of the National Transmission Company of South Africa (NTCSA) from Eskom is becoming a key driver in the creation of the power market.
NTCSA is in the process of putting together a Wholesale Market Code, which will frame how electricity is traded over its network.
The proposed arrangement will eventually see wholesale providers sell electricity on the Day Ahead Market, Intra-Day Market, Day Ahead Energy Reserve Market and the Balancing Market.
Long-term contracts essential post-Eskom market opening
Janke says that, as consumers need price stability, they can’t just look at what the price will be the next day; they will require long-term contracts. This is why there will be a need for a long-term electricity market in addition to what NTCSA will provide.
Janke says the move to trading energy via a market will become common for large electricity users like the Energy Intensive Users Group of Southern Africa (EIUG) over the next few years.
But the EIUG will not be the only one turning to a power market to source electricity.
“We see the trend of municipalities having to actually adopt the philosophy of buying in an electronic marketplace in the next three to five years.”
The end of Eskom’s monopoly on power generation, and the move to trading electricity via a market, will eventually see a moderation in the steep tariff hikes.
“You will see a trend towards lower price increases, but that trend will only come into effect in three, four, or five years’ time.”
