SA’s new electricity wholesaler will need to own the transmission network

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    It appears increasingly likely that the long-anticipated unbundling of the power transmission business from State utility Eskom – a scenario that has been mooted for nearly 20 years – might finally take place over the coming months and/or years.
    The reason is the promised establishment of a so-called Independent Systems and Market Operator, or ISMO, which is viewed as an important mechanism to facilitate investment by independent power producers (IPPs) into the power-stressed South African environment.
    It is expected that the ISMO will, eventually, be responsible for both tariff aggregation and transmission operations, which would end Eskom’s controversial position as player and referee in the purchase of power from the IPPs.
    To be sure, there is an obvious conflict of interest between Eskom as generator and transmitter, as well as the ‘single buyer’ of all cogenerated, or IPP, power – a fact that has been highlighted over and over again as an impediment to investment.
    The ISMO, by contrast, will be independent from the equity interests of any one generator, which should free it up to make purchase decisions that are in the interest of consumers without its board, or governing structure, feeling constrained by other competing demands.
    But, operationally, this independence can really only be exercised in the context of an open-access transmission system that is unbundled from Eskom and, arguably, controlled by the ISMO.
    In other words, it is premised on the dismantling of the current structure of vertical integration, which had, until recently, served South Africa relatively well. It has since emerged, though, as an impediment to facilitating the entry of private finance, technology and skills into South Africa’s power market, despite the obvious demand for the product.
    To be sure, there is going to be a period of transition from the current structure to one where the ISMO can properly control the wholesale electricity market. Ultimately, though, this new wholesaler should be in a position to buy power from a variety of generators, most probably at different tariffs, and aggregate these to provide a selling price for distributors or large direct customers.
    If all goes according to plan, the legal framework for the creation of the ISMO should be outlined soon, and could well be in place by early 2011. At this stage, it is unlikely that the new entity will own the transmission lines from the outset. But, at some point, it would be advisable, if not essential, for such a transfer of assets to take place.
    To be realistic, though, South Africans would be well advised to accept that this process is going to take some time to play itself out. It will also not happen at a pace that will satisfy our immediate need for the intro- duction of new cogenerators and IPPs.
    Therefore, it is likely that there will have to be an interim arrangement, whereby Eskom signs the initial power purchase agreements. Failure to accept this could mean yet further delay and will definitely lead to further frustration.
    Renewables and Imports
    Meanwhile, it is also worth noting that the draft consultation paper on the second version of the integrated resource plan, or the IRP2, which will provide a power investment and energy-mix road map for the next 20 years, will be published imminently.
    The document, which was initially expected by the end of March, would form the basis for a far-reaching ‘stakeholder engagement process’, which government’s inter-Ministerial committee (IMC) on energy approved in late March.
    Speaking to business leaders recently, Energy Minister Dipuo Peters indicated that the plan would emphasise renewable energy, electricity imports and demand-side management (DSM) schemes. However, it is also likely to include further coal-fired power stations and the resurrection of the country’s nuclear energy programme.
    The emphasis on imports was in line with South Africa’s renewed commitment to the Southern African Power Pool, while the emphasis on DSM is aligned to the country’s one-million solar-water-heater drive, as well as an offer by Business Unity South Africa (Busa) to pursue some 5 000 MW of additional energy savings.
    It was unclear from where the Busa-proposed savings would be derived, but unionist-turned-businessperson Jayendra Naidoo had been tasked with driving the project, which was canvassed with Peters late last month.
    Naidoo had also been appointed as Busa’s ‘point person’ with regard to all matters electrical, in a bid to facilitate more rapid consultation with government on energy matters.
    In announcing the move, Busa vice- president Michael Spicer, who is also the Business Leadership South Africa CEO, said that it was hoped that the new “channel” would help government avoid being bogged down in “endless consultation processes”.
    Meanwhile, the Department of Energy (DoE) has also called on all interested parties to register on a stakeholder database for inclusion in the IRP2 consultation process, which begins in earnest this month.
    The IMC, which is chaired by Public Enter-prises Minister Barbara Hogan, hopes to complete the plan by June and have it published in the Government Gazette by September.
    The IRP2 issue is one of nine so-called ‘work streams’ falling under the IMC, which also includes Peters, Finance Minister Pravin Gordhan, Economic Development MinisterEbrahim Patel and the Minister in the Presidency Responsible for the National Planning Commission, Trevor Manuel.
    At least two ‘consultation workshops’, which will include delegates from government, labour, business and civil society groups, will be held during April and May. However, it is not yet clear whether these will be held across all nine provinces.
    There was much unhappiness late last year when the DoE published the IRP1, covering the period 2010 to 2013, following what was an extremely narrowly based consultation exercise.
    Critics saw the release as a mere ‘tick-the-box’ exercise, given that the National Energy Regulator of South Africa (Nersa) required an IRP to be in place before it could make a determination on Eskom’s tariffs for the period from April 1, 2010, through to March 31, 2013. Nersa eventually approved average tariff increases of around 25% a year for the next three years.
    However, Peters promised that the plan, which was coal and Eskom heavy, would be followed up by a more comprehensive plan, which would be broadly consulted.
    Polity.org.za
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