South Africa’s Department of Energy (DoE) plans to introduce legislation for the establishment of an Independent System and Market Operator (ISMO) in the electricity environment during the upcoming Parliamentary cycle and anticipates that the Act will be promulgated by the end of 2011.

Speaking at an energy roundtable this week, deputy director-general for electricity, nuclear and clean energy Ompi Aphane indicated that lawmakers should have sight of the ISMO Establishment Act by June.

However, Energy Minister Dipuo Peters said that the ISMO would seek to “level the playing field and eliminate conflict of interest between the buyer and the seller of electricity".

But she also stressed that the legislation would incorporate a phased deployment model, adding that there would be no “big bang”. In other words, the Act is likely to outline various stages of independence, beginning with an entity ring-fenced within State-owned power utility Eskom.

Aphane added that the migration to full independence would be guided by milestones rather than by specific timelines. He argued that this managed approach had been selected in a bid to reduce the risk associated with such a fundamental restructuring exercise.

However, the proposal to vertically separate the transmission system from Eskom in stages is still likely to face some criticism, particularly from those who view the lack of an independent grid company as a key impediment to further investments by independent power producers (IPPs).

Those in favour of the immediate unbundling of Eskom's transmission business are convinced that it would help attract IPPs, the emergence of which has already been slowed by legislative, pricing and regulatory constraints.

But Eskom has cautioned against a big bang, and has even asserted that the immediate obstacles to the introduction of IPPs has little to do with the market structure. Instead, it argues that the delays are associated with uncertainties around power purchase agreement terms.

The utility has also argued that a ring-fenced Eskom system operator would not be conflicted, owing to the fact that the DoE’s consulted integrated resource plan, or IRP2010, and not Eskom, would dictate what new capacity should be introduced.

IPPs highlighted in the plan, which should be promulgated by April, would receive take-or-pay contracts to make their projects bankable. This, Eskom argues, would illuminate conflicts of interest related to dispatching IPP power, as there would be no financial incentive to favour its own capacity over IPP production.

Nevertheless, many renewable energy IPP developers remain cautious about Eskom’s perceived role of “player and referee”, and believe that the utility remains an impediment to the signing of the first 1 025 MW of renewable energy feed-in tariff (Refit) contracts.

REFIT RFP THIS MONTH

However, Eskom argues that the DoE and the National Treasury are the procuring agents for the first Refit phase, and that it had no role in the issuance of the request for information (RFI) in September last year.

The DoE and the National Treasury received 384 responses, which were processed by Ea Energy Analyses, with support from the Royal Danish Embassy. The responses included 20 GW worth of Refit-related projects, as well as 4 GW of cogeneration-type proposals. However, only 30 of the projects had received an indicative quote from Eskom regarding grid connectivity.

A formal request for proposals will be sent out by the end of March, along with the proposed power purchase agreement – Eskom has R8-billion set aside under the multiyear price determination period to March 31, 2013, to procure the first 1 025 MW of Refit power.

However, Aphane acknowledged that the delay in the process was likely to result in South Africa falling short of its target of having 4%, or 10 000 GWh, of renewable energy capacity in the country’s power mix by 2013 – a target outlined in the 2003 White Paper on Renewable Energy.

However, he said that the recent RFI process would inform the final version of the IRP2010, the draft of which allocated 7 200 MW to various renewable-energy sources by 2030, which would equate to 16% of the total mix.

That allocation might be altered in the final version expected by April.