Disagreement between Eskom and government on electricity plan has an upside

11th December 2009 By: Terence Creamer - Creamer Media Editor

The material misalignment between South Africa’s inaugural integrated resources plan (IRP1) for power generation and the proposals contained in State-owned power utility Eskom’s revised tariff application (including disagreement about when the first unit of the R142-billion Kusile power project should come on stream) initially came as a shock. But it is probably not too unhealthy a development.

Energy Minister Dipuo Peters last week released some of the details of the much-anticipated plan, which is, in effect, a capital project road map for the country up until 2013. She made her presentation the day after Cabinet met to consider the IRP1 and two days after Eskom published details of its revised appli- cation under the second multiyear tariff determination (MYPD2).

Now, central to Eskom’s lower application for increases of 35% a year between April 1, 2010, and March 31, 2013 (its earlier request sought increases of 45% a year) was its decision to delay the introduction of Kusile by a year, to June 2014.

The utility also suggested that the 100-MW Sere wind project and the Department of Energy’s (DoE’s) gas-fired peaking plant be delayed by 12 months, while it scrapped the so-called ‘Coal 3’ project from its investment plans, with this capacity to arise from independent power producer (IPP) projects.

But IRP1 has sustained the initial 2013 deadline for the introduction of the first 723 MW arising from Kusile. It has also provided for the introduction of 1 020 MW of power arising from the DoE IPP open- cycle gas-turbine projects by 2011, as well as Eskom’s Sere and concentrating solar power projects.

Peters acknowledged the lack of alignment with the new Eskom plan, but said that the DoE believed that all the projects were necessary to “keep the lights on”.

She added: “We cannot stop planning [for security of supply] simply because there is no money.”

Acting deputy director-genearal Ompie Aphane, who oversaw the drafting of IRP1, indicated that the National Energy Regulator of South Africa (Nersa), which will pronounce on Eskom’s three-year tariff path on February 24, would need to use the IRP, rather than Eskom’s proposals, to make its determination on the capital-project aspect of Eskom’s application.

Herein lies the upside.

It is important that the IRP becomes relatively independent from the monopoly utility as soon as is practically possible. That’s because the future power- generation blueprint has to fall under the aegis of the independent system operator (ISO) and not under the aegis of Eskom.

Such a model will reduce conflicts of interest and theoretically, at least, ensure that South Africa makes the better supply-side choices.

The problem this time around is that there is no luxury of time. Eskom has made the changes to deliver what new supply it can, within the funding constraints, without entirely decimating the economy in the process. That will be especially true if Nersa lops a few percentage points of its own off the final tariff number.

That is why Aphane was at pains to frame the IRP as a “living plan” that would be adjusted as variables changed. He also emphasised that there was sufficient scope in the process to allow Nersa to approve a tariff path that might alter the timing of certain projects.

Where there was solid alignment, though, was the priority given to demand-side manage- ment (DSM). The DoE, like Eskom, placed considerable emphasis on DSM funding, which it felt could lead to a reduction of demand of 3 056 MW by 2013. In its application, Eskom is seeking more than R6-billion to support its DSM efforts.

Aphane also indicated that, should the DSM project prove successful, it was quite possible that security of supply could be safeguarded, even if certain Eskom projects were delayed. He stressed, though, that there could be no such flexibility for IPP projects, which had to be “hard-wired” into the IRP.

Not Strong on IPPs
That said, there are relatively slim pickings for IPPs in IRP1, with only 1 100 MW set aside for renewable energy, and cogenerated and conventional IPP power between 2010 and 2013.

However, Aphane stressed that power arising from IPPs after 2014 was likely to be far more material and would be set out in IRP2, which could be finalised by June 2010.

The IRP2 consultation process would also be far more broadly canvassed than was the case with IRP1, which involved limited consultation in a bid to close the policy void that existed in Nersa’s MYPD2 deliberations.

In a move that should be applauded, parti-cularly by potential IPP investors, Peters also confirmed that an ISO, separated from Eskom, would be created.

The ISO would eventually have authority to sign power purchase agreements (PPAs) with private generators and would oversee the IRP. However, it was still embedded within Eskom and new legislation would be required for the establishment of a new State-owned enterprise.

In the interim, it was expected that the ring-fenced system operator would be empowered to sign PPAs for the 1 100 MW indicated in the plan.

No clarity was provided in IRP1 as to the role of electricity imports and projects such as the 1 200-MW Mmamabula, in Botswana, and the Moamba closed-cycle gas-turbine project, in Mozambique.

Peters indicated that her department was aware of 29 potential regional projects, all of which were premised on securing a PPA with Eskom and that IRP2, which would have a 20-year horizon and which would be revised every second year, would take such projects into account.

The IRP2 consultation process will begin in January and one can only hope that it is far more reflective of the shift towards a shared energy supply future than is the case with the current version.