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Nersa says Eskom must be buyer of IPP power arising from new determination

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Nersa says Eskom must be buyer of IPP power arising from new determination

22nd September 2020

By: Terence Creamer
Creamer Media Editor

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The National Energy Regulator of South Africa (Nersa) says that Eskom should remain the buyer of the electricity produced by independent power producers (IPPs) and procured by the Department of Mineral Resources and Energy (DMRE) in line with a new Section 34 Ministerial determination for 11 813 MW of new generation capacity.

The regulator recently concurred with the determination and on September 22 published its reasons for that decision.

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In an associated media release, Nersa noted that the Energy Regulator had taken the decision to concur with the determination, delivered to it by Mineral Resources and Energy Minister Gwede Mantashe in late February, on July 29. Mantashe confirmed receipt of the concurrence on September 10.

Nersa noted that several stakeholders had raised concern over Eskom, which is in a weak financial position, continuing to play the role of the buyer of IPP-produced electricity, while others had outlined several preconditions for retaining Eskom as the buyer, including the need for National Treasury guarantees and a commitment from the utility that generators would be connected to the grid.

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In its analysis, the regulator noted the conditions highlighted by stakeholders, but said the issues must be ironed out during engagements in the procurement process.

“[For] example, the issue of government guarantees should be handled by the DMRE, the Department of Public Enterprises and the National Treasury. This will also be shared with Eskom and the DMRE or the IPP Office.”

Nersa said the upcoming changes in the electricity sector, including the unbundling of Eskom and amendments to the New Generation Regulations, would be important considerations when determining the decision on who the buyer should be in future.

“However, given that neither of these processes have been finalised, it is Nersa’s position that, for this allocation, Eskom should remain the buyer.”

In determinations that follow in future, and once the New Generation Regulations had been amended, municipalities could take part in establishing new generation, it added.

Nersa noted that a large number of stakeholders, including the City of Cape Town and the City of Johannesburg, indicated that the opportunity to buy electricity should be expanded to allow municipalities to also be buyers of their own power.

“Once the unbundling of Eskom has been completed and all decisions regarding the role of the system operator and the appropriate placing of the mandate to buy power for the system has been outlined, future determinations will take this into account as well.”

The determination concurred with provided for the procurement of 4 800 MW of onshore wind, 2 000 MW of solar photovoltaic (PV), 3 000 MW of gas or diesel to power, 1 500 MW of new coal and 513 MW of energy storage.

Nersa highlighted that stakeholders had objected to the inclusion of multiple technologies in

a single determination. Nevertheless, it took the view that, given the time it had taken to revise the IRP and the urgency of procuring new capacity, it was prudent for the department to expedite the implementation of the Gazetted country plan.

In fact, Nersa said that in light of procurement delays, the 2022 schedule for introducing the first batch of wind and solar PV, was “already impossible considering that it is already mid-2020”.

The regulator stated that deviations from the schedule outlined in the IRP 2019 were possible, however.

It also noted that many stakeholders had objected to the inclusion of new coal and it, therefore, recommended that any new coal make use of high-efficiency, low emission technologies.

“A coal master plan must also be developed to ensure that the roadmap for the role of coal in the country’s economy is outlined and is for the benefit of the country,” Nersa said, adding that the allocation for gas should also be supported by a gas master plan.

“The allocation for battery storage will allow the country to start investing in utility size battery storage, which provides backup to wind and solar PV. Batteries also have many benefits in terms of providing ancillary services such as ensuring network stability. This technology is therefore supported by many stakeholders,” Nersa concluded.

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