RE producers will take financial pressure off Eskom

The department of energy (DOE) has introduced to Parliament the concept of establishing a licensing entity for independent power producers (IPPs). This would be set aside from Eskom operations but would act as a much needed resource to shore up Eskom’s inability to provide, in terms of its credit rating, sufficient power for all of South Africa.

The ability of licensed IPPs to raise funds separately, particularly for renewable energy resources, will take the pressure away from  Eskom in terms of fund raising, says DOE.

A new Bill, numbered B9 of 2012, allowing independent system and market operators (ISMOs) and setting up an entity, which appears somewhat separated from Eskom to regulate such operators and purchase power, has been tabled in Parliament. Known as the Independent Systems Market Operators (ISMO) Bill, other necessary amendments to anchor legislation such as the current Electricity Regulation Act (ERA) will follow in due course.

Introduced by director general of DOE, Ompi Aphane, the new Bill will assist in providing, through an ISMO board, independent dispatch of power from all ISMO generating facilities to the sole purchaser, Eskom, “in an efficient manner in order to minimize costs’.  Muzi Mkhize, director general, hydrocarbons, described the new Bill “as establishing an autonomous state owned company, mandated to buy power from generation.”

He said that co generation projects will not require government guarantees and thus electricity from such projects “may come at a lower tariff when compared to costs generated by the Eskom build programme”.

The ISMO board, Mkhize told parliamentarians, will assist DOE in planning for “a new generation capacity”. On the basis that the ISMO board does not become involved in power generation itself, the licensing of electricity to distribution and large customers will be enabled independently of Eskom, such licencees being given equal access to the wholesale price.

According to the presentation made, only Eskom will sell electricity to the public. The presentation was made in the form of “electricity wiring diagrams” when describing the electricity generation regime in South Africa, rather than diagrams giving structured industrial relationships. MPs were at a loss to understand this.

In response, Mkhize said, “some of the functions to be performed by IPPs were not licensable activities at present” and therefore the Act would have to be amended at the earliest. However, he told parliamentarians that ISMO, as a body and licensing entity, would have to enter into a contractual arrangement with Eskom for the “execution of functions and contracts to be finalised within three months of the ISMO incorporation date”, i.e. a total staff transfer from Eskom Holdings in order for it to be in operation at the soonest.

The minister of energy, it is proposed, must ensure that ISMO board appointees are representative of the industry and all Eskom Holdings staff employed currently “in the fulfillment of functions contemplated by the establishment of ISMO, including support staff will be transferred to ISMO in terms of the new Bill”.

Mkhize said he believed that such generation licences to be granted and the allocation of MW in terms of government’s renewable energy plans would be addressed under the Electricity Regulation Act amendments. Future electricity tariffs created by the new structuring would require approval from the existing regulator.

The need for independent transmission lines as well was noted, Mkhize said, and this was to be addressed in due course.

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