By Awie Bosman and Scott Havemann
Reforms in the South African energy sector, while proceeding glacially, are setting the scene for clean, private power generation. Finally, too, this is opening the door for a game-changing energy option that has been around for a while but is only now a possibility: wheeling.
It’s a devilishly simple concept: imagine depositing cash into one ATM and withdrawing it from another ATM across town. You’re getting the same value out that you put in, even if the banknotes aren’t the same.
Wheeling works in a similar way: a generating facility, such as an independent power producer (IPP), feeds electricity into the national grid in one part of the country (for a fee), and its intended customer, for example, a large industrial user, draws the commensurate amount of electricity at its facility in another part of the country.
Provision and use are then reconciled. Importantly, however, because the end user could consume energy within varying time-of-use periods, with peak periods costing more, the reconciliation is more of a financial transaction than a straight power usage one.
Wheeling brings with it manifest advantages, not least the ability to build power generation capacity – renewable energy in particular – where it works best, instead of where the customer is situated. It also provides the ability for IPPs to finally contribute energy to the national grid in a competitive and sustainable way. And by using wheeling to complement solar generation, customers stand to benefit from displacing peak Eskom power – by as much as 80% – and meet their sustainability goals without capital investment.
There are some drawbacks to wheeling, however. While it’s an easy process to have a one-to-one arrangement between a generator and a customer, reconciling a one-to-many situation becomes nightmarishly complex, making wheeling a poor prospect outside large users. And transmission capacity is also finite: there is only so much load that can be carried on the grid (capacity from the sun-drenched Northern Cape has been reached, for example).
IPPs wishing to secure transmission capacity must also prove they have the customers to whom they will supply wheeled energy. Wheeling works according to a willing buyer-willing seller principle, so, IPPs cannot simply hold parts of the national grid that could otherwise be used. Among IPPs, there is thus a big race to secure customers for when wheeling does come into play in South Africa.
When will that be, considering that wheeling is a well-established practice elsewhere, and that Eskom authorised third-party wheeling 16 years ago? That’s not entirely clear yet, but a close approximation is “relatively soon”.
First, President Cyril Ramaphosa has yet to sign into law the Electricity Regulation Amendment (Era) Bill, which was passed by Parliament in March and by the National Council of Provinces in May 2024.
The Era Bill lays out the unbundling of Eskom into separate generation, transmission and distribution entities and provides for the introduction of private energy producers. It is set to transform the way – and how much – energy is generated, transmitted, distributed, traded and costed in South Africa, setting up the country’s energy framework for generations to come.
One of the most important elements involves establishing the duties, powers and responsibilities of a transmission system operator (TSO), which will oversee the market code required to replace the Eskom-dominated energy sector with a multimarket framework.
A draft market code is circulating for public comment, which can be made before September 30, 2024. The resulting version of the code will probably be submitted to the National Energy Regulator in November, with the code expected to be in force from April 2026.
Crucially, the TSO will be situated within the newly created National Transmission Company South Africa (NTCSA), the transmission utility being created in the Eskom unbundling. The NTCSA is taking shape (it has its own board, for example) and while it is expected to begin operating imminently, the Era Bill foresees the integration of the TSO’s functions and roles taking place over as many as five years.
Another of the NTCSA’s most important priorities will be to increase grid capacity where renewable energy generation can be optimised, such as the Northern Cape and Eastern Cape, and allowing industry to be situated where it will be optimal for productivity, job creation and economic growth.
For an energy option such as wheeling to happen we need a new energy regime, but that’s a done deal – well, almost; once Ramaphosa signs the Era Bill into law, the blueprint for our energy future will be in place. We need the TSO, which will manage the transmission of the various public and private energy producers’ outputs; the NTCSA must just get up to speed. (And build more high-voltage power lines.)
But what we definitely do have are customers – ones who are ready and willing, right now.
Awie Bosman and Scott Havemann are respectively the heads of engineering and sales at Fibon Energy, a renewable energy company at the forefront of creating sustainable power for South Africa
BUSINESS REPORT