Government plans to follow the utility's generation business closely as the country moves towards a more competitive wholesale electricity market.
Picture: Gallo Images
Eskom’s market dominance in the generation and sale of power will be monitored and potentially regulated, according to a discussion paper released by government for public comment.
The Electricity Sector Market Transformation paper – which outlines a vision for a competitive wholesale market where private power generators and Eskom compete equally to sell to bulk buyers, including traders and municipalities – was published by Minister of Electricity and Energy Kgosientsho Ramokgopa on Friday (21 August).
It states that there will be a centralised voluntary market titled the South African Wholesale Electricity Market (Sawem), but buyers can still transact outside of this market.
A wholesale market is suggested as one of many reforms to address structural issues in the electricity market that led to load shedding and poor financial performance.
“In introducing a wholesale electricity market, government intends to increase efficiency in the sector’s generation segment, which until recently had largely been characterised by limited competition to enter the market via the Independent Power Producers Procurement Programme (IPPPP).”
Dominance ‘to be managed’
The paper, out for comment for 30 days, highlights the need to manage Eskom’s generation dominance if a wholesale market is to meet its intended objectives of improving investment in power generation, competition on price and security of supply.
The country is implementing a number of reforms to end Eskom’s monopoly, which has lasted just over 100 years, by breaking it into three separate units.
The government envisages that Eskom’s generation business will operate as a legally separate entity under Eskom Holdings.
“The market operator will treat Eskom Generation with the same rules and obligations applied to all market participants. To safeguard competition, government will review and implement mechanisms to limit the exercise of market power, ensuring that no generation company (be it Eskom Generation, or a private entity) can distort market outcomes.”
The paper adds that “market monitoring and surveillance mechanisms will be established to detect potential abuses of market power”.
“In addition to this, even with the implementation of competitive wholesale markets and market surveillance, Eskom Generation may still need to be regulated to limit its ability to exercise market power.
“The exact form of such regulation will need to be developed and implemented by the National Energy Regulator of South Africa (Nersa).”
The paper states that the government will evaluate whether additional measures beyond regulation may be necessary to mitigate the risk of Eskom Generation exercising dominance in order to protect customers.
A market operator will be appointed to facilitate transactions, while Nersa will oversee market regulations and protect consumer interests.
The Competition Commission will be able to intervene or investigate the wholesale market if anti-competitive conduct is suspected.
Market types
The paper states that short-term markets will be established, starting with day-ahead markets, allowing buyers and sellers to transact a day before real-time electricity production – which it says will help match power supply and demand.
A future market will enable week-long to 20-year contracts, without negating existing contracts between buyers and sellers including those that took part in the IPPP Programme.
The government plans to launch the wholesale market by 2027, gradually opening it beyond Eskom.
Ordinary household customers will continue buying electricity as before.
Wholesale customers will need to satisfy prudential requirements, ensuring they can meet financial and contractual obligations.
However, a mechanism will be developed to support municipalities, some of which are not expected to meet the financial requirements to take part in the procurement of electricity.
The paper notes that as some older generation assets produce electricity at a high costs, they could become unviable and uncompetitive. Both the government and Nersa will need to develop strategies to help manage these stranded assets.
The deadline for comment is 20 September.
This article was republished from Moneyweb. Read the original here.
