Wheeling: The new frontier for renewables

Interest is there, but so are the challenges.

With the Department of Energy’s Renewable Energy Independent Power Producer Procurement (REIPPP) programme in limbo due to Eskom’s refusal to sign power purchase agreements, diversifying to wheeling energy to private sector clients could serve the industry well.

Wheeling is the delivery of electricity generated by a private operator in one location to a buyer or off-taker in another location via a third party network. In South Africa this would be the Eskom or municipal grid. In practical terms a private power producer might construct a photovoltaic power plant in the Karoo and sell its energy to a factory in Worcester in the Western Cape via these third-party networks.

According to Christopher Bellingham, head of project development for wind and solar at renewable energy developer juwi, wheeling is a natural diversification for the local renewable industry as it was for more mature markets. It enables power producers to harvest prime natural wind or solar resources where they are located and supply clients located in other provinces some distance from the generation plant thereby enabling them to benefit directly from the clean, low-cost energy directly.

Bellingham says it is still necessary for government to be involved in the renewable industry in South Africa, through government utility-scale procurement and ensuring an enabling framework for private procurement. The REIPPP programme is delivering competitive low-tariff projects and must continue, but it’s also very important to enable the private sector the ability to conclude independent deals now, he says. It would also mitigate the misperceived over-exposure to the public sector.

Eskom has, with input from industry, developed a wheeling charge sheet from which the project-specific wheeling charge payable to Eskom can be determined. Eskom’s current wheeling charge sheet is structured to provide for different charges levied depending firstly on the geographical zones of the generator and off-taker and secondly the variance in the time of day when the generator produces electricity and the time of day that the off-taker consumes electricity, Bellingham says.

This may result in significant differences in charges from one project to another, Bellingham says. Currently, high wheeling charges is one of the main obstacles to wide-spread implementation of wheeling, Bellingham says. According to Bellingham, other obstacles include the difficulty large organisations have in committing to a 15 to 20 year Power Purchase Agreement (PPA). This is typically the period needed to make the project bankable.

Some progressive municipalities like Cape Town are developing their own charging methodology, and it is hoped that they may release their offering for comment to industry over the course of next year. He believes municipalities should see wheeling as an opportunity to generate income from a clean technology and contribute to global commitments to lower greenhouse gas emissions.

Bellingham says the only current example of pure wheeling that he is aware of in South Africa, is the 4.6 MW biogas plant in Bronkhorstspruit that generates electricity and wheels it through the Tshwane municipal grid to BMW South Africa.

A different model is that of PowerX, formerly known as Amatola Green Power, that was granted a bulk trading license by Nersa to purchase power from generators and sell it on to end users. They have been successful in linking power producers and power purchasers, mostly within municipal networks, Bellingham says.

Three agreements are required for wheeling:

  • A generator wheeling contract with the network provider, which means the generator will sign a network services agreement with the utility and charges will be raised for these services;
  • A PPA between the off-taker and the generator;
  • An off-taker wheeling contract with the utility, which means the offtaker’s utility electricity bill will be adjusted to take into account the wheeled energy through a supplementary contract.

All three contracts are separate and deal with different issues.

Bellingham says generators have the same rights of access to the grid as energy users, however “generators need to jump through some hoops that are currently quite difficult to manage”. These include getting a budget quote from Eskom for connecting costs, obtaining a ministerial deviation and getting a generation license from energy regulator Nersa.

Last year the Minister of Energy published, for public comment, draft regulation to provide for the exemption of various categories of generation from the requirement to hold a generation license and allow them to merely register their activities with Nersa, Bellingham says. This includes wheeling of less than 1 MW.

“When finalised, the updated regulations will hopefully remove the regulatory hurdle that currently exempts generation for own use only from requiring a license from Nersa but many in industry view that the threshold should be increased from 1MW to 10MW,” says Bellingham.

Energy commentator and managing editor of EE Publishers Chris Yelland says Eskom has a conflict of interest in setting wheeling charges, since it also generates electricity. By allowing wheeling it would open the door for competitors.

He says Nersa should play a firm role in setting wheeling charges, but the issue will only really be resolved if the grid is transferred to an independent system and market operator as current government policy in fact demands.

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