Eskom has significant grid capacity constraints, compounded by companies ‘hogging’ grid allocations given to them through contracts with the Independent Power Producer (IPP) office.
Professor Mark Swilling from Stellenbosch University explained to Newzroom Afrika that this is because many companies applied for grid allocations and received grid capacity but have been unable to supply electricity to the grid.
For example, only half of all renewable energy projects procured during Bid Window 5 have come online, with the rest unable to reach financial close.
4,600 MW of renewable energy generation was expected to come online from Bid Window 5 in 2021. However, 12 of the 25 projects have failed to reach financial close while a further 4 are awaiting financial closure.
This leaves only 9 projects from Bid Window 5 that have reached financial close.
Those that failed to reach financial close blamed rising interest rates, increasing costs of renewable technologies, and declining production of materials used to construct the plants for distorting its calculations.
However, Swilling and others pointed out that the tariff pricing strategies of many of the IPP applicants were unviable as their prices were unsustainably low to win the contracts.
This gave the companies little flexibility to absorb rising costs. Therefore, when costs rose, the projects were no longer financially viable.
Even though these projects did not reach financial close and thus did not connect to the grid, they keep the grid capacity allocated to them until the contract’s end date.
For example, Karpowership has been unable to dock its power ships at South African ports and supply electricity to the grid. Yet, it still has 1,800 MW of grid capacity allocated to it.
Karpowership’s deadline to connect to the grid is in December. This means the company must complete all environmental appeals and paperwork before the deadline to keep its grid capacity allocation.
To rectify the issue of grid hogging, Eskom has implemented new rules to decide who gets access to the grid.
Previously, access to the grid was determined on a first-come, first-served basis, Swilling said. Now, it is decided on a first-ready, first-served basis.
“It makes complete sense for Eskom to change the rules. It is first-ready, first-served rather than first-come, first-served. This ensures that the companies granted grid capacity will actually end up supplying electricity to the grid.”
These rules will also prevent companies from taking chances on grid access by offering unsustainably low prices for their electricity to gain grid capacity allocations.
Eskom’s new rules were challenged in court by G7 Renewable Energies, whose CEO referred to them as “unlawful, unreasonable and irrational”.
The court decided in Eskom’s favour. The utility’s general manager for operations enablement and distribution, Velaphi Ntuli, said this decision is vital to ending grid hogging and delays in adding new capacity.
Ntuli said companies under the previous rules used to apply for grid capacity to ‘reserve’ it.
This led to severe constraints in areas of the country such as the Western Cape, Northern Cape, and Eastern Cape, where there are already capacity constraints due to a lack of infrastructure.
Both Ntuli and Swilling said the long-term solution is to invest in expanding and upgrading the country’s electricity grid. This will take time and large sums of capital.