Nersa approves cross-border electricity trading

Energy regulator Nersa on Tuesday approved four new electricity trading licences in addition to the current six, as well as an import/export licence that will allow licensee Greenco Power Services (Africa GreenCo) to trade electricity across country borders within the Southern African Power Pool (SAPP).

The SAPP has 12 member countries represented by their respective electric power utilities, which are organised through the Southern African Development Community. 

The approval process, which started early last year, was surrounded by controversy earlier in July this year when Eskom unexpectedly objected to the granting of the trading licences despite failing to object to the approval of any of the licences Nersa had granted before.

The utility also failed to submit a formal call for written submissions and only came forward during the public hearing. 

Eskom argued that its distribution areas are exclusive, and no other trader should be allowed to operate in areas where it is licensed to distribute electricity.

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Danger of ‘wires crossing’

Nhlanhla Gumede, Nersa’s full-time regulator member for electricity, however, stated during the regulator meeting that Nersa does not approve exclusive distribution licences. It approves licences to operate distribution networks – based largely on the danger of having “wires crossing” should there be more than one network in a specific area.

He said there is no limit to the number of traders in a particular distribution area and that Nersa must promote competition in the market.

Having the exclusive right to operate a distribution network in a specific area does not include an exclusive right to trade in that area.

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Trading licences

The regulator decided to develop a framework and rules for domestic and cross-border electricity trading to clarify what is and isn’t allowed. 

Gumede said most trading licences were based on bilateral agreements – the trader has one supplier and one offtaker, a large power user. If a trader wants to add another offtaker, it must go back to the regulator to amend its licence. 

He said the trading licences are nevertheless valid countrywide, which will become more important as traders start to serve multiple clients and target the general public.

“Traders will be the interface with long power purchase agreements with power producers and shorter contracts with offtakers,” he said. 

Typically, these are 20 to 25 years and two to five years respectively.

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Nersa approval welcomed

The four entities that were awarded trading licences are Africa GreenCo, Green Electron Market, CBI Electric Apollo and Discovery Green.

Africa GreenCo CEO Ana Hajduka welcomed the Nersa decisions and said it is a milestone in positioning Africa GreenCo as a pivotal player in both domestic and cross-border electricity markets, thereby supporting South Africa’s broader energy goals.

Hajduka told Moneyweb that Africa GreenCo was established in Zambia in 2019 with government support. It was the first electricity market in the region to open up for competition, and Africa GreenCo was the first private member of the SAPP.

She said Africa GreenCo waited for the regulatory frameworks to change before expanding beyond Zambian borders.

This saw it first branch out to Namibia, then Zimbabwe, and now South Africa.

The company is one of the largest volume traders in the SAPP and brings with it the experience of moving from a bilateral to a competitive market. It will work with public sector stakeholders in South Africa and share its experience, she said.

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Eskom’ rightly concerned’ about losing large power users 

According to Hajduka, Eskom did not have any legal grounds to object to its domestic trading licence, but it is rightly concerned about losing its large power users and, with it, considerable revenue.

“It is understandable and a concern for all utilities worldwide when the markets open up for competition.”

She cautions that Eskom is especially vulnerable as long as it under-recovers on its network services and only sees revenue through the lens of energy charges.

African GreenCo understands that and wants to work with Eskom to show it the benefits of monetising its network through network charges for balancing and auxiliary services, among other things. 

“Eskom’s overall revenue will not decline if it is properly compensated for its network services,” she says.

African GreenCo has concluded a 25-year power purchase agreement with Dubai-based Amea Power to supply it with solar power from an 85MW solar PV plant to be constructed in the North West. The approval of the trading licence will now enable the parties to reach financial close, after which construction can start.

Its first offtaker is the mining group Sibanye-Stillwater, but it is building a diversified portfolio of customers. African GreenCo is negotiating with Eskom to be included in this portfolio in terms of the utility’s standard offer. 

It will mitigate the variability of renewable supply from its own suppliers and the SAPP and is also negotiating with Eskom to utilise Eskom generation for this purpose.

This article was republished from Moneyweb. Read the original here.