The Electricity Regulation Amendment Bill (ERA) which is now making its way through parliament will bring “fundamental change of SA’s power market”.
“The SA electricity industry will never be the same again,” said Anton Eberhard of the Power Futures Lab at UCT.
Speaking at a recent workshop on SA’s transition to a multimarket model for electricity, hosted by EE Business Intelligence and the Power Futures Lab, Eberhard said that the Transmission System Operator (TSO), which will be established through the introduction of the ERA bill, will “create a fair and transparent platform for the competitive contracting and trading of electricity”.
“This will also insulate [the trading platform] from Eskom’s generation interests, thus removing the conflict of interest where Eskom is both a generator, owner and operator of a monopoly transmission grid,” he said.
First, the National Transmission Company of SA will function as an interim facility taking on the roles of the TSO. It is now being incorporated as a subsidiary of Eskom Holdings as part of the separation of Eskom into three entities for transmission, generation and distribution, will function as an interim facility taking on the roles of the TSO.
Once fully realised, the TSO will function as the operator and owner of transmission system, the system operator, the market operator, and a central electricity purchasing agency.
According to Eberhard, while every effort was being made now to pass the ERA, which makes provision for the establishment of a TSO, it will take at least five year after the bill has been signed into law to establish the TSO as a separate entity.
Jason van der Poel of law firm Webber Wentzel, said at the workshop an optimistic timeline for processing the ERA bill through parliament, as set out by the Energy Council of SA, shows that the process to pass the bill into law is now only 33% complete.
It was unlikely, he said, that the bill will be passed before next year’s general election, and they expect the bill will be signed into law only in early 2025.
The bill caters for a five-year transition period, which would mean the full impact of the ERA will take effect only by 2030.
“This gives us a sense of timelines for the introduction of this multimarket into the SA energy environment,” he said.
However, in the meantime, to compliment the private energy trading market, Eskom is working on setting up a range of new trading platforms.
One of the pressing matters that need to be addressed was how, in a liberal market, to ensure there won’t be huge energy price increases as SA migrates to full, wholesale competition at a time when the country still faces scarcity in generation capacity, said Eberhard.
Keith Bowen, a power systems economist at Eskom, explained the different trading instruments that Eskom was considering introducing as it rolls out centralised markets for the competitive buying and selling of electricity.
“We already have competition taking place via physical bilaterals or wheeling contracts between buyers and sellers,” he said.
These physical bilateral contracts are agreements between an energy consumer and an energy supplier to buy and sell a specified quantity of energy at a specific price. That electricity is then wheeled or delivered from the generator to an end-user through the use of Eskom’s transmission and distribution networks.
However, because these private energy trades are happening without a central market mechanism for a large percent of the time the system operator is “almost flying blind”, said Bowen.
“For now, the volumes are still small, but as more and more private generation capacity is added to grid, and customers start exercising more choice, the system operator needs greater visibility of what is actually happening on the network to be able to plan around it.”
Wheeling contracts will continue, Bowen said, but by creating centralised trading platforms to physically trade energy on a day-ahead, intraday and real time basis, that information can then be provided to the system operator, to make management and balancing of the system more efficient and transparent.
The day-ahead market, he said, will function as a voluntary trading mechanism bringing together willing buyers and willing sellers via supply offers and demand-side bids.
“The role of market operator, which will be established as one of the functions of the TSO, is to match the offers with the bids, clear those and make sure settlements take place for those contracts that are awarded.”
There will also be contracts for day-ahead reserves, which will allow the system operator to acquire reserves from multiple participants in the market and ensure they have dispatchable energy available on the day to guarantee grid stability and reliability.
Additionally, the trading platform will allow for an intraday energy market, this is for generators, consumers, and traders to shift their positions if something happens on the ground.
“In the day-ahead market you have the best information about what generators can offer and the market then decides what it is taking from that availability. If the generators on the day find they can’t offer that energy any more, they are able to adjust their position in the intraday market, which operates similar to the day-ahead market, but it clears every six hours to produce a revised schedule,” said Bowen.
The system operator will use a balancing mechanism to bring all the trading information together to ensure the system balances in real time.
If the system is out of balance then the balancing mechanism will kick in, which could entail the system operator choosing to dispatch energy needed to balance the system and the cost of those decisions will then be passed on to those that caused the imbalance on the system.
The market will also require long-term financial bilateral or physical bilateral contracts to establish some long-term certainty in prices going forward and ensure new generation capacity is being built.
This can be done through forward contracting that allows for longer-term price setting which then provides for bankability of new generation projects, said Bowen.
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