The provision of electricity aggregators or traders in the Electricity Regulation Amendment Act (ERAA) will bring opportunities for smaller businesses that cannot enter into 20-year contracts with independent power producers (IPPs) or want to include, for example, wind and solar power in their power mix.
This is one of the projections made by Standard Bank and financial advisory group Cresco, in an analysis of risks and opportunities in SA’s current and future energy market.
This comes as municipalities led by the SA Local Government Association (Salga) as well as Eskom dispute the right of such aggregators or traders to sell electricity in their licensed distribution areas.
President Cyril Ramaphosa has already signed the ERAA, but is delaying the promulgation of the date of implementation in the Government Gazette after he gave both Salga and the department of energy and electricity 90 days to make proposals to resolve their issue.
Eskom also confirmed it was preparing to file a High Court application to review and set aside energy regulator Nersa’s recent approval of four trading licenses, and Salga indicated that it would support Eskom.
They did not dispute the earlier Nersa decisions to grant trading licenses to several other companies, the first to PowerX as early as 2014.
According to Standard Bank and Cresco the development of the decentralised power market is currently driven by large power users entering into bilateral long-term power purchase agreements (PPAs) with independent power producers (IPPs) and rooftop solar firms.
Customers and industry, however, needed more flexibility that would allow shorter-term contracts and the inclusion of a combination of different technologies at competitive tariffs.
This would open up an opportunity for aggregators.
“Previously, smaller power users were excluded from procuring private power through utility-scale, expensive request for proposals (RFPs),” says Rentia van Tonder, head of power at Standard Bank. “However, power aggregators now allow smaller-scale electricity users or users with limited ‘balance sheet capacity’ to underpin long-term PPAs to access private power without launching their own request for proposals.”
Power aggregators or traders source renewable energy from various generation facilities their own or belonging to IPPs, and sell it to multiple off-takers. In SA it is mostly wind and solar energy.
Etana, one of the traders licensed by Nersa — whose trading licence is not in dispute — made history in May when Autocast, a component manufacturer in the automotive industry situated in Gqeberha in the Eastern Cape, signed a power purchase agreement with Etana that would supply between 50% and 70% of its electricity demand.
Autocast was the second off-taker to put pen to paper after property group Growthpoint signed a PPA with the trader in January for 195GWh, which will supply 70% of the demand in Growthpoint’s participating buildings.
Etana CEO Evan Rice said at the time it was the start of the first phase of its evolution to become a green utility, almost like a mini Eskom, selling to multiple customers but dealing in renewable energy only.
According to Standard Bank, it has been mandated for four major aggregator projects in the market.
“The presence of power aggregators in the market may create a mismatch of PPA tenor between the IPP, the aggregator and their off-takers, as the tenors may vary,” warned Vaincenzia Leitich, executive for energy and infrastructure at Standard Bank.
“This requires funders to consider off-takers differently, as there will be a portfolio of off-takers purchasing power from a project. Initially, lenders may need to assess the aggregator’s ability to deliver, and there may be a need to look at the ultimate off-takers for proof of concept. As the aggregator model develops, this may become less necessary.”
When an off-taker procures renewable energy through an aggregator, there are added benefits such as flexibility in the PPA, including terms, tariffs, security commitments and faster execution.
Van Tonder says a significant move in the industry would be for IPPs or aggregators to sell renewable energy on a time-of-use basis or incorporate different tariffs according to season, as Eskom does.
“On recent requests for proposals for private buyers, we are seeing IPPs starting to consider different tariff structures to align with buyers’ needs, which is further developing the market,” executive director of the Cresco Group, Robert Futter, said.
“Furthermore, since the aggregator sources renewable energy from different sources, there is an increased ability to match the energy demand of the off-taker more effectively compared to relying on a single renewable energy source as well as manage any potential curtailment risk,” said Leitich.
“However, it is important to note that this model relies on the power being transmitted through the grid and does not address the issue of load-shedding. Solutions are needed to enable transmission across municipal and metro distribution networks,” Leitich said.
“Additionally, investment in grid infrastructure is necessary to ensure that renewable energy projects in areas with limited grid capacity can connect and transmit power effectively.”
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