Eskom has given a further update on its new grid capacity rules for Independent Power Producers (IPPs) – hoping to add new generations to the grid as fast as possible.
With the failures of its generation unit and the push for renewable energy, Eskom is trying to add more megawatts (MWs) from more IPPs to the grid. However, the grid only has so much capacity.
The Interim Grid Capacity Allocation Rules (IGCAR) have thus changed from the ‘first come, first served’ approach to a new regime based on a ‘first-ready, first served’ principle.
Although certain amendments were introduced in September to ease the IGCAR’s initial project readiness evaluation criteria, changes to the requirement to provide a grid capacity allocation guarantee by an Eskom-approved financial institution still needed further information.
During a presentation to stakeholders, Eskom said that it made progress in processing the backlog of grid connection applications in terms of the IGCAR.
“Eskom confirmed that all pending budget quote (BQ) processes in the three Cape provinces have been attended to – of 42 projects totalling 5.1GW, 32 were found to be IGCAR compliant, with 27 collectively allocated 3.2 GW of grid capacity,” Alecia Pienaar and Tessa Brewis from Cliffe Dekker Hofmyer said.
“The remaining IGCAR-compliant projects in the Cape provinces will be issued with cost estimate letters or otherwise allocated grid capacity as and when it becomes available.”
“The relevant Eskom Grid Access Units have since turned to assess pending BQ applications made in the remaining areas falling outside the Cape provinces. Thus far, only 8 of the 44 projects have been found to be IGCAR compliant, with additional information requested from the remainder of the projects.”
Based on the applications so far, Eskom also gave further clarity on some of the IGCAR evaluation criteria, such as Environmental authorisation and water use licences (WULs), approvals from the South African Civil Aviation Authority, land rights, the Grid Capacity Allocation Guarantee and more.
Moreover, all generators that wish to be grid-tied to the transmission or distribution network with installed capacity over 1 MW are required to give a guarantee.
This guarantee is linked to the economic costs suffered when a project fails to abide by agreed timelines despite receiving grid allocation.
This stems from the costs of load shedding – the economic loss due to the lack of generation – and the energy displacement costs of renewable energy projects – lower tariffs that cut down Eskom’s energy costs.
With this in mind, the reasonable cost to be covered through the guarantee is R200,000 per MW per project.
The experts said that the requirements and conditions of the guarantee include:
- It is to be issued by a financial institution and in a form approved by Eskom;
- In terms of timing, it is required to be submitted following request for a BQ and confirmation that the project is “shovel-ready” as contemplated under the IGCAR;
- The guarantee must cover the entire BQ period (development, issue and validity), as well as the project execution phase up until grid connection;
- Draw down on the guarantee will occur upon revocation of grid capacity allocation, which may, in turn, result from failure to comply with prescribed timelines or BQ conditions; and
- The amount of the drawdown will be calculated with reference to the date from which grid capacity was reserved.
The embattled utility also said that the guarantee was different from and in addition to any grid construction works guarantee to be provided.
There have, however, been concerns over developers or IPPs being held liable regarding the guarantee where the scope of the work dramatically changes between the cost estimate letter and the BQ stage, with the developer or IPP not proceeding with the revised scope.
Although Eskom said that the scope of works would only be changed with a customer’s input and agreement to proceed, liability could still accrue depending on when grid capacity is deemed to have been reserved in an application.
“In reiterating its intention to continue to implement the IGCAR, Eskom also confirmed that the IGCAR have now been finalised and are currently subject to a “codification” process,” the experts said.
“To secure grid capacity allocation, developers and IPPs are therefore encouraged to be fully acquainted with the IGCAR and timeously seek advice on their requirements to ensure compliant submissions.”
“This is especially considering that revocation of grid capacity allocation will result in such capacity falling back into the capacity “pool”, to be reallocated to other applicants in accordance with the IGCAR.”