SEA's comments on Consultation Paper 2 for the section 34 ministerial determinations

SEA offers the following comments to the recently published Consultation Paper regarding the procurement of generation capacity.SEA endorses the generation capacities and technologies reflected in the consultation paper and advises that implementation should proceed with haste.










Section 3

The IRP went through a sound process of modelling, consultation, and policy adjustments. This includes consideration of dispatchability. The allocations in this consultation paper are in accord with the IRP and should thus be pursued. Most of the questions asked by NERSA within Section 3 are not seen as necessary, as they re-raise issues which the IRP modelling has dealt with adequately and in more detail than any stakeholder providing comments is likely to be able to do at this point. Changes in generation costs or technologies since the finalisation of the IRP have not been significant enough to merit re-visiting of the IRP quantities or mix at this point – and the delays in such re-working would not be justifiable.

PV and Wind generation should be pursued as proposed.

Storage should be pursued as proposed.

In future determinations (i.e. not for the current determination) storage allocations should be informed by further studies given the pace at which this technology is changing, including the role of distribution-level storage in securing distribution grids and reducing costs.

Gas generation should be pursued as proposed.

Time to plant commissioning is an important criterion to include in the procurement process.

Gas is supported as a lower carbon energy source over diesel. Its dispatchability and cost advantage are also particularly important.

Procurement of coal proposed is also according to the IRP. This procurement should be finalised only once ability to reach the point of commissioning in a reasonable timeframe, and ability to finance the project/s, has been unambiguously demonstrated (coal generation plant construction can be slow, and obtaining financing is increasingly difficult).

Socio-economic impacts: Generation procurement via IPPs should have conditions in place to maximise local socio-economic benefits. This includes sensible local content requirements. Lessons from previous REIPPP programmes (which show very mixed results) are to be considered in determining such conditions so that they are effective and sustainable, and do not repeat mistakes made in earlier procurement programmes.

Section 4

• Eskom should be the major buyer of new generation capacity (but not necessarily exclusively – see below)
• Buying should be handled by the IPP office, as it is well equipped to do this in a streamlined and corruption-free manner.
• Municipalities (including metro utilities such as City Power) should be allowed to buy power. Those that can demonstrate a capacity to do so should be asked to submit firm evidence around quantities and delivery timeframes, and if adequately demonstrated, they should be allocated generation amounts they can purchase.

NB

• Municipalities are currently not well capacitated to undertake such buying – in future they are likely to be able to play a bigger role here, but it is likely to be limited at present
• Municipalities are likely to procure smaller amounts of generation, and thus even those that can demonstrate a capacity to handle this process successfully are likely to have limited contribution to the overall generation requirements listed in the IRP.
• Municipalities have an important role in exploiting smaller, but not insignificant, opportunities that might be overlooked by a large-scale national procurement programme (e.g. warehouse roof PV programme, small hydro etc).

Private Distributors and Traders role as buyers should be limited at present:

• This is because current wheeling tariff structures often do not adequately recover costs for the distributor, particularly costs of cross-subsidising the poor or other essential services. Using private companies under current tariff regimes may therefore result in inadequate support for such subsidies etc.
• In future when such tariffs are sound and well-established, the role of private distributors and traders can be increased.

Eskom should be allowed to participate in the bidding process. This is likely to be important for their future financial soundness, and their plans to repurpose decommissioned coal plant land and infrastructure, for example.

Speedy implementation is key. Procurement processes should therefore ensure that delivery timeframes are firmly committed to, with penalties if necessary, in addition to cost and other criteria.

NERSA should concur with the ministerial determinations as per the prescripts of section 34 of the Act.