State takes first step towards private sector participation in grid development

Request for Information issued to test market.

More than a year after Dr Kgosientsho Ramokgopa, then minister of electricity, held an investor conference about private sector participation in developing the South African electricity grid, a Request for Information (RFI) was published on Wednesdsay (11 December).

This is the first step towards procurement, which was envisaged to start in the first quarter of next year. 

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The closing date for the RFI is, however, only in February, which casts doubt on whether the timeline for the Request for Proposals (RFP) will be met. 

Read:
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The South African Independent Power Producer Association (Saippa) welcomed the RFI as a crucial first step to unlocking private capital towards expanding essential grid infrastructure. 

Grid expansion and reconfiguration have become a top priority to enable the development of a myriad of renewable energy projects by government and private sector players. 

Grid congestion

In the Eastern, Western, and Northern Capes, where the best wind and solar resources are located, the grid is becoming too constrained to accommodate further projects. Eskom has developed a curtailment programme to free up some capacity, but energy regulator Nersa must still determine the applicable tariffs. 

The National Transmission Company of South Africa (NTCSA), which started operating as an independent subsidiary in the Eskom group in July this year, has announced an ambitious Transmission Development Plan (TDP) to integrate 56 000MW of new generation capacity into the network in the next 10 years. 

Read:
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What grid congestion really means
Nersa tariff decision crucial for grid expansion plan, says NTCSA boss

“To meet this demand, 14 500km of new transmission lines and 210 transformers, providing 133 000 MVA of capacity, will be required,” NTCSA interim CEO Segomoco Scheppers said at the launch of the TDP.

“This represents a fivefold increase in delivery over the next 10 years compared to the previous decade. R112 billion has been approved for the TDP programme over the next five years.”

Eskom does not have the capacity or capital to execute this alone, and therefore, the involvement of the private sector is needed. 

RFI

The RFI consists of an online questionnaire that invites input from the market about the duration and format of the contracts – for example, build, own, operate and transfer – as well as the financing and security options, risk allocation, and regulatory risk. 

It asks for input about who the offtaker should be and raises the possibility of concluding the contracts without government guarantees. 

After the investor’s conference in September last year, Ramokgopa was eager to implement the Independent Transmission Projects (ITP) programme and promised in January that it would be announced “within weeks”.

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Read:
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Days later, the late Pravin Gordhan, then minister of public enterprises, announced the appointment of the NTCSA board, and the matter was out of Ramokgopa’s hands. 

After the May election, the public enterprises department was disbanded, and Ramokgopa was given the energy portfolio, including oversight over Eskom. The Independent Power Producers (IPP) Office, which will manage the RFI and probably also the procurement, resides in the energy department under Ramokgopa’s political leadership. 

He earlier said the ITP pilot project will be launched early in 2025. 

Be ‘realistic’ about timelines

Saippa chair Brian Day doubts whether this will be achieved.

“We must, however, be realistic about the timeliness required for the overall process to unfold,” he says. 

“The closing date for this RFI is the end of February 2025, after which the submissions will need to be assessed and the insights received be utilised in the pilot scheme. 

“I believe the pilot scheme RfP will [then] be issued around September 2025, allowing for bids to follow,” Day adds.

“The overall timeline is not yet clear, as adjudication, appointment of preferred bidders, commercial contracting, and financial close must follow before the first construction starts on the pilot project. 

“That means it is at least 3-5 years before the pilot project will be operational. Only then will a comprehensive programme be launched.”

Saippa therefore now urges that the short- and medium-term solutions receive as much or more focus – that being the formalisation of the curtailment regime by Nersa and the expediting of the construction of grid projects by the NTCSA, Day says.

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