The Energy Regulation and Markets Review - Stikeman Elliott

South Africa
As noted above, the majority of generation, transmission and distribution assets
are currently owned and operated by Eskom, save for distribution assets which are
majority owned and operated by various local authorities.
The build‐out of new generation capacity targeted under the IRP 2010–2030
anticipates IPP participation particularly for renewable energy and thermal energy (but
excluding nuclear energy). Having regard to earlier statements by the National Cabinet,
it appears that IPP participation is targeted at 30 per cent of the total generation mix
(excluding nuclear energy). National government policy specifically favours the ‘managed
liberalisation’ of the electricity supply market to provide for the staged introduction of IPPs
within a single buyer market in which Eskom (and, following the enactment and coming
into effect of the ISMO Bill, the ISMO) will act as the single buyer of the electrical energy
supplied by the IPPs. Entry into and participation in this single buyer market by IPPs is ‘by
invitation only’ through a procurement process initiated at the discretion of the Minister
of Energy (the regulated single buyer market). Such invitation will likely depend on the
outcome of feasibility studies demonstrating the value for money of IPP ownership and
operation when compared with state-owned producer ownership and operation.
Should the ISMO Bill be enacted and brought into effect, Eskom’s entire
transmission business including assets and system operation and generator dispatch will
likely be transferred to the ISMO whose shareholding will be held by the state acting
through the Minister of Energy. The ISMO Bill reflects government policy to retain
transmission under state ownership and control over the short to medium term.
It also appears that the distribution business, currently under municipalities, will
remain under municipal ownership, except for Eskom’s distribution business which will
either remain with Eskom or be transferred to the ISMO or another organ of state. 23
There has been no significant IPP activity outside the regulated single buyer
market. Historically, this has been attributed to low electricity prices from Eskom
and uncertainty over access to wheeling services by Eskom and municipal distributors
(specifically, the absence of regulated standardised terms and conditions for the provision
of wheeling services). More recently, proposed regulatory amendments that, if enacted
and brought into effect, will require IPPs to obtain the approval of the Minister of
Energy for the construction and operation of commercial generation facilities (regardless
of whether such generation requires wheeling services across state or municipality-owned
networks), 24 have made the growth of significant IPP activity outside the regulated single
buyer market less likely.
23 In October 2006 the Cabinet approved the proposal to create six regional electricity distributors
(‘REDs’). Under this proposal the REDs were to be established as public entities with a majority
ownership (51 per cent) to be held by the state, and not as municipal entities; however, in
September 2007, the Municipal Fiscal Power and Functions Act 12 of 2007 was passed by
Parliament, which, inter alia, permitted a municipality to apply to National Treasury for a
transparent electricity surcharge. The proposal for the REDs was subsequently reviewed by
Cabinet and abandoned in 2011.
24 These amendments are proposed pursuant to the Electricity Regulation Second Amendment
Bill in GN 905 in GG 34870 of 19 December 2011.
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