Electricity regulatory rules

As the regulatory environment in South Africa continues to mature, a myriad of regulations, codes, rules, directives and guidelines for electricity supply will be developed. Over the past year, there have been a number of developments.

National Energy Regulator of South Africa renewable energy feed-in tariffs (REFIT) 1 and 2 programmes

Eskom will be in a position to implement the renewable energy feed-in tariff for the (REFIT) 1 and 2 programmes as published by NERSA once the outstanding issues have been addressed. These renewable energy programmes were aimed at facilitating the introduction of private sector participation in the renewable energy generation industry.

In terms of the new generation regulations, the following are needed to implement these programmes:
  • The evaluation criteria to be applied in pre-qualification and bid selection by the National Energy Regulator of South Africa need to be finalised
  • The proposed power purchase agreements and standard risk allocation need to be finalised
  • A ministerial determination of the buyer and the licensing of such a buyer is required
  • The targeted megawatts for each REFIT technology need to be confirmed.

In addition, the Department of Energy and National Treasury initiated an implementation process for an independent power producer renewable energy programme. It is envisaged that the programme will be implemented during the next financial year.

The National Energy Regulator of South Africa is currently initiating consultations to review REFIT 1 and 2. Significant changes have been proposed to the tariffs for identified renewable technologies.

Multi-year price determination (MYPD 2)

Eskom completed its first year of the three years in the MYPD 2 period. Eskom implemented a transition mechanism to deal with the introduction of inclining block tariffs (IBT) for residential customers. The full implementation of IBT was rolled out on 1 April 2011.

The price decision of MYPD 2 was a key factor in Eskom resolving its funding problem, as highlighted during the MYPD 2 application process. Investors have welcomed the price principle and trajectory included in implementing the Electricity Pricing Policy (EPP) within a five-year horizon. Eskom increased its average electricity price by 25,8% from 1 April 2011.

MYPD 3

The process for each three-year price determination is a complex one and needs adequate preparation. Eskom is in the process of preparing for the next three-year revenue application, the MYPD 3 revenue application, which will need to be implemented with effect from 2013/14.

The process will include appropriate stakeholder consultation. In addition, it would entail a review of the regulatory rules in some areas, continuation of some of the principles agreed in the MYPD 2 rules and the phasing in of the depreciated replacement value of assets and the return thereon over a five-year period as per the Electricity Pricing Policy. Some of the key areas to be addressed include:
  • Regulatory asset base
  • Cost of capital
  • Primary energy
  • Demand-side management
  • Embedding inclining block tariffs for all residential customers.

SA Grid Code

The South African Grid Code defines the minimum rules, procedures and standards that govern the connection, operation, maintenance, planning and development of the interconnected power system. The Grid Code is a living document that is revised and updated regularly to align with the evolving electricity supply industry.

  • NERSA has approved the Wind Grid Code which describes the minimum requirements to be met by wind power plants to satisfy system needs.
  • The “Limitation of liability” clause dealing with “inter-party” liability of customers connected to the transmission network was approved by NERSA.
  • Primary fuel security requirements that specify the minimum primary energy requirements for each generation technology to ensure security of supply have been approved by NERSA.
  • Load-shedding management practices. An industry standard has been adopted by NERSA.