South Africa: Government works on rules to enable private transmission

• Electricity department will issue a ministerial determination for independent private transmission
• Framework for independent transmission projects to be ready no earlier than 18 months
• Eskom needs ZAR 390bn for transmission investment but has constraints on balance sheet
• Derisking and transmission tariff need to be fixed to get private sector onboard

The energy and electricity department is working on a set of rules to enable private transmission projects in the country, similarly to the ones developed for private generation projects, lead economist for the department, Shaakira Karolia, told a?meeting ?on the progress of financing models for grid expansion hosted by the Presidential Climate Commission on Tuesday (Aug 6). In order to provide clarity and certainty to potential investors from the private sector, the department will issue a ministerial determination based on the amended Electricity Regulation Act for the development of private electricity transmission projects.

In order to connect new renewable energy capacities, South Africa needs to build 14,000km of transmission lines and other related infrastructure over the next decade, estimated to cost ZAR 390bn. Considering the constrained balance sheet of the power utility Eskom, the government would need to find ways to source the required investment capital from the private sector.

However, work is far from complete on a framework that will enable the launch of Independent Transmission Projects (ITP) to expand the grid. Neil Cole, finance manager at the Project Management Unit of the JET-IP within the Presidency, said the unit estimated that the government could be ready to go to the market to procure private transmission was anywhere between 18 months and 2 years. He said that the concessional loans provided to South Africa within the Just Energy Transition Pact (JETP) were instrumental in securing the involvement of the private sector. The official explained that the government may need to consider providing state guarantees to investors in a private transmission build programme, similarly to the Renewable Energy Independent Power Producer Procurement Programme (IPPPP) which was launched in 2010.

While guarantees help derisk these projects for the private sector, the government has amassed a substantial ZAR 270bn in IPPPP guarantees and is already exposed to ZAR 200bn of these guarantees. This is why the government is considering a credit guarantee vehicle together with the World Bank and other development institutions, in which the government will also hold a stake. The share of government in such a vehicle is currently under discussion which is expected to be finalised in the next six months, according to Cole.

In addition to finding a suitable way to derisk transmission projects, the government also needs to adjust the transmission tariff framework, Grove Steyn of Meridian Economics said in his presentation. Steyn said the transmission entity was currently earning negative returns on its assets, which is a situation that needed fixing before inviting the private sector to participate. Interim CEO of the newly established National Transmission Company of South Africa (NTCSA), Segomoco Scheppers, concurred that the transmission tariff issue was a precondition for most of the possible options to get the private sector onboard of these projects.