To solve the energy crisis and meet the future demand for clean energy South Africa needs to rapidly build new transmission lines. Meridian Economics, together with Krutham recently completed a study on appropriate Independent Power Transmission (IPT) models for South Africa’s circumstances to be implemented alongside Eskom’s own grid build programme.
The Meridian-Krutham team recommended two complementary models for private sector participation in the grid.
- For large backbone infrastructure (typically large 765kV inter-zonal power transfer lines), we recommend a standard IPT BOOT model, where the private sector finances and builds the grid for a state-backed capacity off-taker. This provides “grid as a service” from the “inside – out”. However the ability of the state to support this strategy through guarantees is limited and Eskom is in a weak financial position. We recommend a model where a portion of the electricity tariff charged to end users is ring-fenced in escrow for IPTs, similar in some ways to the Water Trading Entity arrangement that backs the Trans-Caledon Tunnel Authority. With the BOOT model, the assets can be handed over to Eskom after a fixed period when the capital cost has been amortised.
- For grids connecting and evacuating IPP power into the main Transmission backbone, typically 132kv, 400kv, and up to 765kV lines, we recommend an IPP-backed IPT BOOT model. This would include regulatory and tariff changes to allow IPPs to back the financing of the necessary power line infrastructure. We show that with these changes, IPPs could be incentivised to build a large portion of the IPP power evacuation networks, releasing the financial burden from the national government.
A final recommendation relates to tariff reform. The current Eskom transmission tariff model has not been updated to reflect the fact that the main transmission constraints are encountered when renewable energy flows from the Cape provinces inland, rather than from Mpumalanga where the coal stations are located. The tariff level and structure need a complete overhaul to reflect the cost of the new grid build and the changing nature of the grid constraints as renewable generation capacity is connected.
Link to the full report HERE: Meridian-Krutham-two-leg-IPT-strategy-Final
Author: Bryan Groenendaal
