November 2021

Sick of load-shedding? How wheeling can save the South African electricity landscape

Just as South Africans start forgetting about the resources that go on behind the scenes when they switch on the lights, they’re reminded about how much they’re actually reliant on Eskom. But the return of load shedding spells something even more concerning than the inability to make supper or catch up on the latest series: how South African industry suffers when Eskom can’t keep up with demand.

Private companies have, however, not been complacent when it comes to their power procurement strategies. As electricity provision and stability becomes a significant business risk, they are seeking out alternative strategies to procure the power that they need. They are demanding more from the market – they want stable, cost effective power – and the market is adapting to meet their needs. This is where renewable energy wheeling comes in.

Wheeling is a financial transaction that allows power to be produced in one location and billed to an energy user in another region via the grid. This allows power to be generated for a private company in bulk amounts, without the generator needing to be geographically located at the site of use (“embedded generation” has been the chief way of providing back-up power until now, through diesel generators, solar PV systems and energy storage or batteries). This enables corporate users of electricity to procure power for their operations, and for the market to provide solutions for them based on their needs.

Wheeling can take place through a wheeling-use-of-system agreement with Eskom, based on the principle of non-discriminatory access, provided that compliance with Nersa and other regulatory requirements are met. This has been in place since 2009, but has rarely been used; the SOLA Group signed the first large-scale wheeling agreement for private buyer Amazon in late 2020. Technically, any form of electricity generation could provide private power through wheeling, but companies who pursue this type of power procurement, like Amazon, are more likely to choose the most cost-effective and sustainable option: renewable energy.

With South Africa’s abundant resources in both solar and wind energy, renewable energy options are proving to be more cost effective than other forms of energy generation – particularly when the generation plants are located in areas with abundant resources of wind and sun. In addition, these forms of energy generation are low-impact to the environment – meaning that they produce very little greenhouse gasses to manufacture and operate throughout their lifespans. This is particularly important for international companies such as Amazon and ABinBev, who have committed to aggressive carbon reduction targets for their operations.

As alternative power procurement grows, it will relieve Eskom’s capacity constraints by providing additional power to the grid. Eskom has reported its urgent need for an additional 4000 – 6000 MW of generation capacity to assist the utility with power provision, alongside its accelerated maintenance programme, in order to reduce load shedding risk.

This could be great news for the economy: load shedding purportedly cost South Africa’s economy around R75 billion in 2020, draining at least 2% to South Africa’s GDP loss during 2020, a year in which economic activity was actually subdued due to the pandemic.

There are legitimate concerns about the phasing out of coal, both from a technical and social perspective. The technical concerns are easily addressed through the provision of energy storage facilities and on-demand back-up power sources like green hydrogen; the social issues by keeping the Just Transition front and centre of the picture. Part of this is recognising the extreme business and social risks that a rapidly warming planet will bring, particularly in countries like South Africa.

As renewable energy wheeling becomes the go-to option for business consumers of electricity, the phase-out of coal will be more achievable. But renewable energy wheeling does not spell the end of Eskom – it just modernises the utility’s function. Wheeling requires a fee to be paid for every kWh wheeled through the grid. It is a great model for the utility, as they get paid to maintain the gridlines that provide South African businesses and citizens with the electricity that is central to their operations and livelihoods. 

Wheeling is the start of a modernised electricity picture, as it uses Eskom’s grid to connect private buyers and sellers together, in turn making more space for competition and choice for private buyers. A modernised grid could see private buyers and sellers of energy trading, whilst Eskom is paid to maintain its important grid infrastructure. This could provide more generation capacity, reduce South Africa’s carbon footprint, and ultimately spell the end of load shedding.

Adams solar facility in the Northern Cape

What does the first large-scale wheeling project mean for South Africa?

SOLA has officially launched a first-of-its-kind 10 MW solar plant in the Northern Cape three months ahead of schedule, which provides clean energy to Amazon Web Services via the Eskom grid. Energy wheeling, a new model of private energy procurement, allows power to be generated and purchased in geographically distinct locations. The Adams Solar PV project will provide over 28 million kWh of clean electricity to Amazon Web Services annually. 

This is the first operational large-scale solar PV wheeling project in South Africa, and the model is futuristic: it uses Eskom’s grid to connect private buyers and sellers together making the way for more choice and competition.  It’s the first step forward in creating grid independence where private buyers and sellers of energy can trade with each other.

This means that the renewable energy plant will provide a low-carbon alternative to coal-fired power for a private offtaker (in this case Amazon Web Services) without needing to be geographically located at the site of use. 

How? The solar PV plant comprises over 24 000 bifacial solar modules on single axis trackers, covering an area of 20 hectares. It is situated in the Northern Cape, where the solar resource is one of the best in the world. The solar PV facility tracks the sun throughout the day and absorbs irradiance from both the sky and reflected light from the ground. This design will see over 25 000 tons of carbon emissions being avoided annually – the equivalent of taking 5400 cars off of the road for a year. 

This model could also help South Africa significantly in sticking to its carbon emission reductions targets whilst supporting economic growth and a just energy transition.

Amazon, like other large corporate consumers of energy, have committed to aggressive renewable energy procurement targets – in their case, 100% by 2025. But the successful provision of renewable energy can only be provided in an environment that supports it. Recently, the Department of Minerals and Energy, NERSA and Eskom have become supportive of renewable energy generation, which has allowed for the approval of renewable power plants such as this. 

This is great news in light of the onslaught of load shedding in South Africa. Power generated from wheeling projects will increase the amount of IPPs and relieve the sole electricity provision burden on Eskom.

The support of renewable projects means the equal prioritisation of economic and social factors. The Adams project is more than 63% black owned, with investor Mahlako a Phahla Financial Services holding stakes in the project, who are committed to delivering returns for local black investors. SOLA is also 100% South African owned, including a 40% shareholding by black investor African Rainbow Energy and Power.

Renewable energy projects which take into account local development are able to develop South African skills and provide jobs. During construction, the Adams Solar Project created 167 jobs, 63% of them from the local surrounding area, and it will sustain permanent jobs for its lifetime in electrical maintenance, cleaning and security. Wooden waste generated during construction, including pallets and electrical cable drums, were donated to local furniture businesses and special skills schools, in order to further bolster the SMME contributions of the project. 

Although the Adams Project is just the start of an energy wheeling and trading landscape in South Africa, it’s indicative of where the picture is heading: toward a modernised grid with renewable energy at its core. It also demonstrates the willingness of the government and the private sector to work together on solving South Africa’s electricity crisis.

Read more about the project here.