It’s no surprise that high energy consumers are those that might benefit the most from renewable energy. In South Africa in particular, the coal-based electricity system means that large energy consumers carry large carbon footprints, which can undermine sustainability efforts and targets. But simply adding a few solar panels is not necessarily the answer either.
That’s because renewable energy – in particular solar – needs space in order to effectively produce the necessary energy. For large energy consumers, the required space can be substantial – requiring a large solar farm situated in an area with excellent irradiance (solar resource). Whilst it does sometimes happen that the energy consumer is situated in an area with large land and good irradiance, this is not always the case.
Open energy markets allow the trading of energy from different sources of production – either governmental, such as an Eskom-owned and operated coal-powered generation plant – or independent power producers (IPPs) – typically solar, wind, gas, and so forth. When energy is at its cheapest – as solar is during mid-day – consumers can buy this power and benefit from the associated cost savings. This is the type of energy market which is common overseas in places like California, where a central body facilitates the provision of power from various different sources.
In South Africa, we are not yet at an open energy market situation. Energy is still provided almost exclusively by Eskom, with a few IPPs contributing to Eskom’s grid. But wheeling of power – forming an arrangement between an IPP and a commercial offtaker to use power via Eskom’s grid – is a possible workaround for large energy consumers. This fits with global trends that show that businesses are taking a more active role about procuring the type of power they want, according to Bloomberg.
Wheeling is essentially like a remote Power Purchase Agreement – it is a way for a corporate consumer of energy to procure electricity from an independent party. But unlike typical PPAs, wheeling enables larger amounts of power to be transferred, because the generation source – such as a solar PV system – doesn’t have to be situated geographically close to the offtaker.
This means that a large solar farm – producing several MW of power in the highest solar resource areas of the country- could generate electricity for a high-energy consumer on the other side of the country, using the national electricity grid.
In South Africa, wheeling currently involves amending the System of Use Agreement from Eskom to stipulate that the energy can be wheeled – or generated in one source and consumed in another. The actual energy generated by the plant does not get transferred physically to the consumer, but electricity meters at either end (both at the producer and consumer) measure how much energy was generated and consumed and will be accounted for, respectively.
The industries that can benefit from wheeling include large corporate energy consumers, such as mining operations, smelters, or data centres. All of these operations are suitable for wheeling because they are large energy consumers, but may have neither the space nor the inclination to build a large solar plant located at their operations. Wheeling agreements can ensure that they meet their sustainability targets, by reducing their carbon emissions, and cut operating costs, by procuring cheaper power when this is available.
So wheeling can help to facilitate energy markets by allowing IPPs to produce affordable, clean power and sell it directly to corporate consumer, helping the latter to reduce costs and carbon emissions. Is there a catch?
There are a few different aspects of a wheeling agreement that can influence the tariff costs. Firstly, there are the wheeling fees, which Eskom charges in order to recoup the costs of utilising their grid to distribute power. These costs mean that economies of scale are still needed in order to make the tariff an affordable one – making wheeling suitable for very large consumers of energy only.
Secondly, the regulatory environment can take time to navigate. In South Africa, Eskom has a wheeling framework that enables wheeling, but these agreements are still subject to approval by the National Energy Regulator, Nersa, who need to give overall permission for the arrangement. Navigating the two entities can take time, and therefore wheeling agreements typically take a while to come online.
Nevertheless, wheeling of power has great potential to assist large energy consumers to optimise their energy loads and provide cost savings, whilst also reducing pressure on Eskom. Wheeling means that Independent Power Producers can supplement the grid and provide clean electricity to those companies that wish to procure it.