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FIFI PETERS: Eskom is facing a legal challenge to its new grid-capacity rules. An industry player has approached the high court to essentially stop Eskom from implementing its new allocation rules. For more on the story we are joined by Antoinette Slabbert, a journalist at Rapport.
Antoinette, thanks so much for your time. I know you have been following this story closely. In the story you reported that a player called G7 Renewable Energies is essentially the one leading this legal challenge to Eskom, trying to stop it from implementing the grid-capacity rules.
Why is G7 Renewable Energies pursuing this course of action?
ANTOINETTE SLABBERT: Good evening, Fifi. Good evening to the listeners. Yes, I think we must appreciate that at the moment there’s a very high demand for the electricity that independent power producers [IPPs] can deliver to the private sector and to government – or Eskom in this instance. But the key thing is whether they can connect to the grid, because you can build a solar farm or a wind farm but unless you can use the grid to send that electricity to your user, it’s a stranded asset – and we have a constrained grid.
So the value of grid connection is becoming bigger and bigger, and the competition for it is becoming fiercer and fiercer.
What we have here is that some IPPs have applied for grid access according to a certain set of rules, and G7 is one of these [IPPs].
They have wind farms planned, two of them close to Sutherland in the Northern Cape. They applied in May 2022 but haven’t had any final response from Eskom, which they would have expected by now. They fear that if these new rules announced on June 27 come into effect – and Eskom has actually said [they have] been implemented and [will] also apply retrospectively – they will lose their potential access to the grid, and they will be disqualified or have to go back to the beginning of the queue again. And that will seriously hamper their projects.
FIFI PETERS: I imagine that a significant amount of investment has been done by the likes of G7 Renewable Energies in order to get its project ready, but Eskom argues that the reason why they introduced these new rules is they wanted to ensure that shovel-ready projects were brought to the front of the queue because of the energy crisis that we are experiencing. They reckon if shovel-ready projects are in front of the queue it’ll help to limit the power cuts. So for companies that have shovel-ready projects ready it shouldn’t be too much of a problem, but it then leads to the question as to whether G7 Renewable Energies is in this position?
ANTOINETTE SLABBERT: Well, they clearly aren’t, because that was not a requirement until now.
What has happened with the new rules is that the certainty about grid access has been moved to much later in the process of developing independent power producer [projects].
For example, G7 has paid about R6 million to R7 million per project to Eskom just in this application process, but they’ve also invested money in other processes to reach the requirements that were valid in terms of the old rules.
But, with the process that Eskom has instituted now with these new rules, much more will have to be finalised before you know whether you have grid access.
Let’s say you paid R20 million in total – and these are more or less the numbers that I got from the industry; that you have to invest more or less R20 million up to the point where you know you have certainty that you will be able to connect to the grid in terms of the old rules – the new rules will require you to spend two or three times that much before you have certainty, which tremendously increases the risk for developers of these projects.
Industry players have said to me that investors would rather put their money in a different country – because are you going to spend R60 million and then hear that you can’t get access to the grid?
I don’t know whether that is attractive to investors.
FIFI PETERS: No.
ANTOINETTE SLABBERT: Eskom also argues that it has the right to issue these rules, whereas G7 says, no, that’s not for you to do. That is something that Nersa must do. So it’s also about the fairness of the process where the new rules can apply retrospectively – which is a principle in our law that normally does not apply retrospectively.
So I think Eskom is going to try some technical arguments first – for example to say that this is not an urgent matter.
But G7 wants to stop the implementation of the rules before the end of this month, because Eskom has said by the end of this month it’s going to announce who gets access and who is being disqualified. So G7 is fearful that it may get disqualified by July 31 and lose a lot of money.
FIFI PETERS: Sure. Antoinette, what about Nersa? What are they saying about this matter?
ANTOINETTE SLABBERT: Nersa as usual are very quiet. They are the second respondents. I asked them yesterday whether they are going to oppose or whether they will abide by the decision. They received my enquiry but haven’t responded.
To be honest, I think if the regulator was proactive it would’ve addressed this issue long ago when the president lifted the licensing threshold so that these IPPs don’t need to get licences any more.
They [Nersa] should have looked at the implications of that and addressed this very issue. But they waited until there was a disaster with a previous bid window [of the Renewable Energy Independent Power Producer Procurement programme] and of 23 wind projects that bid none were appointed preferred bidders because there was no grid access.
Now everyone is trying to make a plan to assist those projects, or at least give them a chance to still become part of – or get connection to – the grid.
And then there are other unintended consequences like incurring huge costs for developers like G7, who actually came to the party in good faith, followed the rules, and now halfway through the game the rules are being changed.
FIFI PETERS: Antoinette, right now as it stands this is a legal matter between G7 Renewable Energies and Eskom, and I believe that the court heard that case today. Were you there?
ANTOINETTE SLABBERT: They were supposed to hear it, but it was postponed to Thursday.
FIFI PETERS: Okay. So just based on your conversations with the industry at large in reaction to these new rules that Eskom has proposed, do you reckon that other players may join G7 in opposing or asking the courts to stop their implementation in the current form?
ANTOINETTE SLABBERT: I think they will sit back and look what happens in this case. But if G7 loses, I think that there may be a lot of litigation coming.
FIFI PETERS: Okay. Thanks so much for the thorough analysis as to what is going on right now. As Antoinette has said, the matter was supposed to be heard in the High Court in Johannesburg today, [but] it has been postponed until Thursday. So we should get a little more clarification in that regard.
We did reach out to Eskom as well. Eskom thanked us for the invitation to comment on the matter, but they said that the matter is currently before the court, and therefore Eskom is not in a position to comment at the stage. However, Eskom would like to emphasise that the purpose of the interim grid-capacity allocation rules is to ensure that shovel-ready projects are connected to the grid in the shortest space of time to alleviate the current power constraints that the country is facing, and to discourage a hogging of limited capacity.
Read: Eskom is ‘usurping Nersa’s authority’ with its interim grid access rules
