Presidency ‘very concerned’ about licence for Eskom transmission unit

The Presidency is “very concerned” about energy regulator Nersa’s failure to grant all three licences for the National Transmission Company of South Africa (NTCSA), according to Saul Musker, the director of strategy and delivery support.

Licensing is a key factor in the unbundling of the NTCSA from Eskom. The separation of transmission from the dysfunctional generation business will unlock sorely needed investment in an already constrained grid. With the NTCSA having its own balance sheet and a predictable, regulated income, it will become attractive to investors.

What Eskom essentially applied for is to transfer the transmission licences from the holding company to the NTCSA, its own wholly-owned subsidiary.

There is no time to waste with the unbundling since the grid capacity in the Northern and Western Cape, where the best resources are located, is already saturated.

Funding is urgently needed to expand and strengthen the grid to enable independent power producers (IPPs) to evacuate the electrons they generate to electricity users countrywide.

Source: Ministry in the Presidency for Electricity

Musker responded to questions at the weekly media briefing to update the country on progress with the national energy crisis plan, following Nersa’s decision on Thursday to only grant the facilities licence. The licence authorises the NTCSA to operate the national grid as a systems operator.

According to Musker, the regulator did not take any decision on the trading and import/export licences.

He says the reasons for the decision are not yet known, nor is a timeline for the approval of the other two licences. “But we hope it will be sooner rather than later.”

Just being cautious

Emeritus Professor Anton Eberhard, a senior scholar at the Power Futures Lab at the University of Cape Town’s Graduate School of Business, says the decision sent shockwaves through the electricity supply industry.

He says there is enough money available and “investors are queueing” to invest in the grid, but the unbundling must first be finalised to such a point where the NTCSA functions independently as an Eskom subsidiary.

Peter Attard Montalto, Intellidex MD and global lead for capital markets and political economy, says Nersa is being overly cautious.

“Communications from all sides about the NTCSA licensing has been exceptionally poor for something so important, but it seems it’s now stuck in the mud. There is a knot appearing between overlapping different reform elements, and Nersa is being overly cautious.

“It can’t be underestimated how important this small step is in unlocking transmission investment of scale – from less than R1 billion a year currently to nearly [the] R15 billion required,” he says.

Nhlanhla Gumede, full-time member for electricity at Nersa, tells Moneyweb that Eskom bundled the three licences together in its application, but the trading and import/export licences were not in line with the definitions for those functions in the Electricity Regulation Act (ERA).

He says Nersa is finalising the conditions for the facilities licence and will send it to Eskom within the next day or two. Nersa must still develop a plan to process the other two licences, but he believes this can be done by November. Nersa can work from the same application, he says.

Eberhard says the decision does not make sense.

Eskom’s head of generation, Segomoco Scheppers, described the matter at the same briefing as a “small administrative issue”.

Amending ERA

A source within Eskom with knowledge of the matter is of the opinion that the outstanding licences cannot be approved before the ERA has been amended. It was sent to parliament in April and will be tabled shortly.

Eberhard does not agree that that is a prerequisite, but Attard Montalto says the ERA is still needed though the amendments only look likely to happen now post-election, given the delays.

Chris Yelland, managing director of EE Business Intelligence, says the amendments to the ERA really provide the framework for the reformed electricity supply industry, but if that still has to be tabled in parliament, it could take a long time.

Read: Is SA’s proposed electricity industry reform lost in translation?

There are fundamental differences in government, up to cabinet level, about the unbundling of Eskom, and one can expect a lot of contestations. This, however, contributes to investor uncertainty, which will further delay the necessary funding to strengthen the grid, says Yelland.

Eberhard says licensing is one of three critical factors in the unbundling of the NTCSA. The others are the appointment of a board and lender consent.

“A lot of progress has been made with lender consent, and broadly speaking, there is consent. The appointment of the board should have happened four years ago. Eskom conducted interviews with candidates about a year ago and again recently, but government is just moving too slowly.”

Read:
Significant opportunities throughout the energy and electricity sectors of South Africa
Eskom unbundling expected to be completed by December 2022