The South African government plans to launch a pilot project to procure the country’s first independent transmission project (ITP), managed by the Independent Power Producer Office. However, energy experts warn that for this initiative to succeed, government must learn from its mistakes in the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), streamline regulations and offer the private sector assurance on investment security.

This is according to energy experts who gathered at the annual Res4Africa transmission conference in Sandton on November 8 to discuss the challenges posed by the need to expand the grid. The event gathered stakeholders in the transmission and renewable energy sectors to discuss grid management and the integration of renewable energy into the grid.

“We are moving too slowly on this. The government has been considering the best ways to get this done, but we are now five years down the line, and not much has been achieved. With Eskom’s current issues, it will be the private sector that takes this on,” said Amith Singh, Head of Energy Finance at Nedbank CIB.

Throughout the day, discussions centred on three primary concerns with the government’s approach to private transmission: the decision to replicate the REIPPPP model, lack of investment security, and limited regulatory clarity.

The objective of government’s transmission development plan was to ensure a stable balance between supply and demand, said Ronald Marais, Senior Manager of Transmission Grid Planning at the National Transmission Company of South Africa.

As part of this effort, government’s pilot ITP will adopt a framework similar to the REIPPPP. Initially, it would use the same office and administrative processes to test private procurement mechanisms in transmission, with the hope of establishing a scalable model, said Jeffrey Quvane, Director responsible for overseeing energy and telecommunications at the National Treasury.

However, some of the experts on the panel expressed concerns about this approach, impressing the need to avoid repeating the challenges seen in the REIPPPP. “South Africa needs to keep pace in this procurement process to encourage local production and investment. We saw in the REIPPPP how disastrous it is to be in a stop/start situation,” said Lara Bezuidenhout a Director at Fasken law firm, specialising in public-private partnerships and project finance. “I suggest we consult widely, build trust, avoid too many changes or delays and learn from past infrastructure projects.”

There were substantial differences between the ITP and the REIPPPP that added to its complexity, said Bezuidenhout. “In this project, investors lack transmission assets to secure their investments. While we haven’t seen the specifics of the pilot project, it’s likely the infrastructure won’t be privately owned. The challenge will be finding ways to ensure revenue security for investors.”

In future, government will eliminate financial guarantees in the REIPPPP, following a recent decision to reduce the guarantee to 80% in the latest bid window. For the ITP, the World Bank would initially provide credit to replicate government guarantees, said Quvane.

Government should avoid creating “fanciful financial solutions” to compensate for a lack of regulation, said Steve Nicholls, Head of Mitigation at the Presidential Climate Commission. “Clear regulatory guidelines are essential to attract sustainable investment and to define the privatisation of transmission.”

Joseph Maraba, a representative from the Ministry of Electricity and Energy, in electricity regulation, provided an update on new regulatory measures that will support the ITP. “We are currently drafting regulations that will permit private-sector involvement in transmission. To answer the question of legality: yes, our framework allows for this. The ministry has authority to make determinations on transmission infrastructure.”

An updated Integrated Resource Plan and Transmission Development Plan, along with supporting regulations, were expected to be finalised next year, Maraba said. “We are in the public consultation phase and regulatory developments are underway to enable this shift.”