To recap: Owing to grid capacity constraints in the Cape Provinces, only 1,000 MW out of the possible 5,2 GW was awarded under Bid Window 6 of the Renewable Energy Independent Power Producer Programme (REIPPPP), comprising only of solar photovoltaic new generation capacity. As a result, and to better regulate the grid capacity allocation process, Eskom published the IGCARs in July 2023, which shifted the process from a ‘first come, first served’ approach, to ‘first-ready, first served’. In terms of the IGCARs, Eskom will only allocate grid capacity and issue a budget quote for grid connection to electricity generation projects that are ‘shovel-ready’.

Further, to allow for greater uptake of new generation capacity from wind in the shorter term, curtailment was introduced as a proposed intervention measure under the Grid Connection Capacity Assessment 2025 Addendum (GCCA 2025 Addendum), published in January 2024. The intention is to implement 10% curtailment on present and planned operational wind energy generation facilities to open 2,680 MW of grid capacity in the Western Cape, and 790 MW in the Eastern Cape.

In the wake of Bid Window 7 of the REIPPPP, the industry has been eager to understand (i) if and how the IGCARs will assist in managing grid capacity allocation; and (ii) whether any of the capacity made available through curtailment per the GCCA 2025 Addendum would be exclusive to projects participating in the REIPPPP.

However, on 6 May 2024, Eskom submitted an application to the National Energy Regulator of South Africa (NERSA) in terms of section 21(2) of the ERA, seeking NERSA’s approval to reserve and/or preserve grid connection capacity in favour of any project procured in terms of a ministerial determination published under section 34 of the ERA (Section 34 Projects) at the expense. NERSA published a consultation paper on the application on 18 May 2024 (consultation paper), setting out Eskom’s motivation for the application, enclosing the application, and requesting input from stakeholders.

Objectively justifiable and identifiable differences

Section 21 of the ERA regulates the powers and duties of a licensee and expressly provides in subsection (2) that a licensee may not discriminate between customers or classes of customers regarding access, tariffs, prices and conditions of service, except for objectively justifiable and identifiable differences approved by NERSA. Based on the consultation paper, Eskom, as the holder of transmission and distribution licenses in terms of ERA, intends to implement such proposed just discrimination as follows:

“i. Preservation: In circumstances where a generation connection capacity assessment identifies available grid on the network and a public procurement programme is contemplated per section 34 of the [ERA] and such a programme shall make use of/or is intended to make use of the identified grid connection capacity. Preservation implies that Eskom shall hold in abeyance allocation of such capacity, for such time as may be necessary, for the sole benefit of, and exclusive allocation towards, the public procurement programme.

ii. Reservation: In specific congested areas of the network where there is limited grid connection capacity, such capacity shall be reserved for projects in the ongoing public procurement programmes at the expenses of affected customers. Colloquially, public IPP projects will be moved to the front of the queue and thus prioritised over private IPP projects.”

According to the application, there are objectively justifiable and identifiable differences between private and public market IPPs that warrant these proposed interventions, including the following:

• To ensure the success of public energy procurement programmes, including REIPPPP, and protect public interest in such programmes.
• Since the amendment of Schedule II of ERA, Section 34 Projects are unable to compete with private projects, which are “moving at a much faster pace to secure grid connection capacity and bring new generation capacity online”.
• Eskom has a legal duty to support Section 34 Projects and ensure the realisation thereof.

The consultation paper and application both also raise other relevant legal points that must be carefully scrutinized or considered, including whether a generator qualifies as a customer as contemplated under section 21(2) of the ERA.

For purposes of making a decision, NERSA invited stakeholders and members of the public to submit their written comments on the consultation paper for the application by 17 June 2024, with a public hearing scheduled for 5 July 2024.

The application is understood to have informed the further extension of the REIPPPP Bid Window 7 submission date from 30 May 2024 to 15 August 2024. This has caused further frustration to bidders, developers and investors as they have incurred significant costs in order to ensure that their participating projects are bid ready in legitimate expectation that there is sufficient grid capacity available due to the implementation of the IGCARs and other interventions, including curtailment.

That being said, if granted, the application will also have significant implications for the private commercial and industrial market, which will seemingly have no certainty or preference as to grid capacity allocation now or in the future.