Eskom CEO André de Ruyter made a welcome announcement on February 15 that the independent system and market operator will be in place by 2022.
This was an acknowledgment that, as part of the process of unbundling Eskom, the government needs to accelerate the establishment of an independent system and market operator as a state-owned entity. Legislative reforms to create the independent system and market operator were first commenced in 2011 by the department of energy by publishing the Independent System and Market Operator Bill, 2011 (ISMO Bill).
Since then not much has happened to finalise and pass the ISMO bill into law.
The main objects of the bill are to establish an independent system and market operator (ISMO) as a state-owned entity which will be responsible for the planning of supply of electricity by generators through the national grid, the transmission and operation of the grid and the buying of power from generators and the sale of electricity to distributors and large customers.
In essence, it is contemplated in the bill that the functions of the planning of supply of electricity, the buying and the selling of electricity will be transferred from Eskom to an independent body, namely the ISMO, which will be free and independent.
Eskom operates now as a “monopoly” in the sense that it controls the generation, transmission and a big portion of the distribution of electricity in SA. This structure is outdated and inefficient, and it allows Eskom enormous power and control. Eskom generates more than 90% of the country’s electricity.
This concentration of power has resulted in Eskom sometimes protecting its dominant market position at the expense of independent power producers. It has also undermined the implementation of the national energy policy.
Evidence of this was Eskom’s refusal to sign the power-purchase agreements with the independent power producers a few years ago which had disastrous consequences for the Renewable Energy Independent Power Producers Programme in SA.
It is now widely accepted that the establishment of the ISMO will resolve the inherent conflict of interest arising from Eskom’s current position as a generator, transmitter and distributor of electricity and level the playing fields by ensuring equal treatment of all power generators including the independent power producers and Eskom.
Furthermore, market sentiment indicates that having an “independent and unconflicted” grid operator and consequently equitable access by all power producers to the national grid will boost investor confidence in the SA power industry, including the renewable energy sector.
To accelerate the establishment of the ISMO, the main starting point will be to prioritise the finalisation and passing into law of the bill. The government will be the sole shareholder of the ISMO. The bill provides that the ISMO will be managed by an independent board of directors, the majority of whom shall be nonexecutive directors.
To ensure that the process of appointing the nonexecutive members of the board of directors of the ISMO is transparent and represents a sufficient spread of skills, knowledge, qualifications and experience, the bill provides that the process of appointing the board of directors of the ISMO will be conducted by a nominations committee.
It is worth noting that, as now drafted, the bill merely deals with the operation of the transmission system and does not deal with the ownership and maintenance of the transmission system.
In this regard, the bill should clarify whether the ownership and maintenance of the transmission assets will be transferred to the ISMO or remain with Eskom or a subsidiary of Eskom. The ISMO does not necessarily have to own and maintain the transmission assets but consideration should be given to transferring ownership and maintenance of the transmission assets to an independent entity as it would be an untenable position and possibly frustrate the objectives of the ISMO if Eskom as a generator of electricity continues to own and maintain the transmission assets in a competitive environment.
If, however, the government’s position is that ownership and maintenance of the transmission should remain with Eskom, strict regulation will need to be put in place to guarantee equal and fair access to the transmission system by all generators.
In conclusion, it is unsustainable that Eskom should remain a player and a purchaser of electricity in a competitive environment.
To resolve this, the government is urged to — in the best interests of all industry players in the power market — accelerate the establishment of the ISMO; clarify who will own the national transmission assets — will it be the ISMO, Eskom or another independent body; and to the extent the government’s intention is to have ownership and maintenance of the transmission assets remain with Eskom and not an independent party, introduce regulation as to how equal and fair access to the national grid by all generators will be guaranteed.
www.ferroalloynet.com
