Electricity Market Reform in Southern Africa

REPORT

ELECTRICITY MARKET REFORM

IN SOUTHERN AFRICA

MARCH 2016

ACKNOWLEDGEMENTS

This Report was produced by Promethium South Africa, IPP Office, South African Carbon during the course of a research Independent Power Producers Association, project titled Electricity Market Reform in South African Wind Energy Association, Southern Africa, funded by the British High Standard Bank); Swaziland (Swaziland Commission in Pretoria, South Africa. The Electricity Company); Zambia (Copperbelt objective of the project is to identify Energy Corporation, Lunsemfwa Hydro electricity market reforms that are currently Power Company); Zimbabwe (British underway in the Southern African Embassy Harare, Counterfactual, Development Community region. Confederation of Zimbabwe Industries and the Zimbabwe Electricity Supply Authority) This Report was informed by inputs from and the Southern African Power Pool. various organisations, institutes, government departments in the member states of ENSafrica have contributed to the Southern African Development Community interpretation and understanding of the legal including: Botswana (British High infrastructure, especially with respect to the Commission in Gaborone, Cenkal, South African legislative framework. Department of Energy and Kalahari Energy); Lesotho (Lesotho Energy and Water Authority); Malawi (Malawi Energy Regulatory Authority); Mozambique (Aggreko Mozambique, Department for International Development Mozambique and Fundo de Energia); Namibia (NamPower); South Africa (Cennergi, Department of Trade and Industry, Eskom, Industrial Development Corporation of

Goal 7 Affordable and Clean Energy Ensure access to affordable, reliable, sustainable and modern energy for all EXECUTIVE SUMMARY

The topic of this research report is sufficient and in several cases countries electricity market reform. In the broadest expressed the intension to be net exporters sense it is about how the electricity supply of electricity. industry is Southern Africa is changing either by intentional interventions or Various instruments for reducing the risk through opportunistic endeavours by and improving confidence in the electricity stakeholders in the industry. sector are considered such as trading frameworks i.e. the Southern African Power The scope of the report covers the Pool, competition within the region, electricity supply industry in the Southern aggregators local competition and structure, African Development Community and and financing instruments such as contracts- countries participating in the Southern for-difference (CfD). African Power Pool in particular. While the national utilities are the dominant players in This research concludes that privatisation of the industry at present, most of the existing infrastructure is not a required step electricity market transformation is initiated in the market liberalisation of the Southern by policy and legislation driven by African region as sufficient diversity of government and investments by the private supply can be created by simply allowing sector. new entrants to bring generation capacity to the market. The concurrent benefits of such The research methodology was to conduct a step would be to alleviate the supply interviews and workshops with various shortage that currently exists in the market. stakeholders within the electricity supply industry. This included national utilities, The pathway to follow to unregulated prices energy regulators, government departments, is a major decision in any market independent power producers, industry liberalisation strategy. It is clear from the associations, municipalities and large cases considered in this research project that consumers of electricity. Twenty three a transition period in which both liberated workshops/meetings were held. In addition and regulated prices exist in the same space to interviews and workshops various is possible. national and regional conferences and The shortest pathways to a liquid market, workshops related to the electricity market within the context of the current regulatory were attended for information gathering and framework will be to scale up the networking opportunities. participation in the SAPP through the Findings are made in relation to a number introduction of more private sector players, of themes: economics, competition, or to develop a market based on the regulatory frame works, environmental electricity aggregator model that can trade impacts and risk. At the national level there on existing commercial infrastructure in the is a general desire to be electricity self- region such as the JSE.

Contents

1 Introduction ...... 1 2 Methodology ...... 3 3 Status Quo of the Electricity Landscape in Southern Africa ...... 5 3.1 Regional Structures ...... 5 3.1.1 Southern African Development Community ...... 5 3.1.2 Southern African Power Pool ...... 7 3.1.3 Regional Electricity Regulators Association ...... 12 3.2 Countries ...... 14 3.2.1 Botswana ...... 14 3.2.2 Democratic Republic of Congo ...... 16 3.2.3 Lesotho ...... 18 3.2.4 Malawi ...... 20 3.2.5 Mozambique ...... 24 3.2.6 Namibia ...... 28 3.2.7 South Africa ...... 32 3.2.8 Swaziland ...... 46 3.2.9 Zambia ...... 48 3.2.10 Zimbabwe ...... 51 4 International Developments in Electricity Market Liberalisation ...... 55 4.1 UK Market ...... 55 4.2 Norway ...... 59 4.3 Germany ...... 63 4.4 European market ...... 65 4.5 Japan ...... 67 4.6 Texas ...... 71 4.7 Chile ...... 72 4.8 Malawi ...... 75 5 Market Transformation ...... 78 5.1 Global context ...... 78 5.2 Role of national utilities in transformation ...... 83 5.3 Liberalised markets ...... 83 5.4 Future Markets ...... 84 5.5 Pathways to Electricity Market Transformation in Southern Africa ...... 90 5.5.1 Privatisation ...... 91 5.5.2 Unbundling ...... 91 5.5.3 Price regulation ...... 92 5.5.4 Single Buyer Model ...... 92 6 Case Studies of Transformation Instruments ...... 93

6.1 Bio2Watt ...... 93 6.2 MTN Own Generation ...... 95 6.3 Kalahari Energy ...... 97 6.4 Kamuzu (Malawi) and Moshoeshoe I (Lesotho) International Airports ...... 97 6.5 Amatola Green Energy ...... 98 6.6 Resellers ...... 101 7 Potential Players in a Reformed Market in SADC ...... 104 7.1 Expanding role of existing market operators ...... 104 7.1.1 Southern African Power Pool ...... 104 7.1.2 Johannesburg Stock Exchange ...... 105 7.1.3 Resellers - Micro monopolies ...... 105 7.2 Market for Ancillary services ...... 106 8 Business Models for new participants ...... 108 8.1 Virtual Power Stations/Market Aggregators ...... 108 8.1.1 Concept ...... 108 8.1.2 Examples of Aggregators ...... 109 8.1.3 Considerations for a potential aggregator model in South Africa...... 110 8.2 Market tools ...... 112 9 Conclusion and Recommendations ...... 113 10 Bibliography ...... 117

1 INTRODUCTION

Electricity market reform, as a process to • There is a growing demand for address significant challenges in the electricity in the Southern African electricity supply industry, is a global region, but the regional economy is phenomenon. Market liberalisation, as has constrained by capacity limitations. Any happened in many regions in the world since intervention that could alleviate the the 1980’s, is today viewed as being a capacity constraints in the region will solution to many problems. These problems have immediate positive impacts on the include aging infrastructure, shortages of regional economy; state funding for new electricity generation • The construction of new capacity capacity and a rapidly changing technical presents a challenge is the increase in the environment. marginal price of electricity to accommodate the depreciation of the This report explores how the electricity new plant. This is seen in South Africa markets in Southern Africa have changed at the moment as the Medupi and Kusile and might change given existing market power stations capacity becomes opportunities and regulatory frameworks. available between now and 2021. The current state of the electricity market in • Electricity price signals have not Southern Africa is characterised by aging reflected the scarcity of capacity in the infrastructure, electricity shortages, region, as much of the existing capacity increasing electricity prices, high levels of has already been paid for. The marginal GHG emissions and susceptibility to climate cost for the national utility is diluted by change. These are aggravated by growing the average cost of the existing and but depressed electricity demand and limited aging plant. The costs for the reserve human and institutional capacity. capacity, however, are covered in the Constraints on available generation capacity tariff in a centralised system. Decisions in the region negatively impact the business by IPPs to invest in new capacity are environment and limit economic made by comparing the marginal cost to development. Competitive markets can build a new plant with a regulated provide a mechanism for encouraging average electricity price based on old, investment, promoting efficient electricity depreciated plant. pricing. Based on the above, the problem statement There are two main challenges in the addressed in this project is: What are the electricity supply sector in the Southern options for market reform in Southern African region. These challenges give Africa to create an environment context to the work done in this report. In conducive for investment in new summary they are: capacity?

The aim of the project is thus to develop and showcase pathways to, and opportunities for, electricity market reform in the countries linked to the Southern African Power Pool (SAPP).

2 METHODOLOGY

The overall approach to this project is to in which electricity market reform was build on experience from two areas. The implemented. first is to understand the existing frameworks within the member countries of The analysis then followed with a review of SAPP. In this context it is important to the various plausible pathways or understand how the electricity suppliers and mechanism which could be used in consumers interact within the SAPP transforming the market and involves framework. The second is to understand the considering the structural changes that may history of electricity market reform. Lessons be required. These pathways are highlighted can be learnt from the motivations, as case studies. experience, successes and failures of reform The main procedure followed to identify in other countries. pathways of electricity market reform are In the context of the Southern African illustrated in Figure 1 and include: region we performed literature reviews • followed up by interviewing various Review of existing frameworks, policies government departments, regulators, and and legislation governing electricity other stakeholders within the electricity market development; supply industry of each country in the • Explore case studies of the pathways region. The purpose of the interviews was to that have been achieved and what the solicit first-hand knowledge of the changes challenges and key points to success; to the electricity supply industry within each and country, such as the state of the electricity • Provide recommendations to guide market systems and intended changes. interested parties on how to streamline their electricity selling/buying/trading In the international context, the research aspirations. focussed on literature reviews on countries

Literature review Plausible pathways Case studies

•Policies •Public or private •Bio2watt •Plans •REIPPP •SA-LED •Legislation •Own generation – •Clearwater mall •Regulations mining houses, •Etc. •Regional frameworks shopping centers, industries •Market •Who carries the risks? •Embedded generation – places/exchanges/power •Mechanisms to manage selling spare capacity to pools risk? the grid •What are the barriers to •Bilateral agreements - participation? wheeling

Who has been What frameworks Likely pathways the successful & what are in place? market players were the challenges

Figure 1: Methodology followed in this research

The literature survey covered the following experience in the technical, commercial areas: and financial aspects of energy and carbon trading to perform this task. This • Review of research on the Southern forms the central part of the project in African electricity market; which innovative ways to stimulate the • Consultation with stakeholders – consult market reform investigated in a similar with local regulatory bodies and experts way as done in the development of the in order to summarise the salient points carbon offset market in SA; of the regulation pertaining to the • Summarise the information collected, supply of power by independent power analysis performed and conclusions producers and the trading of electricity; reached; • Analysis of regulatory environments in • Analysis of the potential market for SAPP region – this analysis will be based private sector energy transaction (private on the consultation with relevant buyers and private sellers); stakeholders and analysis of the relevant • Regulatory issues that prevent the large legislation and regulations; scale utilisation of the SAPP • International examples and best practice infrastructure for private sector energy in electricity market reform; transactions; and • Development of options – this stage • Pathways to electricity market reform involves the development of pathways within the context and limitations of the to electricity market reform in the SAPP member countries. region. This draws on its deep

3 STATUS QUO OF THE ELECTRICITY LANDSCAPE IN SOUTHERN AFRICA

In this section a brief review of the status • Agreement Between Operating quo of the electricity industries in each Members (ABOM), which established county is considered. The state of the the specific rules of operation and electricity supply industry, the underlying pricing; and policies, legislation and regulations and key • Operating Guidelines (OG), which stakeholders in the industry are discussed. provides standards and operating The section is concluded with a procedures. consolidated summary giving the regional context of transformation. The Protocol on Energy was signed in 1996. It supports power pooling, electricity trading 3.1 Regional and regional integration of energy systems Structures such as the Southern African Power Pool. The Protocol has a specific requirement to “Co-operate in the development of energy and energy 3.1.1 Southern African pooling to ensure security and reliability of energy Development supply and the minimisation of costs”. Community Since the adoption of the Protocol, the The Southern African Development SADC has enacted several strategic plans for Community (SADC) is the geographical energy development in the region: region defined by a treaty between the member states concerning socio-economic • the SADC Energy Cooperation Policy development, defence, politics, security and and Strategy in 1996, regional integration. The organisation within • the SADC Energy Action Plan in 1997, SADC is specified by a number of • the SADC Energy Activity Plan in 2000, protocols, defining common objectives. • the Regional Infrastructure The SAPP was formed at the 1995 SADC Development Master Plan and its summit when the member governments Energy Sector Plan in 2012. The signed an Inter-Governmental Regional Infrastructure Development Memorandum of Understanding (IGMOU) Master Plan – Energy Sector Plan sets for the formation of a power pool in the out the proposed institutional region. Three other key documents which arrangements for the energy sector in were agreed to and signed subsequently are: the region. The institutions relevant to this project are shown in Figure 2, and • Inter-Utility Memorandum of • more recent initiatives include the Understanding (IUMOU), which Regional Industrialisation Strategy and established SAPP’s basic management Roadmap which sets out industrial and operating principles; development objectives for a fifty year period.

Figure 2: Proposed institutional arrangements for SADC energy sector (Southern African Development Community Secretariat, 2012)

Nine member states of SADC have merged their electricity grids into the Southern African Power Pool, reducing costs and creating a competitive common market for electricity in the region. Similarly, SADC has established the Regional Electricity Regulatory Association, which has helped in Figure 3: Reserve capacity on the SAPP grid harmonising the region’s regulatory policies (Hammons, 2011) on energy and its subsectors. One of the important requirements for a The electricity supply situation in the region liquid market is price differentials. Markets deteriorated significantly since the early operate in a way that allows for price 2000’s as the reserve capacity on the SAPP discovery and optimisation. The large grid declined below zero. This was mainly differentials in the SAPP region (as can be because of the electricity crisis in South seen in Figure 4) are indicative of a dis- Africa that was highlighted in a dramatic functional market. fashion with the load shedding in the country in early 2008.

Figure 4: Electricity prices in countries in the SADC region in 2010 (US$ c/kWh) (Infrastructure Consortium for Africa, 2011)

3.1.2 Southern African Power Pool

The Southern African power pool (SAPP) (see Figure 5) was set up by the Southern African Development Community as a means for national electricity utilities to trade electricity amongst each other. Initially SAPP’s members consisted only of national utilities from the Southern African region. Electricity was primarily traded between South Africa and other Southern African member countries as South Africa would Figure 5: Southern Africa Power Pool (source: have surplus capacity available to assist www.sapp.co.zw) other countries that could not meet their own electricity demands.

Figure 6: Interconnector limits (source: www.sapp.co.zw)

SAPP’s visions are: All of the items listed in the vision statement above relates to the objectives of electricity • Facilitate the development of a market reform. It is for this reason that this competitive electricity market in the research focussed on the SAPP as a Southern African region; potential platform to achieve a liberated • Give the end user a choice of electricity market. supply; • Ensure that the Southern African region The SAPP revised its Inter-Utility is the region of choice for investments Memorandum of Understanding in April by energy intensive users; and 2007. In terms of the revised Inter-Utility Memorandum of Understanding, the SAPP • Ensure sustainable energy developments Membership falls into the following through sound economic, environmental categories: and social practices. • National Power Utilities;

• Independent Power Producers (IPPs); • Service Providers • Independent Transmission Companies (ITCs); and The supply of electricity in the SAPP countries is shown in the chart below: 80%

70%

60%

50%

40%

30%

20%

10%

0% DRC Angola Zambia Zambia Malawi Lesotho Namibia Tanzania Botswana Swaziland Zimbabwe South Africa South Mozambique Figure 7: Generation of power in the SAPP countries

Markets The bilateral contracts have proved essential for financing of new generation & Bilateral Contracts transmission projects. The first market mechanism on the SAPP Short Term Energy Market was the market for bilateral contracts. These contracts generally cover a period from 1-5 The short-term energy market (STEM) was five years, but could be longer. The introduced in April 2001 as a precursor to agreements provide for assurance of security full competition. It catered for 5-10% of of supply but are not flexible to annual electricity energy trade – between 0.8 accommodate varying demand profiles and and 4.3 TWh per year. prices. The prices are negotiated between willing buyers and willing sellers. The market provides for daily and hourly contracts. It operates mainly in off-peak The bilateral contracts mechanism accounts periods as generators generally do not have for 90-95% of energy traded on the system spare capacity in the peak periods. (15 - 20 TWh per year). The mechanism provides for trade in peak, off-peak and The market mechanism is based on standard times. participants sending bids and offers to the SAPP Coordination Centre. The

Coordination Centre then matches bids and o Independent Power offers and set a price based on matching Producers (IPPs); bidders and sellers offers. Once matched o Independent Transmission these prices become firm STEM contracts. Companies (ITCs); and Participants are levied 1% administration fee o Service Providers. on all transactions. • Being party to a transmission system operator connected to a SAPP Day Ahead Market Control Area; The SAPP Day Ahead Market (DAM) is a • Having an Agreement for Balance non-regulated market – electricity is sold on Responsibility with a SAPP the DAM to make a profit. During the transmission system operator winter (June, July and partly August) of and/or Control Area; 2015, Eskom was not able to sell on the • Signing the DAM governance DAM as they had no excess capacity that documents; could be traded due to generation • Opening of the requisite accounts constraints within South Africa. Eskom for trading purposes and having the could, however, have purchased electricity requisite security for trading from the SAPP to mitigate load shedding at purposes; and a cost that was higher than their own cost of • Have at least One Certified Trader. generation – this however would then have to be traded off with the cost of unserved Constraints power for Eskom. Increasing liquidity is key to the In August and September when the development of the SADC electricity electricity consumption reduced in South market. However, three main factors Africa as winter passed, Eskom sold constrain the number of generators joining electricity to both Botswana and Swaziland the SAPP platform. on the SAPP DAM. If Eskom can generate Infrastructure constraints sufficient amounts of electricity from coal sources to meet South Africa’s demand, the In the event that large amounts of electricity surplus is offered on the SAPP DAM. are traded on the SAPP, the local transmission networks and interconnectors Participants need to conform to the between countries could be overloaded. The following conditions to trade on the DAM: potential risk of these imbalances is the • Being licensed or granted permission primary limiting factor to the benefits of by the host country; new members joining SAPP. To prevent imbalances, each country forming part of • Acceptance as a member of SAPP in SAPP would have to implement and any of the membership categories in regulate internal grid balancing rules. The the Revised SAPP Inter Utility current role of SAPP does not extend to Memorandum of Understanding. balancing the both generators and off-takers These categories are: across each of the countries’ grids. o National Power Utilities;

Balancing and metering are key components The National Energy Regulator of South of an open market. Examples are the Africa regulates the electricity sector by liberalised UK market, where metering is issuing licences for import and export of undertaken by the System Operator and electricity in South Africa. Municipalities in access to the grid is heavily regulated. South Africa are also bound by the Municipal Finances Management Act which SAPP infrastructure constraints are a major prevents them from purchasing power (for challenge to growth or reform in the SAPP resale to their internal clients) that is not electricity market; however there are procured on a competitive basis or is more ongoing initiatives to improve the regional expensive than the price Eskom charges transmission networks which should them for electricity. positively impact the operating environment in the short to medium term. Participation Requirements

Regulatory constraints The licensing requirements are not well described, detailed or available in all International trade in the SAPP is countries. This limits the participation the complicated by the different regional, participation of new generators. A summary national and even municipal (provincial) of the licensing requirements in SAPP regulations within the system boundary. The countries is provided in the table below: Regional Electricity Regulators Association (RERA) has been developed as the regulators’ association to assist in regional strategy and implementation.

Table 1: Licensing requirements in SAPP member countries

LICENCES Own Gen. Generation Transmission Distribution Trading Import Export REQUIRED

Angola* No data Y Y Y No data No data No data

Botswana N Y No data No data No data No data No data

DRC* No data No data No data No data No data No data No data

Lesotho Unspecified Y Y Y Unspecified* Y Y ** *

Malawi Unspecified Y Y Y Unspecified* Y Y ** *

Mozambique No data Y Y Y No data No data No data *

Namibia N Y Y Y Unspecified* Y Y *

Nigeria N Y Y*** Y Y Unspecifie Unspecified d** **

South African N Y Y Y Y Y Y

LICENCES Own Gen. Generation Transmission Distribution Trading Import Export REQUIRED Tanzania N Y Y Y Y Y Y

Zambia N Y Y Y Unspecified* Y Unspecified * **

Zimbabwe Unspecified Y Y Y Y Unspecifie Unspecified ** d** ** * Electricity Acts are not in English, making information gathering difficult ** Not specified in Electricity Act *** Retained under the federal government for security reasons

• Tanzania: Energy and Water Utilities 3.1.3 Regional Electricity Regulatory Authority Regulators • Zambia: Energy Regulation Board Association • Zimbabwe: Zimbabwe Electricity The Regional Electricity Regulators Regulatory Commission Association of Southern Africa (RERA) is a RERA’s ultimate goal is to ensure that formal association of independent electricity efficient cross-border deals are not regulators whose establishment was constrained by unclear or complicated approved by the Southern African processes for making regulatory decisions. Development Community (SADC) This means that the following goals are set: Ministers responsible for Energy in Maseru, Lesotho on 12 July 2002. The Association • To clarify how regulators will carry out was officially launched in Windhoek, their powers and duties in regulating Namibia on 26 September 2002 and it cross-border electricity transactions in provides a platform for effective co- order to minimise regulatory risks for operation between independent electricity power investors and customers; regulators within the SADC region. RERA • To promote efficient and sustainable currently has 6 energy regulators members. cross-border electricity transactions that The members are: are fair to selling and buying entities, are consistent with least-cost sector • Angola: Institute for Electricity development and help to ensure security Regulation of supply; and • Lesotho: Lesotho Electricity and Water • To promote transparency, consistency Authority (LEWA) and predictability in regulatory decisions • Malawi: Malawi Energy Regulatory Authority (MERA) RERA is a member of the African Forum • Mozambique: National Electricity for Utility Regulation (AFUR). This Council organisation was formed to support the • Namibia: Electricity Control Board development of effective utility regulation in • South Africa: National Energy Africa. AFUR was established in September Regulator of South Africa (NERSA) 2000 as an informal arrangement to facilitate • Swaziland: Swaziland Energy the exchange of information and lessons of Regulatory Authority (SERA) experience between African regulators, and

to support capacity building efforts in the • Timing of regulatory interactions for region. The forum focuses on issues broader proposed cross-border transactions; than the regulation of electricity, including • Licensing cross-border trading facilities, communications, transport, and water and imports and exports; sanitation industries. • Approving cross-border agreements in importing countries; The nine Regulatory Guidelines for • regulating cross border power trading in Approving cross-border agreements in SADC region are as follows: exporting countries; • Approving cross-border agreements in • Regulator’s powers and duties in cross- transit countries; border trading; • Approving transmission access and • Working to ensure compatible pricing and ancillary services; and regulatory decisions; • Promoting transparency in the regulation of cross-border trading.

Figure 8: Overview of Regulatory Decisions for Cross Border Deals (Sichone & Roets, 2011)

3.2 Countries Morupule A is another coal fired power station owned by the Government of 3.2.1 Botswana Botswana and has an installed capacity of 132 MW. Morupule A was not however Status of the electricity supply operational during the 2014/15 financial system year due to refurbishments. It is expected to resume operations in 2017 (Botswana Power Botswana’s peak electricity demand is Corporation, 2015). A survey by Botswana’s around 600 MW, largely derived from coal Department of Geology has revealed that sources. During the 2014/15 financial year, country has vast reserves, estimated at 17 44% of the total supply was imported from billion tons, making coal the preferred Eskom’s coal fired power stations in South source of electricity in the country. Africa, in addition to imports from NamPower (4%), ZESCO (1%) and the Botswana has communicated its intention to Southern African Power Pool’s Day Ahead achieve an overall emissions reduction of Market (1%). The electrification rate is 15% by 2030 taking 2010 as the base year reported to be 49% (Botswana Power (Republic of Botswana, 2015), implying that Corporation, 2015). investments in the renewable energy sector may be forthcoming in the near future. The Botswana Power Corporation is the state-owned and vertically integrated utility Policies, legislation and which dominates the electricity sector. regulations Generation in the country is currently derived from the state owned Morupule B The Botswana Energy Master Plan (1996, coal-fired power plant. Morupule B has an reviewed 2003) is the main policy that installed capacity of 600 MW, however, guides the electricity sector (Clean Energy design and operating challenges have Info Portal, 2014). Its electrification target is resulted in the need to import electricity to reach 80% national power access and from Botswana’s neighbours. 60% rural access by 2016. The plan also aims to improve security and reliability of Two peaking power plants, Orapa (90 MW) supply. and Matshelagabedi (70 MW), also supply the country with electricity generated from The Energy Affairs Division of the Ministry diesel. The Orapa power plant was of Minerals Energy and Water Resources is commissioned in 2011 by Karoo Sustainable responsible for the formulation, direction Energy through a tender issued by the and coordination of the national energy Botswana Power Corporation. The utility policy, the Draft National Energy Policy issued an expression of interest in 2015 of 2009. Government is in the process of inviting prospective bidders to submit reviewing this policy and its electricity proposals to convert the Orapa diesel regulatory framework (Clean Energy Info turbines to coal bed methane turbines in the Portal, 2014). near future (MMEGI Online, 2015). The Matshelagabedi plant is also owned by the The Botswana Electricity Supply Act of Botswana Power Corporation. 1973 (as amended 2007), is the overarching legislative framework for the electricity

sector. The Act stipulates that licences are Electricity industry stakeholders required for any activities relating to the generation, supply, transmission, Botswana does not yet have an independent distribution, export, import, use, work or energy regulator. The Energy Affairs operation in the electricity sector. The Act Division (under the Ministry of Minerals, also authorises the participation of IPPs in Energy and Water Resources) currently has the electricity sector, although currently only the overall responsibility for the energy one IPPs operates in the country. sector and policy development in the country, including supervision of the Government-owned enterprises and own- Botswana Power Corporation. generation installations below 25 kW are exempt from licence requirements. The Botswana Power Corporation The Act also stipulates that licences are monopolises the electricity market in the required to access or use the transmission country. The utility is owned by the state facilities and associated infrastructure owned and is responsible for electrical power and operated by the Botswana Power generation, transmission and distribution in Corporation. Botswana. The state currently has no intention of unbundling the utility. The Electricity Supply (Licensing) 1 Regulations (26th November, 1993) Inputs from stakeholders during establish the guidelines and requirements for consultations electricity related activities. Notably, the Regulations specify that the IPP rates for Meetings with Cenkal and Kalahari Energy, the supply of electricity to consumers must stakeholders in the Botswana electricity be established in an agreement between the sector, suggest that the lack of an IPP and the consumer. The tariff must independent energy regulator is constraining however be approved by the Minister of the sector and development of the country. Minerals, Energy and Water Resources. The roles of the various players in energy delivery are not always clear, and the No legislation or regulations currently exist development of policies and subsequent to support renewable energy projects measures are further reported as being specifically. The Government of Botswana hampered by a lack of information relating has engaged the World Bank to assist in the to energy policy, planning and decision- development of a renewable energy strategy making. for the country, which is expected to be available in 2016 (Netherlands for the World The monopoly of the electricity sector in the Bank, 2015). country by the Botswana Power Corporation was considered as a major barrier to competition. The low tariffs charged by the utility do not reflect the costs of generation, further constraining growth in the market as new entrants to the market 1 Which can be accessed at are unable to compete with the subsidised http://faolex.fao.org/docs/pdf/bot91876.pdf tariffs (Promethium Carbon, 2015). Botswana’s Department of Energy

subsequently confirmed that electricity is 3.2.2 Democratic Republic currently sold at a loss as a social-good of Congo subsidy (Promethium Carbon, 2015). Status of the electricity supply The following points were generally noted system as constraining growth in the SADC electricity sector: The Democratic Republic of Congo (DRC), formerly known as the Republic of Zaire, • lack of liquidity in the market; has a total installed electricity generation • poor quality of transmission lines, capacity of 2.44 GW, with an available especially along the Democratic generation capacity of approximately Republic of Congo and Zimbabwean 1.23 GW (due to capacity sharing corridors; and arrangements). Electricity is primarily • lack of integrated plans across countries generated through hydropower stations in the region. (98.6% of total generation capacity) while the remainder is produced from fossil fuels. These challenges withstanding, the Department of Energy expects to be an During a study conducted by the DRC’s exporter of electricity to SAPP by 2018 once national utility, Société Nationale the refurbishments to its coal-fired power d’Électricité (SNEL), in 2013, it was stations are complete. established that approximately 9% of the population has access to electricity. The Summary poor rate of electrification is attributed to poor infrastructure, lack of investment (The While Botswana has untapped renewable DRC has a low credit rating and there is a energy sources, coal is likely to continue as lack of confidence in the current the dominant source of electricity in the government), low level of education and country. The use of gas from coal bed technical skills shortages (Societe Nationale methane in the country therefore also holds D'Electricite, 2013). great potential as a cleaner alternative to coal fired power stations. However, while various The DRC has access to an electricity import electricity projects are reported to be in the capacity of approximately 150 MW from pipeline and the Department of Energy, Zambia. The Zambian state owned national Minerals and Water Resources is positioning utility, Zambia Electricity Supply the country as one of the region’s main Corporation (ZESCO), supplies the DRC exporters of electricity by 2018 (Engineering with a 100 MW of import capacity while the News, 2015), progress in implementing and remaining 50 MW is supplied by the constructing the required facilities has been Copperbelt Energy Corporation (CEC) slow. Botswana’s growth is severely (Market Monitor LLP, 2014). constrained by lack of adequate electricity supply. The DRC sources the majority of its electricity from two hydropower stations: Inga I and Inga II. These two hydropower stations have an installed capacity of 351 MW and 1 424 MW respectively. The

age of these two hydropower stations result SNEL as a Public Enterprise Company in in frequent maintenance and repairs being 1970. This was followed by a second Zairian required. This significantly reduces the government decree, number 78/196, which available generation capacity. The DRC, allowed SNEL to take over all generation, with aid from the World Bank and the transmission and distribution within the African Development Bank, started the DRC (Lukamba-Muhiya & Uken, 2006). development of the Inga III Base Chute hydroelectric dam to expand the available The Ministry of Energy in the DRC generation capacity amidst the concerns submitted a draft Electricity Bill to around the ageing Inga I and Inga II Parliament for approval. The Electricity Act hydropower stations (Market Monitor LLP, includes an institutional framework for the 2014). Ministry of Energy, an Independent Regulator, a National Electrification Agency The Inga III hydropower station has a and a National Electrification Fund. The Bill planned generation capacity of 4.8 GW. The also refers to licenses in the electricity World Bank indicated that Eskom, the supply industry (generation, transmission, South African national utility, would distribution and supply (di Panzu, 2011). purchase 2.5 GW while the DRC’s mining industry committed to purchase 1.3 GW. Electricity industry stakeholders The remaining 1 GW of generation capacity As no electricity regulatory body is yet is to be allocated to SNEL to help provide established in the DRC, SNEL, a public electricity to residents in and around entity reporting to the Ministry of Mines and Kinshasa (Market Monitor LLP, 2014). Energy is largely self-regulating. Policies, legislation and SNEL generates, transmits, distributes and regulations supplies all electricity within the DRC. To date, the DRC has not published an Summary energy policy or framework for the electricity supply industry. There is also no The DRC has the largest hydropower electricity regulatory body established in the potential in Africa. The size and depth of DRC. the Congo River provide ideal conditions to generate renewable energy in the form of Although no formal energy policy yet exists, hydropower that could, at full exploited the DRC makes use of government decrees capacity produce in excess of a 100 000 MW which act as a laws as to how the electricity (Kadiayi, 2013). Despite this great potential, supply industry should be governed. In the DRC currently has a total available 1956, a royal decree was signed that generation capacity of 1.23 GW which is contained a set of regulations and general mainly in the form of hydropower stations. block notes which outlined the applicable principles and concessions for the public The total generation capacity provides distribution of electricity. The Zairian electricity to approximately 9% of the government (the former government of the population. The electrification in the DRC is DRC) signed the first government decree, low due to barriers which include poor number 70/033, for the establishment of

infrastructure, lack of international compounded by the country’s dilapidated investment (due to the high political and electricity distribution network financial risks in the DRC) and low level of infrastructure. education and technical skills shortages. Being a member of the Southern African A draft Electricity Act has been presented to Power Pool should allow a Lesotho-based government for approval. Once accepted, independent power producer to access other the electricity supply industry will gain an generators of electricity. However, Lesotho Independent Regulator and various bodies is landlocked in the middle of South Africa, to assist in improving the electrification and Eskom owns the transmission networks levels. This will stimulate growth in the neighbouring Lesotho. For this reason, electricity sector and open the sector for access issues arise which would need to be more IPPs to become involved. With an resolved in order for an independent power Independent Regulator being established, it producer in Lesotho to sell electricity to would strengthen investor confidence in the entities other than Eskom, (USAID, 2008). DRC. Lesotho has significant hydro power 3.2.3 Lesotho generation potential, which has been demonstrated by the Lesotho Highlands Status of the electricity supply Development Authority. In addition, the system county’s location in the heart of South Africa could indicate cost benefit In 2014, Lesotho’s maximum demand was opportunities for transmission requirements. around 143 MW. About 56% of this This is because a few of the bigger South electricity is generated locally from the African cities are nearer Lesotho than they Muela hydropower plant. The remainder of are to some of Eskom’s large power the electricity is imported from Eskom in stations. These opportunities for the South Africa. Lesotho is thus highly electricity market within Lesotho are yet to dependent on its neighbouring country to be fully realised. meet electricity demands. The Government of Lesotho is currently Although Lesotho currently trades exploring long term solutions to increase exclusively with South Africa’s Eskom, the national electricity supply. The opportunities Lesotho Electricity Company is also a full include the expansion of the current Muela operating member of the Southern African hydropower station to phase 2. Part of Power Pool. This presents an opportunity phase 2 of the project involves the proposed for Lesotho to participate in the regional 1 200 MW Kobong pumped storage scheme competitive electricity environment. (Wade Publications CC, 2015). In addition, Regional shortages of electricity within the the government is looking into developing Southern African Power Pool are however new hydropower stations, as well as constraints that Lesotho has to take into examining the possibility of wind energy. consideration (USAID, 2008), as the The government is also looking to support required supply cannot always be guaranteed the use of off-grid renewable energy from the Southern African Power Pool solutions such as solar and wind power, and market. This problem is further

considering the re-commissioning of accessible and affordable in a sustainable existing mini hydro-power stations, of which manner, with minimal negative impact on there are four. the environment, (Lesotho Energy Policy: 2015-2025).” To date, the Lesotho government has approved an application by a joint venture Electricity industry stakeholders company, comprised of NETGroup and Powerdev Group, to develop a 42 turbine The Lesotho Ministry of Natural Resources windfarm adjacent to the Lesotho highlands is in charge of developing the electricity Letšeng diamond mine. It is estimated that sector legislation through its subsidiary, the the facility will produce around 25 to Department of Energy. The Ministry is 35 MW of electricity (Wade Publications mandated to develop medium and long-term CC, 2015). These additional capacities could national energy strategies, promote new and put Lesotho in the position to export renewable sources of energy and monitor electricity to its neighbouring countries in energy sector activities (USAID, 2008). The the future. Department of Energy is responsible for the implementation of all energy policies and Policies, legislation and the coordination and monitoring of energy regulations programmes and projects. The principle legislation related to the The Lesotho Electricity Company is the electricity sector in Lesotho is the Lesotho monopoly transmitter and distributor, and Electricity and Water Authority Act, No. 12 of remains the sole supplier of electricity in 2002. The Act, along with its amendments, Lesotho. The Lesotho Electricity Company requires all persons generating, transmitting, was established under the Electricity Act No.7 distributing, supplying, importing and of 1969 where it operated as a Government exporting electricity to do so under the parastatal. authority of a licence. The Act provides that no person may undertake a regulated activity Lesotho’s electricity supply industry without being in possession of a licence underwent a restructuring programme issued by the Lesotho Electricity and Water initiated by the government in 2001. The Authority. reforms were meant to address the problems of inefficiency and lack of Lesotho’s Department of Energy, through financial resources in the sector. The the Lesotho Meteorological Services, restructuring entailed commercialisation and established the country’s Renewable Energy privatisation of the Lesotho Electricity Policy for the period 2015 – 2025. The goals Company, the establishment of rural within the country’s Energy Policy include electrification structures, making Muela contributing towards the improvement of hydropower facility prices competitive and livelihoods, contributing towards economic the establishment of a regulator (REEEP & growth and investment, ensuring security of REN21, Lesotho 2012, 2013). supply and contributing towards the protection of the environment. The The Lesotho Electricity Authority was country’s ultimate vision portrayed in the subsequently mandated with the authority to policy is that “Energy shall be universally regulate all aspects of the electricity supply

industry, including the generation, transition to cost-reflective tariffs, which transmission, distribution, supply, import should incentivise independent power and export of electricity. In 2007, the producer participation in the local market. Government decided that the Lesotho The Lesotho Electricity Company reserves Electricity Authority should be transformed the right to first refusal of electricity into a multi-sector regulatory body, and generated by IPPs (Promethium Carbon, provided with additional powers to regulate 2016). urban water and sewerage services in the country. This gave rise to the Lesotho Summary Electricity and Water Authority in 2013. Lesotho is currently very reliant on South The Lesotho Highlands Development Africa for electricity imports. There is Authority is the main generator of electricity however significant potential within the through the Muela hydropower station. country to produce surplus energy which Lesotho Electricity Company and the could in the future be exported. The Lesotho Highlands Development Authority opportunity for Lesotho lies within the thus remain the dominant players in the hydro-power sector, specifically the Lesotho electricity sector. The Lesotho commencement of phase 2 of the Lesotho Electricity Company has bilateral bulk Highlands Development Authority project. Power Purchase Agreements with Muela The opportunities for independent power and Eskom. Due to the planned extension producers are also located in the small- of the electricity grid, and the goal of micro hydro segments of the market, as well privatisation the energy sector as set out in as in the development of other renewable the Kingdom of Lesotho’s Energy Policy of 2006, energy facilities. there may be room for development for small role players (REEEP & REN21, 3.2.4 Malawi Lesotho 2012, 2013). Status of the electricity supply system Inputs from stakeholders during consultations Malawi is the only member country of the South African Power Pool which has no The Lesotho Energy and Water Authority interconnection to the pool. The country is expressed its support for an independent thus fully reliant on its own power power producer segment in the electricity generation. The Electricity Supply market in the country. The African Corporation of Malawi Limited (ESCOM) is Development Bank is assisting with the the national utility and is the sole producer development of a standardised power of electricity for the country. ESCOM purchase agreement and other related legal currently has approximately 351 MW of documents in this regard. maximum capacity for generation; however Various barriers to entry exist, including the current demand is around 450 MW subsidies provided to the national utility (Promethium Carbon, 2016). Thus without (which monopolises the sector) and the any interconnectors to other countries and drought, which is severely affecting security without independent power producers the of supply. Lesotho is mandated by SADC to country’s energy demands can’t be met,

which significantly hinders development. In There are reports to suggest that further addition, the country has one of the lowest developments can be expected in the Malawi electrification rates in Africa. Less than 10% regulatory environment. Uncertainty of the population has access to electricity remains, however, in key areas, such as (Breeze, 2014). independent power producer’s access to the electricity grid and what tariffs independent The state-owned and vertically integrate power producers could receive (Breeze, utility, ESCOM, completely dominates the 2014). Malawian electricity sector. Malawi follows a single buyer electricity model, where Electricity industry stakeholders independent power producers may only sell their electricity to the utility and not directly The Ministry of Natural Resources, Energy to consumers. As yet, no independent and Environment oversees the Malawian power producers are operational in the electricity sector. The electricity sector is country. The regulatory environment is still headed by the Department of developing and there is no clarity as yet Environmental Affairs. The Department regarding independent power producers sets the policy framework and legislative access to the electricity grid or what tariffs environment under which the electricity they may be able to receive (Breeze, 2014). supply industry operates.

Policies, legislation and The Malawi Energy Regulatory Authority regulations was mandated under the Energy Regulatory Act, No. 4 of 2004, as the energy sector The Malawian electricity sector is guided by regulator in the country. The regulator the Malawian Energy Policy, 2003, the became operational in December 2007 with Energy Regulation Act, No. 20 of 2004 and the aim of being an independent, Electricity Act, No. 22 of 2004. The policy transparent, efficient and cost effective and energy laws encourage participation of energy regulator. the private sector in electricity generation and distribution. The Electricity Act, No. 22 ESCOM is the vertically integrated of 2004 prohibits generation of electricity government utility which owns and operates for sale, transmission, supply, distribution, all of the main generation plants, all importation and export of electricity without transmission and distribution infrastructure a licence issued under this Act. In addition and has the responsibility for electricity no licensee can be granted more than one trading within the country. ESCOM has type of licence. little involvement in off-grid generation.

The Ministry of Natural Resources, Energy Malawi has one of the lowest electrification and Environment drafted the Feed-In Tariff rates in Africa, less than 10% of the Policy in 2012 to guide private sector population has access to electricity (Breeze, investment within the market; however, to 2014). Inadequate electricity supply, coupled date it has not been made available to with an ever increasing demand, is one of developers (Bloomberg New Energy the major problems confronting Malawi and Finance, 2015). limiting its social, economic and industrial development (Taulo, 2015).

Private sector investment in electricity comes from a series of hydropower generation remains a challenge. Government plants on the Shire river); and funding provided to ESCOM for electricity • vertically unbundling ESCOM into generation gives it an unfair advantage over separate generation and transport potential independent power producers who (transmission and distribution) entities. are not able to compete with subsidised prices. In addition, with Malawi following Challenges faced by Malawi are shortages in the single buyer model independent power capital finance, which is leading to lack of producers must sell their electricity to investment in generation, transmission, ESCOM which prevents their direct access distribution and overall power system to consumers. As yet, no independent stability. Aging generation equipment is also power producer deals have been established, leading to frequent breakdowns and thus regardless of a number of ongoing load shedding (Lapukeno, 2013). negotiations (Breeze, 2014). Inputs from stakeholders during The regulatory environment is still consultations developing, generating uncertainty in key areas such as how independent power Stakeholder consultations in Malawi, with producer can gain access to the electricity the Malawi Energy Regulatory Authority grid and what tariffs they can receive (Promethium Carbon, 2016), provided (Breeze, 2014). The Malawi Energy valuable inputs to the country’s current Regulatory Authority has developed a electricity sector and developments within template power purchase agreement that the system. they hope to put to use to encourage Malawi is 90% reliant on hydropower, investors to take advantage of the making it a very clean grid. Despite this, the opportunities the country presents. sole reliance on one form of energy and no The government of Malawi recognizes that energy mix produces its own downfalls. It its electricity sector is key to the country’s prevents any flexibility in the energy economic growth. Solutions to prevent a generation system and variations in water power crisis within Malawi and to ensure an supply (too much or too little) can create efficient and robust electricity market significant issues. Such issues could result in include (Electricity Supply Corporation of damaged infrastructure from silting of dams Malawi, 2012): or not enough water for generation. In addition it was mention that Malawi has no • interconnection to the Southern African interconnection to other countries yet, and it Power Pool through Mozambique is not foreseen in the near future due to lack agreements; of funding available. • issuing licenses to Independent Power Shortfalls of the Energy Policy of 2003 were Producers; mentioned. The Policy speaks of • commissioning of new generation liberalisation of the energy market, which stations, which decrease dependency on specifically implies the introduction of hydro power from one water source (the independent power producers into the majority (99%) of Malawi’s power market. However more than 10 years have

passed since the inception of the Energy implemented the automatic tariff adjustment Policy and no independent power producers which acts to restate the base tariff value in have be implemented. The potential reason order to ensure it remains cost reflective for such shortfalls is due to the monopoly when fluctuations occur such as inflation that ESCOM holds over generation, and exchange rate variations. Currently the transmission and distribution for the cost reflective tariff amounts to country. In addition, with ESCOM being approximately $0.12/kWh. The current government-owned, it receives various tariff is to increase by 37% in order to subsidies and thus the electricity tariffs are obtain a tariff which is cost reflective. The not cost reflective, preventing IPPs from Malawi government aims to increase the competing. tariff over a four year period.

The Malawi Government is busy In terms of renewable energy policies and undergoing various reforms including frameworks the Malawi Energy Regulatory reforming the electricity sector. It is Authority is working on the development of adopting a new power market structure to the independent power producer framework facilitate investments and independent which should be complete by June 2016. In power producers in the industry. The aim is alignment with South Africa, Malawi aspires to attract independent power producers to for a process similar to the Renewable assist in meeting the shortfalls of the Energy Independent Power Producers national demand. The government is hoping Procurement Programme, however they to achieve this with two approaches. require small steps before attaining such a procurement process. The country does not The first approach includes the unbundling have a Renewable Energy Policy and one is of ESCOM into an entity for generation not being developed currently. It was stated only and a separate entity for transmission that the country is first focusing on the and distribution. Within this transmission unbundling process of ESCOM before and distribution entity a single buyer elaborating on other areas of the electricity position and a system market operator will market. be housed. The aim is to separate the existing company into two entities in order Summary to increase transparency in the government body. The Malawian electricity sector is currently undergoing substantial reforms, and The second approach is the introduction of undertaking great strides in trying to open cost reflective tariffs. This should increase the market for independent power viability for other energy generators to enter producers. Without any interconnectors to the electricity market and compete against neighbouring countries, and none foreseen the ESCOM generation monopoly. The in the near future, the opportunities for Malawi cost reflective tariff is to be made up independent power producers need to be of two components, a base tariff and an made more accessible. Specifically if Malawi automatic tariff adjustment. In 2014 the is sustain the country’s growing energy concept of the base tariff was approved and demand and need for economic came into effect. In January 2016 MERA development, as well as increasing the access

to electricity for the population from a mere distribution and supply of electricity. While 10% (Breeze, 2014). Electricidade de Moçambique owns the national grid, it does not control all of the The Malawi market is one that should be domestic transmission and distribution closely watched to see how developments networks. For example, MoTraCo, a joint unfold and to determine the success of the venture between the Mozambican, South government’s reform undertakings. The African and Malawian governments, Malawian electricity sector has potential facilitates the transmission of electricity lessons which can be learnt by other from South Africa to the Mozal aluminium countries in their respective electricity smelter. In other instances, smaller regional sectors. grids are controlled by the Ministry of Energy, through district governmental 3.2.5 Mozambique bodies. Status of the electricity supply Hidroeléctrica de Cahora Bassa produces system most of the electricity consumed by the The country’s installed electricity capacity country. The dam Cahora Bassa is the was approximately 2.64 GW in 2015. The largest on the Zambezi River. The majority dominant source of electricity generated in stake in hydro facility is owned by the Mozambique comes from hydropower, Mozambican State (85%), with the accounting for 90% of the total electricity remaining shares held by the Portuguese generation capacity (Global Climatescope, Government. Around 75% of the electricity 2016). The electrification rate in the country generated is exported to South Africa, which is 12%-14% (Norton Rose Fulbright, 2013) in turn transmits electricity back to the and (Clean Energy Info Portal, 2012). While Mozal aluminium smelter in Mozambique. Mozambique has one of the larger This electricity is sold to Electricidade de generating capacities in the Southern Moçambique at a higher rate than the rate at African Power Pool, it is a net importer of which South Africa purchases the electricity electricity. from Hidroeléctrica de Cahora Bassa.

The electricity sector is based on a The Electricity Act allows for third party concession system, where entrants are access to the electrical networks. While the required to tender for bids. Tariffs are not country has vast natural gas resources regulated. Bilateral agreements between offshore, renewable resources and coal generators and suppliers are the sole deposits which could be used for power methods for the sale of electricity in generation, few projects have been realised Mozambique. in this regard. Private generators have recently developed one gas-fired plant of Competition in the sector is limited, where 110 MW and two coal-fired power plants, the state-owned utility, Electricidade de amounting to 900 MW. Moçambique, is the national transmission grid operator and also holds the balance of Major barriers to entry, particularly those concessions for generation (vast majority relating to access to finance and poor from hydro sources), transmission, electrical infrastructure, are constraining

growth in the electricity sector and the • to discourage the non-sustainable country. Furthermore, low tariffs for use of lumber as a source of energy; electricity which do not reflect the costs of • to stimulate the sustainable production are widely recognised as production of biofuels; disincentives for private players in the space. • to diversify energy sources; and Solar and wind technologies specifically • to implement a cost-based tariff cannot yet compete with the hydroelectric system, one which includes generation in Mozambique. environmental externalities. These barriers, in part, explain why there are Mozambique also has a fairly recent policy no organised markets for the sale of (the Renewable Energy Policy) for the electricity in Mozambique even though the development of new and renewable energies country has abundant natural resources and with installed capacities of up to 10 MW. is an operating member of the Southern This policy aims to encourage investment in African Power Pool. solar, wind, small-scale hydro, biofuels and As part of the Southern African Power biomass power, over a 15-year period. Pool, Mozambique is interconnected to The policy also calls for the establishment of Zimbabwe to the west and South Africa and laws to implement feed-in tariffs and create Swaziland to the south. While its renewable energy-specific funding interconnections offer the opportunity to mechanisms through tax benefits and other trade electricity regionally, major problems exemptions to encourage investment in the persist with regards to the country’s sector. Currently however, no specific outdated transmission and distribution legislative frameworks exist for renewable networks (Mozambique Regional Gateway energy projects and the implementation of Programme, 2013). Various transmission the feed-in tariff structure is still under upgrade projects are in the pipeline, development. however the current electrical infrastructure is not sufficient to meet demand. Growth The main framework legislation for the and development in the country are electricity sector is therefore the Electricity seriously hampered by these constraints. Act, promulgated in 1997. Regulation of this legislation is mostly adopted by the Council Policies, legislation and of Ministers in the form of Decrees. There regulations are concerns that the current regulatory Resolution No. 10/2009, of 4 June 2009 framework pertaining to the electricity (the Energy Strategy), is the current policy sector is out of date, and revisions are for the energy sector in Mozambique. The anticipated in the near future (Law Business main policy goals for the electricity segment Research, 2015). of the strategy include: Mozambique does not have an independent regulator to govern the electricity sector. All • to provide greater access to activities in Mozambique relating to electricity and fuels to rural and peri- electricity generation, transmission, urban areas; distribution and supply are regulated and

require licences from the Ministry of granting of concessions for power projects, Energy, the Council of Ministers or local the establishment of electricity tariffs and authorities. The National Transmission Grid the mediation and resolution of disputes Regulation regulates third party access to the between concessionaires, and between electrical networks. concessionaires and consumers in the supply of electricity. Although it has not yet fully Concessions are provided following assumed its role as such, it is anticipated that successful tender applications as per the CNELEC will become the fully independent Energy Concessions Regulation. The regulator for the electricity sector in initial term of a concession is limited to 50 Mozambique. years for hydroelectric power projects and 25 years in all other cases. There are various other key stakeholders in the electricity sector, a number of which are Currently there is no prescribed form of highlighted below. power purchase agreement and the terms of supply, including tariffs, are subject to the Between 1975 and 2005, Electricidade de relevant bilateral agreement between seller Moçambique operated as a vertically and purchaser. The Electricity Act does integrated, quasi-monopoly of the however require that tariffs are fair and generation, transmission and distribution of reasonable, and that they ensure the least electricity in Mozambique. The state owned possible cost to consumers while providing utility has since been unbundled, to a a fair return on the capital investment to the degree. It still however owns a single developers. concession for the distribution and sale of electricity, the main transmission Electricity industry stakeholders concessionaire, and is the national transmission grid operator. Electricidade de The Mozambican electricity industry is Moçambique has been working to reinforce regulated by the following bodies: the back-bone transmission network in Mozambique since 2003, using funding • Council of Ministers; from a number of international • Ministry of Energy; and development agencies. The successful • National Electricity Council: Conselho culmination of transmission network Nacional de Electricidade (CNELEC). reinforcement projects are widely recognised as key factors that could drive private In particular, the Ministry of Energy (in investment in Mozambique’s electricity tandem with the Council of Ministers) has sector. the authority to approve concession requests for the electricity sector. The Ministry is Hidroeléctrica de Cahora Bassa was responsible for monitoring the activities of established in 1975 following independence the concessionaires. from Portugal. The company operates the Cahora Bassa hydro facility, located in the CNELEC is the regulatory body tasked with Tete province of Mozambique, which establishing relevant legislation for the generates most of the electricity consumed electricity sector. The body also advises the by the country. Constructed in 1969 by the Government of Mozambique on the

Portuguese and South African governments Inputs from stakeholders during at the time. Portugal initially owned 82% of consultations the Cahora Bassa hydro facility, selling most of this equity to Mozambique in 2007. South According to the Fundo de Energia Africa (Eskom) continues to purchase (Promethium Carbon, 2015), the around 80% of the facility’s generated Mozambican government supports the electricity, cheaply. Power is then current trend to open up the electricity transmitted back to the Mozal aluminium market in Southern Africa to participation smelter, at an increased rate, through the by IPPs. A feed-in tariff is subsequently HVDC transmission line that Hidroeléctrica under development in the country, as are de Cahora Bassa co-owns with Eskom. new regulations promoting mini-grids. In Recent supply disruptions have fuelled addition, the government is open to growing concerns regarding the ageing considering private sector participation in infrastructure, questioning the reliability of various operations and management supply from this source (Mail & Guardian functions that could be more efficiently Online, 2015). undertaken by this sector. Lack of access to finance was however noted as a major Mozambique is addressing this concern, and barrier to entry into the electricity sector, one of the measures being taken is the where the costs of solar and wind development of small to medium electricity technologies are not competitive with the projects, particularly those with a focus on hydroelectric generation in the country. rural or off-grid electrification. Fundo de Related to this barrier are the current Energia is the governmental body national electricity tariff prices, which are established to fund the development, not cost reflective. This further inhibits the production and use of such technologies growth and development of the IPP and projects. The fund receives its capital segment in the country. from donations and loans from international governments and non-governmental Both Aggreko (Promethium Carbon, 2015) organisations, public funding allocated by and the Department for International parliament and levies on the sale of Development in Maputo (Promethium electricity by Electricidade de Moçambique. Carbon, 2015) noted however that the export of natural gas and hydroelectric As part of a 15-year strategy, the fund power are important opportunity for growth intends to provide solar power to 2.1 million in the sector. people in rural areas. It provides financial guarantees to projects that support its Summary objectives of promoting the conservation The low electrification rate indicates that and sustainable management of power there are serious gaps in electricity supply resources. To date, Fundo de Energia has and transmission in the country. These gaps supported a number of solar, biomass and present opportunities for private companies mini-hydropower projects in Mozambique. and recent developments in Mozambique’s regulatory environment support the participation of such entities and IPPs in the electricity sector. Currently however, the

market share remains dominated by the state other electricity distribution entities are owned, vertically integrated utility, responsible for the distribution and supply Electricidade de Moçambique which of electricity. supplies the country with power from hydro sources. Namibia’s electricity market model is currently in an evolutionary state. Gas and other renewable energy Historically it followed the single buyer opportunities (such as hydro and solar) are model, with NamPower acting as the single present and accessible for development in buyer of electricity. However, currently it is the country. Lack of clarity regarding the a modified single buyer model, which regulatory frameworks, access to finance, permits small independent power producers, poor infrastructure and non-cost-reflective of less than 2.5 MW, to sell power directly tariffs in some instances were identified in to NamPower, regional electricity the literature review and site visits as some distributors and contestable customers. of the major barriers to the development NamPower maintains exclusive rights to and growth of the electricity market in cross-border trade. Mozambique. Namibia’s energy demand far exceeds its 3.2.6 Namibia supply and thus there is an urgent need to exploit its abundant renewable energy Status of the electricity supply resources for energy generation (Manyame, system 2015). To date, Namibia has one Namibia’s installed capacity amounted to independent power producer within its approximately 492 MW in 2015. With the electricity market, the 4.5 MW Innosun- country’s maximum demand at 657 MW, Omburu Solar PV plant which was Namibia is heavily reliant on electricity commissioned in May 2015. The plant feeds imports from neighbouring countries. power into the NamPower system. Electricity imports amounted to 58% (NamPower, 2015) of the country’s In order to attract further investment by the consumption in the 2015 financial year. private sector and independent power Namibia generated 42% of its own power, producers, Namibia has instituted out with 98% of this power supplied by the various enabling instruments. Namibia has Ruacana hydro power plant. The remaining developed a renewable energy procurement 2% of local generation is produced by a coal mechanism which is currently in power plant and emergency diesel power implementation phase. The country is plants. tendering for large wind power plants and concentrated solar power facilities, net The vertically integrated electricity utility, metering was implemented for solar Namibia Power Corporation (Proprietary) photovoltaics. Furthermore the Renewable Limited, dominates electricity generation, Energy Feed in Tariff interim program was transmission and trading in the country. started to accommodate 14 independent Recently, with the intention of reforming power producers for landfill, small hydro, the Namibian electricity market, regional small wind and biomass (less than 5 MW). electricity distributors (REDs) were created Projects have been initiated and support within the country. The REDs along with

measures such as soft loans and tax Policies, legislation and incentives are available. regulations

Namibia is interconnected via the Southern Namibia’s energy policy is articulated in the African Power Pool to neighbouring White Paper on Energy Policy of 1998. The goals countries and relies on imports of electricity of the Energy Policy which set a framework from these countries. Namibia actively takes for the energy sector are as follows, part in the SAPP trading market. (REEEP & REN21, Namibia 2014, 2014):

In 2015 Namibia imported 10% • effective governance; (NamPower, 2015) of its energy • security of supply; requirements from South Africa’s national • social upliftment; utility Eskom. Namibia has however not • investment and growth; managed to sign an extension of the • economic competitiveness and Supplemental Supply Agreement between efficiency; and itself and Eskom. In 2015, Namibia began • to operate under month-to-month sustainability. extensions under which Eskom has reserved The principle legislation related to the the right to curtail or even terminate supply electricity sector in Namibia is the Electricity in the event of load shedding in South Act, No. 4 of 2007. The act prohibits Africa. This is a very unsustainable proposal generation, trading, transmission, supply, for Namibia. distribution, importation and export of In addition, Namibia has secured significant electricity without a licence issued under this supply of electricity through ZESCO. In Act. A separate licence is required for each 2015, Namibia imported 12% of its of these activities. A generation licence for electricity from Zambia Electricity Supply an IPP must be obtained before Corporation. Through the Aggreko power commencement of construction of the supply agreement, Namibia imported project and prior to signature of a power approximately 14% of its electricity. This purchase agreement. agreement is currently undergoing The Electricity Act, No. 2 of 2000 which has negotiations for an extension until the end now been repealed by the Electricity Act, No. of December 2016. 4 of 2007, saw the establishment of the Through the Namibia - Zimbabwe energy regulator within Namibia, the Electricity Supply Authority - Zimbabwe Electricity Control Board. This act Power Company, power supply agreement, expanded on the mandate of the regulator. Namibia imported about 21% of its Electricity industry stakeholders electricity required in 2015. A further 1% of electricity was imported from the The Ministry of Mines and Energy is the Electricidade de Mozambique power custodian of Namibia’s energy sector, purchase agreement. including the electricity sector. The Ministry is the policy maker responsible for the implementation of the White Paper on Energy

Policy of 1998, and is responsible for The Namibian electricity sector is managing Namibia’s electricity sector by dominated by NamPower. The utility is also enforcing compliance with legal responsible for electricity trading within the requirements of the energy regulations and Southern African Power Pool region and legislation, such as the Electricity Act, No. 4 of acts as the national electricity system 2007. The Ministry has the power to grant operator (von Oertzen, 2012). It is a state- electricity licences, with recommendations owned enterprise which reports to the obtained from the Electricity Control Board. Ministry of Mines and Energy and is regulated by the Electricity Control Board. The Electricity Control Board is responsible for setting tariffs to regulate electricity The regional electricity distributors along generation, transmission, distribution, with other electricity distribution entities supply, import and export in Namibia. In (such as local authorities, private entities, addition, the Electricity Control Board regional councils and NamPower) are advises the Ministry of Mines and Energy responsible for the distribution and supply on the granting, repealing and modifying of of electricity. licences. The Electricity Control Board is also responsible for promoting private The Namibian power supply industry is sector investment in the electricity industry, represented in Figure 9. in agreement with government policy (Norton Rose Fulbright, 2013).

Figure 9: Namibia's Electricity Supply Industry (Manyame, 2015)

independent power producer IPP can Inputs from stakeholders during source a second, alternative off-taker for the consultations surplus electricity. In this case, NamPower will charge wheeling rates to deliver the Stakeholder consultation in Namibia, with electricity to the customer. NamPower, provided valuable inputs regarding the country’s current electricity NamPower is an active player on the sector and developments within the system. Southern African Power Pool platform, It was mentioned that despite Namibia specifically as an electricity purchaser. In the having approximately 492 MW of installed event where there are heavy rains, capacity, only about 372 MW is available NamPower is sometimes able to sell due to the 120 MW coal plant undergoing electricity generated by the Ruacana hydro refurbishments. This makes Namibia very power plant on the market. Namibia prefers dependent on electricity imports. bilateral agreements to trading on Southern African Power Pool. The reason for this is It was also established that NamPower has that the electricity imported via bilateral the first right of refusal for the purchase of arrangements is typically secure, and can some, or all, of the electricity generated by assist the country mitigate unplanned independent power producers in the outages. country. If NamPower chooses to use only a portion of the electricity generated, then the

In terms of receiving adequate imports from Namibia has however demonstrated its neighbouring countries, one of the major serious ambitions to liberalise the electricity challenges facing Namibia relates to the market by choosing to follow a modified inadequate interconnector capacities and the single buyer model. Furthermore, the traffic on these lines. There are specific creation of the regional electricity bottle-necks related to the Zambia-Namibia distributors within the country has opened interconnector, where Zambia needs to the market to other players and allowed for strengthen the interconnector on their land the development of more cost reflective or install a larger transformer. This will tariffs. These developments are positive prevent Namibia from experiencing issues in signals for potential investors in the terms of electricity shortages. A second electricity sector in the country. barrier experienced by Namibia is the liquidity within the electricity supply 3.2.7 South Africa industry. Thus, if more independent power Status of the electricity supply producers were able to generate electricity, system the liquidity would increase and could potentially solve this barrier. While South Africa has extensive coal reserves that continue to drive the electricity Summary sector in the country, the use of renewable While there are opportunities for growth in sources for electricity generation has the Namibian electricity market, the sector increased dramatically in the last few years. remains constrained by various Around 88% of the population has access to developmental barriers. For example, electricity (South African Government, Namibia needs to develop specific 2015). renewable energy policies and frameworks Eskom, a state owned utility, is the to drive investment in renewable energy dominant generator in the country with a independent power producers. In addition, total nominal capacity of just over 45 GW subsidies to support renewable energy (htxt.co.za, 2015). It generates uptake are required in order to mitigate tariff approximately 95% of the electricity used in impacts (Manyame, 2015). South Africa and approximately 45% of the Another of Namibia’s barriers relates to the electricity used on the continent (Eskom, constraints on the interconnector lines to 2015). Coal is the utility’s primary energy neighbouring countries. These constraints source (accounting for about 90% of its fuel often hinder the amount of energy that mix), supplemented by the Koeberg nuclear Namibia can import its neighbours. In station in the Western Cape, hydroelectric addition, lack of liquidity within the market and pumped storage schemes and recently a is a further barrier. This could also be 100 MW wind farm which contribute viewed as an opportunity for business respectively to the utility’s total supply. developers as Namibia dramatically needs to Eskom’s footprint is comprised of large reduce its reliance on electricity supply from power stations that are concentrated in the neighbouring countries. interior of the country, near coal resources in Mpumalanga province (Eskom, 2015).

Eskom faces the challenge that most of its life. The figure below shows the age of the generation capacity is nearing the end of its Eskom power stations as in 2014:

Figure 10: Age of Eskom power stations in 2014 (de la Rue du Can, Letschert, Leventis, & Covary, 2013)

Whereas Eskom no longer holds exclusive generation under the programme. In 2011, rights to generation in the country, it the Minister made a determination stating continues to monopolise bulk electricity that 3 725 MW of energy were to be supply while new IPPs slowly develop their generated from renewable energy sources respective market shares. The new under REI4P (Department of Energy, generation companies are facilitated by the 2012). A further Ministerial determination Integrated Resource Plan (South Africa, 2013) was made in 2012, authorising an additional which maps out the country’s projected 3 200 MW (Minister of Energy, 2012) of energy needs and sources to meet the renewable energy under the REI4P. The demand. country’s Integrated Resource Plan makes provision for the generation of 17.8 GW of New entrants to the electricity generation renewable energy by 2030, to be sector include renewable energy producers, commissioned under the REI4P. the majority of which have developed power stations under the Department of Energy’s To date, around 79 projects have been Renewable Energy Independent Power approved in four Bid Windows under the Producer Procurement Programme Large Projects Programme, with further (REI4P). The programme is based on a windows expected in the next few years competitive bidding format, where (The Guardian, 2015). A Small Projects prospective power producers submit bids REI4P (for projects between 1 MW - which are adjudicated according to various 5 MW) was also launched and preferred criteria, price being the most critical. bidders were announced under the first Bid Window in 2015. Further windows are The REI4P is guided by the provisions of expected, with the aim of generating the Electricity Regulation Act, which 100 MW from small scale producers. Eskom authorises the Minister of Energy to is the single-buyer of electricity generated determine the scope of new energy under the REI4P and grid connection

agreements between the IPPs and the utility While Government welcomes the entrance are required as part of the development of new participants in the electricity sector, process. the country still experiences power shortages which affect the nation and Government (through the Department of neighbouring countries to which it sells Energy and National Treasury) has initiated electricity. While commissioning of new a similar procurement programme for coal capacity (specifically large coal-fired power IPPs. The Coal Baseload IPP Procurement stations) is expected by early 2019, there Programme aims to procure 2 500 MW of have been numerous delays in implementing electricity from coal fired power stations, the new-build programme. with individual bids capped at 600 MW per project. It is expected that the preferred Eskom is the sole owner and operator of the bidders of the first bid window will be national electricity grid, making it a vertically announced in early 2016. This programme integrated utility which generates, transmits includes options for a single buyer model, and distributes electricity to a wide range of multi-buyer model and for cross border customers and redistributors. The state procurement. Shumba Energy has indicated entity distributes much of its power directly, its interest in building capacity in Botswana along 368 331 km of transmission lines from and selling electricity into South Africa. the interior of the country down to coastal areas (Eskom, 2015), as shown in Figure 11.

Figure 11: South Africa's National Grid Network (Eskom, 2015)

Electricity prices have increased Another significant contributor to the crisis exponentially over the last 10 years and the relates to arrears in metropolitan councils country regularly faces shortages in and municipalities accounts across South electricity supply. There are a number of key Africa. The amount owed to Eskom was factors that have led to these issues. reported at R10.8bn at the end of June 2014. According to the South African Department Eskom told Parliament’s portfolio of Energy (Trollip, 2014), one of the major committees on energy and public enterprises contributors is attributed to South Africa’s that the outstanding debt was affecting the lack of significant investments in the energy company’s bottom line and ultimately its sector over the past 20 years. Backlogs in sustainability (Business Day Live, 2014). infrastructure maintenance and developments are noted as key constraints Furthermore, Eskom’s energy availability in this regard, which have knock on effects factor has been declining steadily since 2005, on downtimes and the costs associated with as indicated in Figure 12. The energy repairs. availability factor of a power plant is the amount of time that it is able to produce electricity over a certain period, divided by

the amount of the time in the period. The government has had to bail-out the state utility has been criticised for deferring its owned company on a number of occasions maintenance schedule on account of cash (Eye Witness News, 2014). flow and budgetary constraints, and

Energy availability factor (EAF)

95 90 85 R² = 0.9508 80 75 70 65 60 55

Energy Availability factor (EAF) (%) (EAF) factor Availability Energy 50 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Energy Availability factor (EAF) % Energy Availability factor (Forecast) %

Energy Availability factor (Eskom budget) % Poly. (Energy Availability factor (EAF) %)

Figure 12: Eskom's declining energy availability factor (Promethium Carbon, 2015)

Additional power stations (from sources Eskom’s power station capacities as at 31 ranging from fossil fuels, renewables and March 2015 (Eskom, 2015) are presented in nuclear) and major supplementary power Table 2. The difference between installed lines are therefore being built to meet rising and nominal capacity reflects auxiliary electricity demand in the country. power consumption and reduced capacity caused by the age of plant.

Table 2: Eskom power station capacities

Name of station Location Years Total installed Total nominal commissioned first capacity capacity to last unit (MW) (MW) BASE-LOAD STATIONS COAL-FIRED (13) 37 754 35 721 Arnot Middleburg 1971-1975 2 352 2 232 Camden2 3 Ermelo 2005-2008 1 561 1 481 Duvha eMalahleni 1980-1994 3 600 3 450 Grootvlei4 Balfour 2008-2011 1 180 1 120 Hendrina5 Middleburg 1970-1976 1 893 1 793 Kendal6 eMalahleni 1988-1992 4 116 3 840 Komati7 Middleburg 2009-2013 990 904 Kriel Balfour 1976-1979 3 000 2 850 Lethabo Vereeniging 1985-1990 3 708 3 558 Majuba8 Volksrust 1996-2001 4 110 3 843 Matimba9 Lephalale 1987-1991 3 990 3 690 Matla Bethal 1979-1983 3 600 3 450 Tutuka Standerton 1985-1990 3 654 3 510 Kusile10 Ogies Under construction - - Medupi11 Lephalale Under construction - - NUCLEAR (1) Koeberg Cape Town 1984-1985 1 940 1 860 PEAKING STATIONS GAS/LIQUID FUEL TURBINE STATIONS (4) 2 426 2 409

2 Former moth-balled power station returned to service. Camden was originally commissioned in 1967-1969. 3 Due to technical constraints, the coal-fired power units at this station were de-rated. 4 Former moth-balled power station returned to service. Grootvlei was originally commissioned in 1969-1977. 5 Due to technical constraints, the coal-fired power units at this station were de-rated. 6 Dry-cooled unit specifications based on design back-pressure and ambient air temperature. 7 Former moth-balled power station returned to service. Camden was originally commissioned in 1967-1969. Due to technical constraints, the coal-fired power units at this station were also de-rated. 8 Dry-cooled unit specifications based on design back-pressure and ambient air temperature. 9 As above. 10 As above. 11 As above.

Name of station Location Years Total installed Total nominal commissioned first capacity capacity to last unit (MW) (MW)

Acacia Cape Town 1976 171 171 Ankerlig Atlantis 2007-2009 1 338 1 327 Gourikwa Mosselbay 2007-2008 746 740 Port Rex East London 1976 171 171 PUMPED STORAGE SCHEMES (2)12 1 400 1 400 Drakensberg Bergville 1981-1982 1 000 1 000 Palmiet Grabouw 1988 400 400 Ingula Ladysmith Under construction - - HYDROELECTRIC STATIONS (2)13 600 600 Gariep Norvalspont 1971-1976 360 360 Vanderkloof Petrusville 1977 240 240 WIND ENERGY (1)14 Sere Vredenburg 2015 100 100 SOLAR ENERGY Concentrating solar power Upington Under construction - - OTHER HYDROELECTRIC STATIONS (4)15 61 Colley Wobbles Mbashe River 42 First Falls Umtata River 6 Ncora Ncora River 2 Second Falls Umtata River 11 TOTAL POWER STATION CAPACITIES (23) 44 281 42 090 AVAILABLE NOMINAL CAPACITY 95.05%

12 Pumped storage facilities are net users of electricity. Water is pumped during off-peak periods so that electricity can be generated during peak periods. 13 Use restricted to periods of peak demand, dependent on the availability of water in the Gariep and Vanderkloof Dams. 14 The Klipheuwel demonstration wind farm (3 MW) has been decommissioned. 15 Installed and operational, but not included for capacity management purposes.

Eskom recently reviewed its wheeling renewable energy technologies and charges indicating that it is prepared to intentions to reduce emissions in the facilitate third party access to the grid. country. The white paper promotes the Eskom is also developing new Scheduling introduction of independent power and Dispatch Rules, which will materially producers as a means to create competition affect the way in which electricity is traded in the electricity supply industry. in the region and will contribute to clarifying processes around balancing. It was debated The White Paper had a strong focus on the whether such rules could facilitate the introduction of independent players in the inclusion of financial guarantees into market: licencing regulations. • The distribution industry will This research found that Eskom cannot bar accordingly be restructured into regional its clients from accessing its grid and buying electricity distributors. Government will power from IPPs (local or international) establish a transitional processes that because the grid is considered to be critical will lead up to the establishment of infrastructure. In principle, both generators independent regional electricity and loads can join SAPP. Examples distributors (para 3.4.1); discussed included City Power (could be a • Government will consolidate the load as well generator through Kelvin Power electricity distribution industry into the Station) and MTN (which has excess maximum number of financially viable capacity through some of its power independent regional electricity projects). Local licencing noted as a distributors (REDs) and while these challenge in addition to pricing constraints distributors will be independent, they (i.e. municipalities cannot buy power at rates should co-ordinate on issues such as above Eskom rates) which do not take the electrification planning, tariff issues and business operating costs associated with centralised bargaining. (para 7.1.3.3); electricity down-time into consideration. • The entry of multiple players into the generation market will be encouraged. Policies, legislation and Initially this policy will be implemented regulations by obliging the national transmission system to publish National Electricity South Africa’s electricity sector is Regulator approved tariffs for the underpinned by a number of key polices, purchase of co-generated and legislation and regulations. independently generated electricity on The White Paper on Energy Policy, 1998 the basis of full avoided costs… This (Act 34 of 2008), sets out a number of policy will enable the economic policy objectives such as increasing access to exploitation of the significant available affordable energy services; improving energy potential for nonutility generation in governance; stimulating economic South Africa. Research has indicated development; managing energy-related that a technical potential of as much as environmental and health impacts; and 6 000 MW of non-utility generation securing supply through diversity. The Paper could be exploited. Including also indicates government’s support for environmental costs into the pricing

structure will encourage further The Nuclear Energy Act, 1999 (Act 46 of developments of renewable and 1999) provides for the establishment of the environmentally benign generation National Energy Corporation of South technologies such as hydro, wind, solar Africa and defines its functions, powers, thermal, and waste incineration. (para financial and operational accountability, 7.1.5.8); governance and management. The functions • Government realises that competitive of this organisation include conducting models and private sector participation research and development in the nuclear hold the promise of benefits for field, management of national nuclear electricity consumers and will therefore research facilities, processing of nuclear be closely following developments in material and to co-operate with stakeholders countries implementing these new within nuclear research. arrangements. Government will initiate a comprehensive study on future market The White Paper on Renewable Energy, structures; and 2003, detailed South Africa’s target of producing 10 000 GWh of energy from • For the South African electricity supply renewable energy sources (specifically industry, in the light of the above, it is biomass, wind, solar and small-scale hydro) clear that the introduction of within 10 years from the date of the policy’s Independent Power Producers (IPP) will publication. The White Paper stated be allowed in the South African “Government will create an enabling environment to electricity market. Any fundamental facilitate the introduction of independent power market restructuring is likely to be producers that generate electricity from renewable delayed for a number of years while the energy sources.” distribution sector restructuring and the bulk of the electrification programme is The Electricity Regulation Act, 2006 (Act undertaken. (para 7.1.6). 4 of 2006) established a national regulatory framework for the electricity supply industry Cabinet decided in December 2010 to to be enforced by the National Energy terminate the Electricity Distribution Regulator of South Africa. Industry (EDI) restructuring with immediate effect. This decision brought to an end the The National Energy Act, 2008 (Act 34 of process of creating the Regional Electricity 2008) was legislated to ensure that the Distribution (REDs). Although significant country’s range of energy resources are progress has been made in establishing the available in sustainable quantities and at REDs, Cabinet dictated that the affordable prices by mandating the Minister Department of Energy should take over the of Energy’s responsibility to produce an programmes previously executed under the Integrated Energy Plan. The Act provides EDIH mandate. This decision of cabinet for the increased use of renewable energies, brought to an end the process of electricity contingency energy supplies, the holding of market reform that was started in South strategic energy feedstock and carriers, and Africa with the publication of the White adequate investment in energy Paper on Energy Policy in 1998. infrastructure. It also legislates the South

African National Energy Research Institute, (DoE) would continue to consult and work its purpose and structure. on the ISMO Bill to provide a better regulatory environment for electricity The Integrated Resource Plan for 2010- providers in South Africa (Klees, 2014). 2013016 was promulgated in March 2011. The aim of the Plan is to ensure electricity The functions of the new entity that would generation capacity to 2030 while integrating enter the ESI, the ISMO, was never clearly renewable energies into the mainstream defined by government. Initially the energy economy to meet national emissions government favoured an Independent targets. The method in this regard involves System Operator (ISO) that would be an the charting of the country’s energy needs entity not linked to Eskom. The ISO was against the proposed measures of supply. envisaged to handle all responsibilities with While coal is acknowledged as the dominant respect to planning, procurement and fuel source required to meet the country’s scheduling of generators that would balance developing needs, the Plan also mandates the system demand and supply on a daily the growth of the renewables sector and basis. hence the development of the REI4P as the primary measure to achieve this goal. The choice of an ISO was changed to that of an ISMO shortly after the functions or Shortly after 2007/2008 power crisis DoE responsibilities of the ISO were defined and began preparation of several bills to address found to be lacking. The ISMO’s core shortcomings in the Electricity Supply responsibilities can be divided into two Industry. The draft Independent System distinct categories: System Operations and and Market Operator Bill (ISMO Bill) Market Operations. An additional secondary was published for public comment in May responsibility, Generation and Transmission 2011. The ISMO Bill’s goal is to restructure Planning was also assigned to the ISMO. the ESI by inserting an ISMO as a new entity into the South African ESI. System Operations entail overseeing and managing integration of the power systems The bill was not passed in parliament but in real time. The activities which relate to the President mentioned that the legislation these responsibilities include electricity relating to the restructure of the ESI dispatch and operation of the integrated envisaged by the ISMO bill needs to be power system in a safe, efficient and finalised during the State of the Nation sustainable manner. Address in 2014. In addition, the Minster of Energy stated in her budget speech during Market Operations comprise of buying and 2014 that the Department of Energy will selling electricity at a wholesale level. The ISMO would thus have to buy electricity from generators, traders and Independent 16 Developed by the Department of Energy in 2011 Power Producers that are licenced to and updated in 2013. The plan is a ‘living operate and selling to distributors document’ which will be updated on a regular (municipalities), traders and consumers of basis, initially every 2 years or more frequently as required. electricity. By assigning this task to the ISMO, the electricity supply industry will

become more competitive as electricity and planning of the expansion of the could be bought from either Eskom or transmitter of electricity in accordance with IPPs. The ISMO may only sell electricity to the forecasted electricity demand as outlined customers with whom it has signed a power in the Integrated Resource Plan. purchase agreement. The ISMO will act as the single buyer of Generation and Transmission Planning electricity from both state owned generation responsibilities require that the ISMO model facilities and that of IPPs. All electricity, be scenarios, at suitable intervals which will it for commercial, wholesale or household assist the Minister of Energy with the use would have to be bought from the Integrated Resource Plan. In addition, the ISMO as it would act as the transmission ISMO will have to assist in the development subsidiary of Eskom.

Figure 13: Potential structure of South Africa's Electricity sector after implementation of the ISMO bill (Sichone E. C., 2012)

Electricity Pricing The current status is that the ISMO bill is on hold and that there does not seem to be South Africa’s electricity prices have an intention by government to implement traditionally been of the lowest in the world. this legislation. An announcement was made This was mainly the result of the costing of in February 2015 that the ISMO Bill will be the electricity sold on the basis of a replaced with new draft legislation. depreciated capital base and the abundance of low cost coal. The price of electricity in South Africa compared to the rest of the world in 2010 is shown in the graph below:

The low prices were the direct results of twenty five years of annual below inflation price increases. This is shown in the figure below:

Figure 14: Price developments in South Africa (Montmasson-Clair & Ryan, 2014)

Electricity industry stakeholders investment, productivity and transformation in the department’s portfolio of companies. There are a number of key regulatory bodies and electricity stakeholders in the South The National Energy Regulator of South African environment. Africa was established by the National Energy Regulator Act, 2004 to regulate the The Department of Energy’s legislative electricity, piped-gas and petroleum mandate is to ensure secure and sustainable pipelines industries in terms of the provision of energy for socio-economic Electricity Regulation Act, 2006 and the development in South Africa. The Petroleum Pipelines Act, 2003. Department is responsible for policy setting in the energy sector, and its mission is to The National Nuclear Regulator is regulate and transform the sector for the responsible for the protection of people, provision of secure, sustainable and property and the environment against affordable energy. nuclear damage. Nuclear Energy Corporation of South Africa is a related The Department of Public Enterprise is a entity, wholly owned by the state. key stakeholder because it the shareholder representative for government (with Eskom is the state-owned utility that oversight responsibility) within Eskom and dominates the South African electricity various other State Owned Companies. The sector with regards generation, transmission aim of the Department is to drive and distribution of electricity to various customers and redistributors within South

Africa and across the continent. The utility clearing house to assist foreign direct is currently the single-buyer of electricity in investment across all the Industrial Policy the country. Eskom trades in the SAPP Action Plan sectors. Additional benefits where it sells electricity to, and buys from, offered by the Department of Trade and the member countries. Industry include those related to operations located in demarcated Industrial Inputs from stakeholders during Development Zones, tax incentives and consultations various industrial and manufacturing funding programmes (Promethium Carbon, While the South African government 2015). recognises the importance of increasing new generation capacity in the country, various In addition, the Industrial Development obstacles to achieving this objective (on a Corporation of South Africa (a state owned significant scale) were identified by local entity) actively supports the transformation stakeholders. Eskom, for instance, noted of the electricity sector, as sanctioned by that even though the national grid is Government. The Industrial Development available to third parties, access has been Corporation is mandated to develop limited because the costs of renewable industry, with a specific focus on energy generation are not yet competitive developments that improve infrastructure with the utility’s costs of generation and service delivery (Promethium Carbon, (Promethium Carbon, 2015). Similarly, 2015). Standard Bank (one of the leading financiers of projects under the REI4P) also raised One of the underlying trends identified concerns that the current tariffs for during the course of the stakeholder renewable energy projects are comparatively engagements is the need for innovative tools low, which makes entry into the market less which could be used to develop the national appealing for new participants (Promethium and regional electricity markets. Various Carbon, 2015). potential financial instruments such as green bonds and contracts for difference were Concerns relating to grid limitations were discussed with Standard Bank, as was the also raised by Eskom, particularly with concept of an ‘electricity aggregator’ model regards to the requirements for balancing which could decouple market price risk that arise with the inclusion of non-base from IPP operations. This model was also load electricity. Eskom also noted that discussed as an opportunity to stimulate cross-border supply, transmission and growth through cross-border trade across trading activities are currently limited, and Southern Africa with Cennergi, a prominent proposed that a unified, regional regulatory renewable energy IPP in the South African framework could assist in facilitating these sector (Promethium Carbon, 2016). actions (Promethium Carbon, 2015). The South African Independent Power In order to facilitate growth in the sector, Producers Association was also strongly in the Department of Trade and Industry has a favour of measures to facilitate electricity number of incentives available for IPPs. The trade across Southern Africa factors to Department has a dedicated investment enhance energy trading and the impact on promotion and facilitation unit that acts as a

integration on a regional level were 3.2.8 Swaziland discussed (Promethium Carbon, 2016). Status of the electricity supply In contrast, consultation with the South system African Wind Energy Association revealed that the body does not see meaningful value Swaziland’s maximum demand was around at this point in trading electricity, specifically 221 MW for the 2014 financial year. The on the day ahead market. The opportunity country generates about 25% (Swaziland of long term power purchase agreements as Electricity Company, 2014) of its own measures to mitigate the risks of such electricity requirements, mainly from state- trading was also discussed. Furthermore the owned hydro-power stations. Swaziland has potential of the IPP Office to function as a four hydro-power plants in this regard, market operator was noted, as it already it which generated approximately 302.6 GWh coordinates the buying and selling of during 2014 (Swaziland Electricity electricity between Eskom and IPPs Company, 2014). Swaziland is therefore (Promethium Carbon, 2016). heavily reliant on electricity imports from neighbouring countries. As a member of Summary SAPP, Swaziland imports its electricity through this platform. Approximately 71.3% The regulatory environment in South Africa of electricity was imported in 2014, largely supports the participation of private from ESKOM in South Africa, as well as companies in the electricity sector. As a from Electricidade de Mozambique in result, an unprecedented number of IPPs Mozambique. (predominantly in the renewable segments) currently operate therein. This number is set Electricity is the backbone of socio- to grow through additional bid windows economic development in the country and under the large and small scale REI4Ps, as provides numerous services to the well as the initiation of the cogeneration and population which directly enhances their coal baseload IPP procurement quality of life. With the national programmes. While Eskom’s electricity electrification rate at only approximately supply shortages represent a risk in terms of 26% in 2012 (RERA, 2013), there is a great energy security, they also present need to increase generation capacity within opportunities for IPPs to enter the local and the country, along with increasing regional markets even though the utility’s electrification. Swaziland is investigating new build programme is under way. options to increase the country’s installed capacity with an aim to reducing reliance on Government is aware of the various neighbouring countries. The generation mix challenges facing the IPP segment and has currently under review includes thermal developed a number of incentives to assist power, hydro, Solar (PV) and natural gas electricity generators making the (Swaziland Electricity Company, 2014). environment generally conducive for new business.

Policies, legislation and • contribute to environmental regulations sustainability and achievement of The electricity sector is guided by the Swaziland’s green agenda Swaziland National Energy Policy 2002, (Government of the Kingdom of Electricity Act, 2007 and the Energy Regulatory Swaziland, 2015). Act, 2007. Any entity generating, These objectives will in turn help to increase transmitting, performing the functions of the contribution of renewable energy to the integrated power system operator, local energy mix whilst at the same time distributing or importing and exporting of reduce the country’s reliance on imported electricity into or out of the country is energy. required to be licensed by the Swaziland Energy Regulatory Authority. Electricity industry stakeholders

The promulgation of the Electricity Act of The Ministry of Natural Resources and 2007, created the framework for IPPs to Energy is the national energy authority enter the national electricity sector, with within Swaziland. The Department of licensing provided by the new regulatory Energy, within the ministry, oversees the body. However, the uptake of IPPs has been energy sector. The Ministry is the custodian limited (REEEP International Secretariat, of the policy and operating activities relating 2012). Government has developed a draft to the electricity sector. Renewable Energy and Independent Power Producer Policy in recognition of the The Electricity Act and Electricity Company Act country’s renewable energy potential. The of 2007 repealed the Electricity Act of 1963. main objectives of the policy are to This was the first reform within the (Government of the Kingdom of Swaziland, Swaziland electricity sector. It resulted in the 2015): organisational restructuring of the national utility from a board (Swaziland Electricity • increase the utilization of Board) to a company, the Swaziland Swaziland’s extensive local Electricity Company. The reform was renewable energy resources; undertaken to reduce the monopolistic • promote the deployment of nature of the national utility and preserve independent power producer the state company as a more disciplined capacity to meet Swaziland’s corporate entity. It also resulted in the electricity needs; establishment of a national energy regulatory • stimulate and enable the deployment body, Swaziland Energy Regulatory of embedded generation and mini- Authority. grid solutions to diversify Swaziland’s energy mix and increase The Swaziland Electricity Company energy access for rural customers; dominates the national electricity sector, supplying and distributing the country’s • identify and facilitate access to various funding sources to power. Swaziland Electricity Company currently owns a monopoly on the import, overcome renewable energy distribution and supply of electricity via the financing constraints; and national power grid, as well as the majority

of the country’s generation facilities. In party access, and a new Energy Policy and addition, Swaziland Electricity Company is Independent Power Producer framework authorised to be the sole transmitter of are expected to be published in 2016. electricity within the country (Khoza, 2015). Swaziland’s aim is to export power to SAPP (Promethium Carbon, 2015). Ubombo Sugar limited is another key player within the Swaziland electricity sector. It is The Swaziland Electricity Company the first and only Independent Power reiterated the country’s position on Producer to be fully licensed as a power increasing its generation capacity, noting generating company within Swaziland that the utility is aiming to grow the (Nkambule, 2014). Ubombo Sugar limited electrification rate to 100% by 2022 generates electricity in the sugar industry (Promethium Carbon, 2015). through co-generation, using bagasse and wood chips as fuel. Swaziland Electricity Summary Company has purchased an exclusive right With a maximum demand of 221 MW, to buy surplus electricity from Ubombo Swaziland has a very small electricity sector. Sugar limited. The country is highly dependent on imports These players operate under licences issued from neighbouring countries and will by the Swaziland Energy Regulatory become more so if electrification rates Authority. The regulator is mandated to increase and no new power plants are regulate the electricity supply industry and installed. A positive aspect is that the ensure the security of electricity supply of necessary policies, such as the draft the country through the issuance of licences, Renewable Energy and Independent Power regulation of electricity tariffs and ensuring Producer Policy, are slowly being put in the quality of supply and services. place to unlock the potential for IPPs within the market. Swaziland is focussed on Inputs from stakeholders during reducing the country’s reliance on its consultations neighbours and thus significant room exists for IPPs. Energy constraints are widely recognised as barriers to socio and economic development Some of the main challenges for the energy in the country. The Swaziland Electricity sector in Swaziland are security of supply, Company therefore has plans to develop low rural electrification and high 493 MW additional generation capacity by dependency on energy imports. 2022, from independent power producers fuelled by solar, hydro, coal and biomass 3.2.9 Zambia (Promethium Carbon, 2015). Status of the electricity supply The regulatory frameworks are being system updated to support this approach. While Zambia has a total installed electricity Swaziland’s Integrated Resource Plan is not generation capacity of 2.35 GW. Electricity yet complete, the Ministry of Natural is primarily generated by means of Resources and Energy noted that the hydropower stations (96% of total electricity recently revised Grid Code allows for third

production) while the remainder is produced All electricity related activities which require by means of diesel generators licensing are enforced by the Energy (AFRICAINVEST, 2016). The current Regulatory Board (ERB) of Zambia electrification rate in Zambia is according to the stipulated regulatory approximately 20% of the population (The instruments. In the event that any World Bank Group, 2016). During 2014, undertaking wishes to purchase power from Zambia imported 12.8 GWh electricity and outside of Zambia, they shall apply to the exported 1 256 GWh of electricity from the minister for approval and shall submit to the SAPP and other bilateral markets (Energy minister a full report on the proposal. Regulation Board, 2014). Electricity industry stakeholders In the event that a drought occurs within Zambia, electricity generation is severely The ministry of Energy and Water crippled due to insufficient water Development of the Republic of Zambia is throughputs at the hydropower stations. responsible for any energy related concerns of the country. The energy regulatory board The current generation capacity is sufficient (ERB) in Zambia is the only regulatory body for the time being (during periods without which governs electricity related activities. droughts) but at an electricity demand The primary stakeholders in the electricity increase of between 150 MW and 200 MW industry in Zambia are ZESCO, CEC and per annum, additional generation capacity LHP. has to be developed to meet the rising demand. The Zambian electricity system is dominated by three companies: The Zambian Zambia plans to meet the rising electricity Electricity Supply Corporation (ZESCO), demand with additional hydropower Copperbelt Energy Corporation (CEC) and installations, improvement and expansion of Lunsemfwa Hydropower Company (LHP). existing hydropower installations, addition of solar PV farms and the possible addition ZESCO, the Zambian national utility, is a of geothermal power stations. vertically integrated government owned electricity utility that generates, transmits, Policies, legislation and distributes and supplies the majority regulations electricity within Zambia. CEC is an independent transmission company (ITC) Policies that relate to electricity generation, that transmits and distributes electricity transmission, distribution and supply are throughout Zambia and sub-Saharan Africa. implemented in the Electricity Act (1995) LHP is an independent power producer and Electricity Amendment Act (2003) (IPP) that generates electricity which they published by the Government of Zambia. currently sell to ZESCO. All the legislation and regulations applicable to electricity related activities are published Inputs from stakeholders during in the Energy Regulation Act: Chapter 436 consultations of the Laws of Zambia (1995). While visiting Zambia, Promethium Carbon met with the Copperbelt Energy

Corporation and Lunsemfwa Hydro Power By allowing IPPS and ITCs to join SAPP Company. CEC was the first non-national they gain access to information with respect utility to be granted SAPP membership to the regional and Southern African energy while LHO was the first IPP to gain a markets. This promotes regional growth and generation licence within Zambia. market liquidity as a greater number of members can pool both their generation and LHP’s main reason for joining SAPP was to transmission capacity to growth the gain access to information with respect to electricity supply industry in the Southern the regional and Southern African energy African region. markets. By becoming a member of SAPP, LHP gained access to the shared knowledge Summary of the other IPPs and the national utilities. This allowed LHP to strategically plan for Zambia’s current electricity supply industry future expansion and gain a better is able to meet the required demand in the understanding of how the regional energy event that the country does not become markets are evolving. drought stricken. As the majority of electricity is generated by means of hydro A key point that came out from discussions power stations, droughts lead to significant with the local stakeholders is that to provide demand deficits which in turn requires more reliability and security in the Zambian Zambia to import electricity through the electricity generation and reticulation SAPP. The majority of electricity generated system, a combination of both fossil and in Zambia is consumed by the industrial renewable energy sources would be sector (mainly mines). Approximately 20% required. Zambia relies on hydro power of Zambia’s population have access to stations to meet their electricity demands. In electricity, the majority of people still make the event that a severe drought occurs in use of wood and coal as their primary Zambia, electricity supply would be energy source. constrained. An investment in fossil fuel sources would thus provide a reliable Local stakeholders believe that the greatest electricity generation source during droughts way to expand the current electricity supply (Copperbelt Energy Corporation, 2015) industry in Zambia would be to make use of (Lunsemfwa Hydro Power Company, 2015). a combination of both renewable energy sources and fossil fuel sources. As Zambia’s CEC purchases electricity on the SAPP electricity is currently predominantly market and provides any spare transmission generated by means of renewable hydro capacity for other members of SAPP on the power, the electricity supply industry is market to utilize should the need arise. In vulnerable to droughts. If fossil fuel based the event that insufficient generation electricity generation is added to the current capacity is available from the national utility electricity generation fleet, it would add or if electricity cannot be purchased at a robustness and flexibility to Zambia’s reasonable price from the market, CEC electricity generation. makes use of their own generation capacity to meet their supply requirements at the Electricity is still primarily supplied by the mines. Zambian national utility, but the national utility is flexible in terms of allowing both

IPPs and ITCs to participate in the market. Utility, Eskom, to import 300 MW of Currently, both the IPPs and ITCs have to electricity due to declining available sign bilateral agreements with the national generation capacity. No electricity is utility if they wish to form part of the currently exported from Zimbabwe to any Zambian electricity supply industry. Zambia neighbouring countries (MBendi has however shown reforms towards a Information Services, 2016). liberalised electricity supply industry as it has allowed both and IPP and ITC to become Policies, legislation and members of SAPP (The national utility in regulations the country from which the IPP or ITC Policies related to electricity generation, originate has the greatest influence in transmission, distribution and supply are allowing the applicant to join SAPP). implemented in the Electricity Act and the Electricity Amendment Act which were 3.2.10 Zimbabwe published in 2002 and 2003 respectively by Status of the electricity supply the Zimbabwean government. Legislation system and regulations applicable to electricity related activities are published in the Energy Zimbabwe’s current available generation Regulatory Authority Act, 2011 (Chapter capacity is approximately 1 GW. The 13:23). electricity is primarily generated by five power stations. The Kariba hydropower The Energy Regulatory Authority Act station is the primary source (468 MW) empowers the Zimbabwe Energy Regulatory while the remainder is produced by four Authority (ZERA) with a mandate to thermal power stations: Hwange (416 MW), regulate the procurement, production, Munyati (26 MW), Bulawayo (19 MW) and transmission, distribution, supply, Harare (19 MW). The Kariba hydropower importation and exportation of energy station is currently not producing at full derived from any source. Licenses related to generation capacity due to water shortages the aforementioned activities are published in the Kariba Dam. The four thermal power and enforced by ZERA according to the stations were commissioned between 1946 stipulated regulatory instruments that are and 1958 (The Financial Gazette, 2016). The outlined in the Energy Regulatory Authority current age of the power stations result in Act. frequent breakdowns (as they are nearing end-of-life). This results in severely reduced Electricity industry stakeholders available generation capacity. The Zimbabwe Energy Regulatory The current electrification rate in Zimbabwe Authority (ZERA) governs electricity and all is approximately 40.5% of the population. other energy related activities in Zimbabwe. The large electricity shortage has resulted in The primary stakeholders in the Zimbabwe signing a firm contract with Zimbabwean electricity industry are Mozambique’s Hydro Cohora Bassa for Zimbabwe Electricity and Supply Authority 500 MW worth of imported electricity (ZESA), Zimbabwe Power Company (ZPC) capacity. In 2016, Zimbabwe signed an and Zimbabwe Electricity Transmission and agreement with the South African National Distribution Company (ZETDC).

ZESA, the Zimbabwean national utility, is a severely constrained in Zimbabwe. The vertically integrated government owned recent maintenance and repairs required at electricity utility that generates, transmits, the Kariba dam and the current drought in distributes and supplies the majority the Southern African region caused by the electricity within Zimbabwe. El Nino effect have worsened the situation. The lack of available generation capacity has The majority of electricity in Zimbabwe is forced the national utility to make use of produced by ZPC (the electricity generation diesel generation to mitigate the current subsidiary of ZESA) while a small portion electricity shortage (British Embassy Harare, of electricity is produced by four of 22 2016) (Counterfactual, 2016), which is registered IPPs in Zimbabwe (ESI AFRICA, considerably more expensive than the hydro 2015). All registered IPPs in Zimbabwe are and fossil fuel power plants. required to sell electricity to ZESA. To cover the costs associated with the diesel Electricity transmission and distribution is based electricity generation and maintenance managed solely by ZETDC (the electricity of the current generation fleet, the national transmission and distribution subsidiary of utility has opted to increase the tariff by ZESA). 49%. Multiple stakeholders in Zimbabwe expressed their concerns with the severe Inputs from stakeholders during increase in the tariff stating that it would consultations lead to further degeneration of both During the visit in Zimbabwe, Promethium economic and industrial growth in the Carbon met with four stakeholders: The region. The severe increase in the tariff has British Embassy Harare, Counterfactual, led to certain stakeholders considering the Confederation of Zimbabwe Industries construction and operation of their own (CZI) and the Zimbabwe Electricity Supply private generation facilities as further tariff Authority (ZESA). increases would lead to total collapse of operations (British Embassy Harare, 2016) Zimbabwe is currently crippled by daily load (Counterfactual, 2016) (Confederation of shedding as the national utility can only Zimbabwe Industries, 2016). produce approximately 50% of the total installed generation capacity. Half of Investors are not willing to invest in large Zimbabwe’s electricity is produced through scale electricity supply industry projects in hydro power while the other half is Zimbabwe due to Zimbabwe’s current produced by means of thermal power financial crisis. The low credit rating of stations and IPPs. (British Embassy Harare, Zimbabwe and lack of confidence in the 2016) (Counterfactual, 2016) (Confederation current government are the two largest of Zimbabwe Industries, 2016). concerns that deter investors. The bankability of the electricity supply The aging infrastructure of Zimbabwe’s industry’s expansion projects in Zimbabwe thermal generation fleet leads to increased are thus extremely low as no investors are maintenance and downtime. This further willing to take the risk of supplying off- reduces the available generation capacity of takers as an acceptable return on investment the national utility. Electricity production is cannot be guaranteed. (Confederation of

Zimbabwe Industries, 2016) (British The stakeholders which were consulted Embassy Harare, 2016) (Counterfactual, stated that incorporating IPPs into SAPP 2016). will stimulate electricity supply industry growth in the region. IPPs struggle in To regain investor confidence in Zimbabwe, Zimbabwe due to the average cost of the reliability of the Zimbabwean electricity generation for the national utility remains supply industry has to be improved. lower than the proposed tariffs of the IPPs Suggestions made by stakeholders included to sell to other off-takers or wheel electricity reducing theft of electricity (which is a major through the national utility’s network. The concern in Zimbabwe at the moment), electricity that is currently generated by IPPs improving the maintenance and repair and sold to the national utility, is pooled programmes for existing generation fleet, with the electricity that is generated through prioritise expansion of generation capacity, other generation sources. This levels off the and present cost reflective tariffs. A critical electricity cost making the tariff of the point made was that the transmission and national utility more attractive than that of distribution systems should be regulated and an IPP. All PPA’s are bilateral agreements at controlled by a state owned entity and that the moment. If SAPP could act as a counter this entity should allow third part access to party it would assist in creating different the grid to enable independent power mechanisms to finance the offtake of producers to access regional markets electricity from IPPs (Confederation of (Counterfactual, 2016) (Confederation of Zimbabwe Industries, 2016) (Zimbabwe Zimbabwe Industries, 2016). Electricity Supply Authority, 2016).

Neither the World Bank Group nor DFID The stakeholders also confirmed that SAPP are funding electricity generation projects would be the ideal place to house a regional from fossil fuel based technologies in electricity market that would aid in Southern Africa. DFID however, have an reforming the electricity supply industry in Africa Energy funding initiative for off-grid the Southern African Region. Members of energy projects in the Southern African the Zimbabwean industry would be region. DFID also mentioned that in the last interested in becoming traders within the 12 months, there has been a large shift to SAPP market (Confederation of Zimbabwe solar PV generated electricity in Zimbabwe. Industries, 2016) (Zimbabwe Electricity The “Eco Power Initiative” rents local Supply Authority, 2016). resident’s roof space to produce electricity (British Embassy Harare, 2016). Most of the electricity traded in SAPP markets are through bilateral trade Electricity can be wheeled in Zimbabwe but agreements. The Intraday and Day Ahead it makes use of a single buyer model. Market the two most active markets in Regulations do not restrict wheeling but due SAPP. A larger pool of surplus power would to the financial state of Zimbabwe investors open the market for increased volumes of are not willing to generate electricity for off- electricity being traded. This would enable takers other than the national utility better utilization and growth of the market. (Confederation of Zimbabwe Industries, The Zimbabwe Electricity Supply Authority 2016). stated that more projects related to

upgrading the power pool and regional transmission and distribution network to be infrastructure are required to encourage regulated by a state owned entity and in development in the Southern African future be opened up regionally. region. The SAPP market is constrained due to underdeveloped regional transmission The Zimbabwean national utility has a networks (Confederation of Zimbabwe monopoly on all electricity supply industry Industries, 2016) (Zimbabwe Electricity services. IPPs are encouraged in Zimbabwe Supply Authority, 2016). but currently they sell the electricity which they generate to the national utility for Regional planning was proposed whereby all projects to be economically viable. The projects in the region are pooled and then current cost of generation for new projects ranked accordingly without considering the combined with the additional wheeling physical location within the region. This charges of the national utility make selling would facilitate regional integration of the electricity to a dedicated off-taker other than Southern African region’s electricity supply the national utility non-viable. The rate of industry. The resources in the region should market liberalisation in Zimbabwe could be pooled which would allow a combination thus considered to be slow. The national of generation technologies that would utility does however believe that IPPs would facilitate offsetting emissions in the region stimulate both electricity supply industry and facilitate market growth and liquidity growth in Zimbabwe and in the Southern (Zimbabwe Electricity Supply Authority, African region if they are allowed to join 2016). SAPP. If SAPP could act as a counter party it would assist in creating different Summary mechanisms to finance the offtake of electricity from IPPs and act as a mechanism As with most of the other developing to increase the liquidity in the SAPP market. countries in the region, Zimbabwe is Members of the Zimbabwean industry struggling to increase growth in the indicated that they would be interested in electricity supply industry due to a lack of becoming traders in the SAPP market. funding and aging generation, transmission and distribution infrastructure. The current Most of the electricity traded in SAPP financial status of Zimbabwe paired with markets are through bilateral trade low investor confidence in the government agreements. The Intraday and Day Ahead and a low credit rating discourage any form Market the two most active markets in of investment within Zimbabwe. To SAPP. A larger pool of surplus power would improve investor confidence, the open the market for increased volumes of Zimbabwean stakeholders stated that the electricity being traded throughout the reliability in the electricity supply industry region. has to be improved.

The main concerns raised by the stakeholders relating to the reliability of the Zimbabwean electricity supply industry included cost reflective tariffs, reducing theft of electricity and allowing the

4 INTERNATIONAL DEVELOPMENTS IN ELECTRICITY MARKET LIBERALISATION

4.1 UK Market After unbundling, the electricity sector in England and Wales consisted of a Electricity market reform in the United transmission system operator, three Kingdom started when the state-owned generation companies and 12 regional Central Electricity Generating Board electricity companies. The CEGB was (CEGB) was unbundled with the passing of divided into four bodies: National Power, the 1989 Electricity Act. This allowed for PowerGen and Nuclear Electric and the the CEGB to be privatised. It also granted transmission system operator, National consumers above 1 MW open access to the Grid. grid. The Electricity Act also gave rise to the launch of the trading Pool.

Figure 15: Structure of the UK electricity industry before privatisation (Simmonds, 2002)

Figure 16: Structure of the UK electricity industry after privatisation (Simmonds, 2002)

The electricity prices in the Pool were lower central dispatch in the Pool to decentralised than expected, right from the initial bi-lateral trading through NETA. The only operation of the Pool. This was primarily as formal market in NETA is the balancing a consequence of the structure of initial market, which determines prices through an electricity supply contracts. Prices started to auction with discriminatory pricing rather increase between 2003 and 2004. than uniform auction prices used by the Pool. NETA’s discriminatory auction price The Pool was replaced by the New means that accepted bids will be paid at the Electricity Trading Arrangements (NETA) bid price. This is fundamentally different in 2001. NETA was a fundamental change from the pricing principles in most other of market design; the key feature for electricity trading arrangements, in which enhancing competition was to change the prices are determined by the price in the trading arrangements from the obligatory marginal bid.

Figure 17: Structure of electricity trading under NETA (Simmonds, 2002)

Various studies have been done to assess the country is very far from achieving the result impact of the British deregulation on the of fully open and free market economy. The electricity industry. One such study used process of privatisation in the UK electricity OECD grading system. The OECD grade industry (Soukaina & Amal, 2015) is shown use a band 0-6, where 6 means that the in the graph in Figure 18.

Figure 18: Development of deregulation in UK electricity industry (Soukaina & Amal, 2015)

The UK market has developed to include a are intended to provide long-term revenue financial electricity market. This market stabilisation to electricity generators, trades contracts for difference (CfDs). CfDs allowing investments to come forward at a

lower cost of capital and therefore at a lower At times of high market prices, these cost to consumers. payments reverse and the generator is required to pay back the difference between CfDs in the UK support new investments in the market price and the strike price thus all forms of low-carbon generation protecting consumers from overpayment. (renewables, nuclear power and Carbon Capture and Storage) and have been The CfD is implemented through a bilateral designed to provide efficient and cost- contract between the Generator and the effective revenue stabilisation for new Low Carbon Contracts Company (LCCC). generation, by reducing exposure to the volatile wholesale electricity price. CfDs CfDs will be available to a wide range of require Generators to sell energy into the low-carbon technologies supporting market as usual but, to reduce this exposure investment and encouraging competition as to electricity prices, CfDs provide a variable the UK makes the transition to a low- top-up from the market price to a pre- carbon generation mix. agreed 'strike price'.

Figure 19: Operating principle of CfDs (Low Carbon Contracts Company, 2015)

4.2 Norway The main elements of the Norwegian electricity market reform were, as Norway was one of the first countries to introduced by the 1990 Energy Act are as deregulate and liberalise its electricity sector. follows: The reform was done through the enactment of the Energy Act in 1990 (Bye • The design was built on the established & Hope, 2005). The main motivation for spot market model for trade in electricity market reform was an increasing interruptible power. It was structured as dissatisfaction with the performance of the a regular spot market incorporating sector in terms of economic efficiency in demand. The market was open resource utilisation, particularly with regard immediately to all potential buyers, to investment behaviour, which caused including households. The market was capacity to exceed demand considerably. initially organised as a separate legal entity within the transmission company Simultaneous market liberalisation initiatives Statnett; in other countries, such as New Zealand and • Common carriage principles requiring the UK, increased awareness of the need for access to the network system on a electricity reform. Developments in these transparent and non-discriminatory basis countries influenced the design and facilitated market-based trade; implementation of the Norwegian • The dominant, state-owned and legislation. vertically integrated company, Statkraft, was split vertically into two separate Prior to the start of the reform, Norway had legal entities: the generating company, about 70 power-producing companies and Statkraft SF, and the transmission 230 network owners. There was some company, Statnett SF. For the other vertical integration between power vertically integrated power companies, generation and the network, particularly at companies were separated into the regional and local levels, but many generating or trading divisions and power producers were not integrated. The network divisions for accounting largest of them, Statkraft, accounted for purposes, but were not split into approximately one-third of total generation. companies with separate legal identities; About 85 percent of the electricity system • The network companies were subject to was publicly owned by local, regional and natural monopoly regulations designed state-owned companies. The power to achieve economic efficiency in production capacity of the energy- network operations. The regulatory dimensioned hydro system in 1991 was regime was administered and enforced approximately 108 TWh in a normal year, of by the sector-specific regulator, the which the energy-intensive industries Norwegian Water Resources and Energy consumed approximately one-third. Annual Directorate (NVE), on the basis of rate- production could vary considerably from of-return regulation; and year to year because of the variable nature of • water inflow to the hydro system. The market liberalisation reform was implemented without changes in ownership, because the privatisation of

the power sector was politically • markets for trade in environmental unacceptable. This contrasted with the energy products (such as green- UK, where privatisation was certificate markets). implemented before market liberalisation. There, privatisation was Nord Pool is a non-mandatory power pool. considered a prerequisite for successful It started in 1993 as a power exchange for electricity market reform from an Norway. In 1996, the exchange area was economic efficiency perspective. widened to include Sweden. Finland followed in 1998, Western Denmark A complete market-based power system followed in 1999 and Eastern Denmark in should be equipped with markets for the 2000 (Nordic Energy Regulators, 2010). following basic requirements or functions (Bye & Hope, 2005): Nord Pool organises approximately 40 percent of the total trade in electricity in the • markets for trade in electricity; Nordic power market. The rest is organised • markets and instruments for risk on the basis of bilateral contracts. Nord hedging in accordance with risk Pool’s share in total trade on the organised preferences; spot market is a useful indicator of the • short-term markets for production liquidity of the market. The supply and capacity 11 and balancing supply and demand of the Nordic market after market demand; (d) markets for investment in liberalisation is shown in Figure 20. new capacity; and

Figure 20: Market coupling between the Nordic, German and Central Western European exchange (Nord Pool Spot)

The Nordic market after market liberalisation is structured as shown in Figure 21.

Figure 21: Structure of Nordic Market (Nord Pool, 2004)

When trading started on the Nord Pool • Elspot market (Nord Pool Spot): Day- market, only a physical day-ahead market ahead auction. Equilibrium between was present. A financial market with clearing supply and demand is established for services was introduced soon thereafter. delivery the following day; • Elbas market (Nord Pool Spot): Intraday Some years later Nord Pool’s clearing market with continuous trading up to services were also made available for OTC one hour before delivery. Approximately trade and bilateral trade in exchange-listed 34 hours; contracts. The Nord Pool product • Regulating market (Transmission System development has meant that exchange-listed Operators (TSOs)): Operated by the contracts now also include options, respective TSOs where final adjustments contracts-for-difference (CfD) regarding are made to achieve balance between price area differences, peak-load contracts supply and demand. Price set after and year contracts up to five years after the delivery by TSO, participant is price current year (Nordic Energy Regulators, taker; and 2010). • Financial market (Nasdaq OMX): Cash The markets operating in the Nord Pool at settled futures, forwards and options. the moment are (Stavseth, 2013): Clearing services.

Figure 22: Structure of Nord Pool related markets (Stavseth, 2013)

There are certain aspects of the Nordic natural gas markets. European power financial market that contribute to its markets were transformed in 1996 following efficiency: the European Union Electricity Directive. This directive was subsequently replaced by • The four Nordic countries function to a successive directives in 2003 and 2009 large degree as a common electricity further safeguarding principles of a level market, with a substantial combined power-generation playing field, non- consumption which is the third largest discriminatory transmission and distribution market within EU after Germany and charges and third-party network access France; rights. These directives enshrine the • About 70 % of the consumption in the principles of an internal energy market and Nordic countries is traded day ahead on customer choice (Germany Trade and Nord Pool Spot. This gives a solid base Invest, 2016). to the reference price; • The reference price is the system price, Germany’s domestic electricity market was which is the price that would be the fully liberalized in 1998 (Energy Industry price if there were no congestions within Act). Prior to liberalization, a defined supply the Nordic area; and area was typically served by a single supplier (e.g. local utility) operating in near- • No physical delivery is required. The monopolistic market conditions. settlement of the financial market is totally financial. The German energy market currently has four vertically integrated suppliers – 4.3 Germany Amprion (formerly RWE), EnBW Transportnetze, TenneT Transmission In the late 1990s, Europe adopted a number System Operator (formerly E.ON), and of directives created to open up EU 50Hertz Transmission (formerly Vattenfall member state domestic electricity and Europe). These 4 companies supply

approximately half of the market. A single- The creation of the Bundesnetztagentur price settlement scheme with quarter-hour ("Federal Network Agency") regulatory settlement periods is implemented in the office for electricity, gas, four control areas supplied by the four main telecommunications, post and railway suppliers, with the European Energy markets in 1998 further opened up the Exchange (EEX) acting as a common point power market, thanks to the introduction of of reference for domestic electricity prices. a raft of measures promoting competition including legal unbundling for suppliers with More than one thousand market participants more than 100 thousand customers. The are active in the fully liberalized German agency is responsible for ensuring non- electricity market, with new market actors – discriminatory third party access to power who do not own power plants or supplier networks and control fees charged by networks - successfully entering the Germany's transmission system operators. domestic electricity market.

Figure 23: German electricity market value chain

Figure 24: The German electricity market (PwC, 2015)

4.4 European market industries towards deregulated electricity markets. These markets are characterised by The European market reform started with a competitive wholesale generation, free entry directive in 1996, followed by refinement in of new plants, unbundled transmission and 2004. The directives forced EU member distribution systems, regulated non- states to move away from monopolistic, discriminatory tariffs, competitive final vertically integrated, electricity supply supply markets and regulated trade across international inter-connectors (Pollitt, 2007).

Table 3: European electricity market reform Historic 1996 Directive 2003 Directive position Generation Monopoly Authorisation Tendering Transmission Monopoly Regulated third party access Regulated third Negotiated third party access party access Single Buyer Distribution Monopoly Regulated third party access Regulated third Negotiated third party access party access Single Buyer Supply Monopoly Free Free

Historic 1996 Directive 2003 Directive position Customers No choice Choice for eligible customers All Non- (around one third of Household customers) customers in 2004 All customers in 2007 Unbundling of None Accounts Legal transmission and distribution Cross-Border Trade Monopoly Negotiated Regulated

Analysis of the European deregulation • Integration of both central and (Pollitt, 2007) identified three aspects of best distributed generation; practice in regulatory reform: • Integration of innovative technologies into existing grids; • Form of regulation. This relates to the • Harmonisation of equipment standards powers and responsibilities of the to allow “plug-and-play”; regulatory agency; • Increased funding for large research • The process of regulation. This relates incentives, including public and private to the way in which this agency carries sharing; out its activities; and • The impact of neighbouring electricity • The outcome of regulation, which systems on the European network; and relates to the measurement of success • Higher education and skills issues. for a regulatory agency. In each case they suggest metrics for best practice. One of the outcomes of electricity market deregulation is the privatisation of the The European Commission identified a industry. The level of privatisation in the number of issues to consider in electricity European Union is shown in Figure 25. market reform (European Commission, 2006):

• Improvements of security standards in the context of critical infrastructures;

Figure 25: Electricity privatisation timeline by country in Europe (Karan & Kazdagli, 2011)

4.5 Japan The Electric Utilities Industry Law was revised again in 1999. This extended market Electricity sector reform started in Japan in liberalization to cover extra-high-voltage April 1995 with the revised Electric Utilities customers (20 000 V or higher, with Industry Law (TEPCO, 2014). This law contracted power of at least 2 000 kW as a opened the way for Independent Power rule) from March 2000. This extension Producers to enter the power generation covered mainly large factories, office market. It made it possible for electric buildings and department stores. This power companies to procure electricity from change made it possible for Power other businesses in addition to other electric Producers and Suppliers (PPS) to supply utilities. Specified Electric Utilities electricity to eligible customers using the (businesses using their own generation, transmission networks of electric power transmission and distribution facilities to companies. In addition, retail wheeling supply electricity directly to customers in service rules were established for use of defined areas) also gained market access. electric power company transmission networks by a Power Producers and The electricity tariff system was revised at Suppliers, and restrictions on entry into the same time with the introduction of the other businesses were lifted. yardstick assessment method for tariff revision approval, optional contract It also became possible to lower rates to on provisions, fuel cost adjustment system, and regulated customers simply by making management efficiency review. notification, without the need for the approval process in effect up to that time;

and conditions for setting rate plan options (separate accounting, and prohibitions were relaxed. against information use for other than the intended purposes and of discriminatory The Electric Utilities Industry Law was treatment). revised again in 2003. When part of the changes went into effect in April 2004, retail The existing electricity sector is to be liberalization was expanded to high-voltage radically reviewed as a result of the Great customers contracted for 500 kW or more. East Japan Earthquake and the Fukushima Then when the law was fully effected in Daiichi Nuclear Power Station accident in April 2005, the retail market became March 2011. In April 2013, the Cabinet liberalized for all high voltage customers decided a “Policy on Electricity System (50 kW or above). Reform”, consisting of three main pillars:

As a result of these reforms, approximately • expanded operation of wide-area 60 percent of Japan's electricity market in electrical grids, sales volume became liberalized. At the • full liberalization of the retail market and same time, rules of conduct went into effect power generation, and for ensuring fairness and transparency in the • legal structural separation. transmission and distribution sector

Figure 26: Timeline for Japanese electricity market reform (TEPCO, 2014)

In 2015 Japan had 10 vertically integrated Electricity Power Companies (Yamazaki, 2015).

Figure 27: Japan's electricity market (Yamazaki, 2015)

Reform going forward is to be divided into o Establishment of a 1-hour-ahead- the following three phases, to be pursued market enabling transactions until with full reviews carried out at each stage immediately before supply; and necessary measures taken: • Phase 3 (in about 2018-2020): o Separate incorporation of power • Phase 1: transmission & distribution network o Establishment of the Organization divisions of power companies (legal for Cross-regional Coordination of structural separation); Transmission Operators; and o Abolition of retail rate regulation; o Establishment of an independent and regulatory organization; o Establishment of a real-time market • Phase 2: enabling power transmission & o Introduction of a license system for distribution network divisions to power generation, retail, and power procure power sources to adjust the transmission / distribution network power supply-demand balance. business; Under the Revision of the Electricity o Liberalization of participation in the retail market (continuation of Business Act for phase 1 in November 2013 existing retail rate regulation as a and for phase 2 in June 2014, respectively, transitional measure); phase 1 and 2 are to be moved toward implementation. The Organization for o Full liberalization of power generation; and Cross-regional Coordination of Transmission Operators, to be newly

established as one of the reforms in Phase 1, Liberalization of the retail market in Phase 2 will constantly monitor the state of national will enable all customers, including supply and demand and will have sweeping household sector to choose any electricity powers to instruct electric utilities to supply supplier, although electric power companies when the supply-demand balance is tight. It can only supply for household sector will also arrange a mechanism for wide-area currently. In the future, bills for revision to absorption of output variation in renewable the Electricity Business Act are to be energies. submitted to the Diet for Phase 3.

Figure 28: Continuing reform in Japan's electricity market (Yamazaki, 2015)

The design of Japan’s future electricity market is shown in Figure 29.

Figure 29: Future design of Japan's electricity market (Yamazaki, 2015)

4.6 Texas across a number of dimensions (Kleit & Kiesling, 2009): The Texas legislature started the deregulation of the electricity market in 1999 • Retail market entry. The Texas retail with the passing of Senate Bill 7 (Kleit & market has low entry barriers that have Kiesling, 2009). This bill started the provided opportunities for unusually restructuring to retail electricity markets. It large numbers of competitive providers. created a market restructuring process in As of 2008, there were over sixty active which the state’s investor-owned, vertically suppliers providing over 100 products in integrated utilities were split into separate the market; business units. Provision was made for a • Customer switching. Since Texas five-year transitional period that that ran provided no price protection to from 2002 to 2007. The first step in 2002 industrial customers at market opening, was the opening of the market. By 2007, full virtually the entire industrial-customer deregulation of retail electricity prices was in load switched almost immediately to place. competitive offers. In addition, a significant number of residential The Texas market has been successful based customers chose competitive providers, on many important objective indicators which serve over 50 percent of the

residential load, as of 2009. Over 80 diversify Texas’s power supply, with percent of residential customers were three large generation companies vying taking a competitive product offering, to build the first nuclear power plant in even if provided by an incumbent the United States in over twenty-five supplier; years, as well as the only nuclear power • Power generation. Power generation plants ever to be proposed anywhere in companies have built over 25 000 MW the world with private-risk capital and of new gas-fired generation, no ratepayer support; and representing an investment of over $25 • Renewable power generation. By 2009, billion, since 1995. As of 2009, the Texas led the United States in wind Electric Reliability Council of Texas has energy development, with close to a project queue of over 100 000 MW - 9 000 MW of existing renewable all built or to be built with private capital resources and a transmission and without any risk to Texas development program that could customers; support up to a total of 18 000 MW of • Fuel diversification. The market wind projects. apparently is providing incentives to

Start of market reform

Figure 30: Electricity supply in Texas (Kleit & Kiesling, 2009)

4.7 Chile period post-World War II. The reforms came in the form of the 1982 Electricity Act Chile has the first and longest standing against a backdrop of turmoil in the energy comprehensive electricity reform in the

sector (Pollitt, Electricity Reform in Chile Colbun as a generator which lead to a sharp Lessons for Developing Countries, 2004). decline in Endesa’s share in the Chilean electricity supply industry. The rise of The reform was inspired by aspects of the smaller generation companies lead to an energy systems in the UK, France and even greater decline in the market share for Belgium. The reform ideas included; Endesa as they became the favoured sources separating generation and distribution of generation as opposed to Endesa. companies, paying for electricity according to a cost based formula (cost reflective A number of regional power markets based tariff), introducing a dispatch system using on the concept of an Independent System marginal cost pricing and setting up a power Operator were established in 1986 after the trading system between generators to break-up of the incumbent integrated manage customer contracts. These ideas companies. There are two dominant lead to the partial vertical unbundling of the regional energy markets, one in the north of energy sector and the creation of a the country and one covering the southern wholesale power trading system. and central regions. Within these markets generators were mandated to declare Under the initial restructuring Endesa, a availability and plant marginal operating cost state-owned company with vast national each hour. This information would be used generation, transmission and distribution to set the spot price for energy. The assets, was split into 14 separate companies. regulated prices for generated electricity are These included six generation companies set for six months and are calculated from (one of which was still Endesa), six the expected spot price for the following distribution companies and two small four years using sophisticated software isolated generation companies. Other packages that take multiple factors into regional government owned electricity account when creating price forecasts. companies were also split into separate generation and distribution companies. The The tariffs set for distribution were privatisation was financed by public auction, unrelated to the actual costs of the stock exchange listing and sale of shares to distribution companies and thus gave them the public. Endesa still retained its position incentives to cut costs. This avoided the as the primary electricity generator during distortions with systems regulated on rate of the initial stages of the electricity market return as a distribution company’s revenue reform. was instead based on the costs of a model company. As the reform progressed throughout the years to come, the ownership privatisations The unbundling of the vertically integrated structures evolved in such a manner that electricity supply industry in Chile lead to a Endesa’s share in the market declined in new business structure for the transmission each passing year. The decline resulted from sector. Generators were required to pay the growth of a competing generation transmission companies a tariff per kWh company, Colbun, who gained increased delivered through their transmission public and private favour. The updated network infrastructure to the end user. For ownership privatisations structures favoured existing transmission access payment was

based on negotiated tariffs with compulsory was adopted in 1999 to force distributors to access rights where capacity was available. compensate customers for energy shortfalls New connections and related upgrades to through rationing and set an obligation for the existing transmission infrastructure were generators to meet reasonable expectations paid for by the generators. Generators were from distributors even without contracts. free to negotiate costs with transmission companies or to alternatively construct their In January 2004 the Short Law (Ley Corta) own transmission infrastructure for delivery was passed. It aimed to address the short of electricity to end users. comings in the system at that time, primarily the concerns around the lack of interest in Customers were classified into two distinct investing in new generation and types, ‘regulated’ and ‘free’. Customers with transmission due to the low node price and a maximum demand greater than 2 MW issues with agreements for new transmission were classed as ‘free’ and were allowed to lines. The accepted variability of node price directly negotiate contracts with generators (paid by captive consumers) from the for power supply. ‘Regulated’ customers market price was reduced from 10% to 5%. were those who dealt with the local This reduced the risk for generators. The distribution companies and could not threshold level to be classified as a ‘free’ negotiate contracts directly with generators. consumer was reduced from a 2 MW to They paid the regulated price of distribution 500 kW maximum demand. This moved plus a node price of energy. most non-residential consumers out of the captive market and increased competition The updated regulatory framework for the for directly connected grid consumers. electricity supply industry included the creation of entities such as; The National Chile has seen some marked improvements Energy Commission, the Economic in the functioning and performance of the Dispatching Centre and a Superintendent of energy sector since 1982 (Kessides, 2012). Prices of Electricity and Fuels. The National Over the period of 1982- 2004 the installed Energy Commission advises the Minister of capacity had been increasing by 10.2% p.a. Economy on electricity policy and sets the and 4.1% p.a. in the northern region and regulated distribution charges. The south central region respectively. This Economic Dispatching Centre coordinated equated to an increase of the combined the purchases, transmissions and installed capacity from 3 141 MW to distributions within each market. The 10 625 MW. Superintendent of Prices of Electricity and Fuels collects data required for enforcement In the same period the length of and regulation, handles customer complaints transmission lines grew at a rate of 14.9% in and manages service quality fines and the northern region and 3.7% in the south customer compensations. central region. Consequently the percentage of electrified household has increased from With the aim of adjusting to development in 38% to 86% in rural areas and 95% to 98% the energy sector there have been efforts to in urban areas. amend the 1982 Electricity Act. In response to droughts and electricity rationing a law

Furthermore, over the ten year period prior Southern African region is Malawi. to 2002 the average electricity prices have Currently the Malawi government is taking decreased by nearly 30% in real terms, certain steps in an aim to liberalise its which is superior to the price changes in; electricity market to a certain extent. water, gas and telecommunications. The Malawi Energy Policy of 2003 speaks of The low electricity price and high liberalisation of the national energy market. investment rates in the electricity supply Malawi believes that liberalisation would industry have been complemented by the enhance competition within the electricity strong financial performance of the market. This would ultimately enhance companies involved. While financial power access and promote economic performance was decent before privatisation growth in the country. it improved substantially afterwards. The way in which the Malawi electricity The combination of the reduction in market is first going about moving towards electricity prices and rising rates of return liberalisation is through unbundling of the reflect great improvements in efficiency. national utility. The purpose of the Some companies saw labour productivity unbundling is to remove conflicts of interest improve between 6 to 14 fold over a 12 to and separate the market into different areas 16 year period. Particularly rapid of competition. This is to ensure that one improvements occurred where domestically part of the value chain cannot subsidise controlled companies were taken over by another part, creating an unfair advantage. It foreign investors. This was coupled with the is hoped that such unbundling and in effect electricity supply industry’s total employee the removal of subsidies would open the numbers reducing from 8 264 to 5 706 way for independent power producers to between 1999 and 2002. compete with existing power plants.

Finally the quality of supply has sufficiently To date Malawi’s electricity sector has been improved in the Chilean electricity supply dominated by the Electricity Supply industry since 1982. Losses due to resistance Corporation of Malawi (ESCOM). ESCOM (technical) and theft (non-technical) is a vertically integrated government utility decreased significantly. This was derived which owns and operates all of the from the fact that across the country generation plants and the transmission and technical energy losses in the distribution distribution infrastructure in the country. In system were 10.2% in 1982 and 6.2% in addition, ESCOM has the responsibility for 2002. electricity trading. Due to subsidies received from government, the tariffs charged by 4.8 Malawi ESCOM for electricity have not been cost reflective. This has prevented independent A liberalised electricity market may be power producers from entering the defined as an electricity market where the Malawian electricity market. competitive environment determines the price of electricity. A case study for the With the objective to move towards a liberalisation of an electricity market in the liberalised market, the Malawi government

has decided to take various steps towards cost reflective tariff amounts to reforming the electricity market. One of the approximately $0.12/kWh17. The current reforms is to unbundle ESCOM into two tariff is to increase by 37% in order to separate entities, with the purpose of obtain a tariff which is cost reflective. The increasing transparency in the government Malawi government aims to increase the body. The split would result in the creation tariff over a four year period, starting in of new company which deals solely with the 2016. generation component of the current ESCOM. The remaining company would It is important to note that the country’s deal with the transmission and distribution. 2016 maximum generation capacity is In addition the transmission and distribution 351 MW. This is in contrast to the current, 18 company will assume a single buyer position 2016, maximum demand of 450 MW . The and function as a system and market unbundling and introduction of cost operator. The single buyer model will be reflective tariffs is aimed at stimulating adopted by Malawi, where any independent competition and private investment within power producer generating electricity will electricity generation. Once the tariff meets sell the electricity to the transmission and a reflection of costs, other independent distribution company. power producers will more likely be able to compete against the generation arm of Another reform within the Malawi electricity ESCOM. This would provide alternative market in an aim to ensure further energy generation opportunities and assist in liberalisation, is to introduce cost reflective the country meeting its demand electricity tariffs. The introduction of cost requirements. In addition this would reflective tariffs will increase viability for improve the county’s energy mix which is other energy generators to enter the currently dominated by hydropower. The electricity market and compete against the introduction of independent power ESCOM generation monopoly. The Malawi producers is very important as Malawi has Energy Regulatory Authority, who is in no interconnections to neighbouring charge of regulating the electricity market, countries, and no interconnectors planned has begun implementing measures to obtain a cost reflective tariff. The Malawi cost reflective tariff is to be made up of two 17 The cost of the current electricity tariff was provided during stakeholder meetings held in components, a base tariff and an automatic Malawi, with the Malawi Energy Regulatory tariff adjustment. In 2014 the concept of the Authority (MERA). The meeting was held on base tariff was approved and came into Monday 1st February in Lilongwe, with three effect. In January 2016 the regulator members of MERA: Welton Saiwa, Dennis implemented the automatic tariff adjustment Mwangonde and Mathews Kandodo. 18 which acts to restate the base tariff value in The current maximum capacity and maximum demand figures were provided during stakeholder order to ensure it remains cost reflective meetings held in Malawi, with the Malawi Energy when fluctuations occur such as inflation Regulatory Authority (MERA). The meeting was and exchange rate variations. Currently the held on Monday 1st February in Lilongwe, with three members of MERA: Welton Saiwa, Dennis Mwangonde and Mathews Kandodo.

for the near future. Malawi is thus not able to rely on neighbouring countries to meet its electricity demand, but can only rely on generation capacities within the country.

The liberalisation of the Malawi electricity market is a work in progress. Currently there is movement towards achieving the unbundling of ESCOM and the introduction of cost reflective tariffs, however the success of these steps will only be understood in the near future. It is difficult to devise any conclusions from the study and determine whether these steps are successful in opening the market to other generation players. However it is key that the developments within the Malawi electricity sector remain under surveillance to determine the success of its liberalisation approach.

5 MARKET TRANSFORMATION

Competition is the key driver of innovation that rather than an event: it requires on-going government benefits consumers. It is clear that competition is commitment to resolve challenges when vested delivering for consumers in those parts of the interests and cross-subsidies are unwound” electricity sector that are competitive. (Simon (International Energy Agency, 2005). Bridges, Speech to the Electricity Networks Association Annual Conference, New The biggest benefit from liberalisation lies in Zealand, 6 October 2015) increased levels of competition in the market. Increased competition leads to more 5.1 Global context competitive pricing. This in turn leads to better matching of supply and demand. In Electricity market reform, as a tool to the electricity industry the results of stimulate decarbonisation and growth, is a liberalisation was also the diversification of global phenomenon. The UK and Europe generation technologies. are reforming its electricity markets to improve the amount of renewable energy on Market liberalisation has been ongoing for the grid. This has not yet happened in almost 20 years now. A number of lessons southern Africa. can be learnt from the experiences of countries that did liberalise their electricity The market for electricity is a natural markets (Pollitt, 2009): monopoly due to the high capital costs required for generation plant, transmission • The number of firms participating in the and distribution networks. This has caused markets has increased and the market the global electricity industry to develop share of participating firms has around business models that saw large decreased. This has led to competitive central generation plant in government markets; control. Many countries have however • The removal of barriers to entry is realised since the 1990’s that liberalisation of important as it can significantly impact the electricity markets can yield significant on the number of firms entering the benefits and have implemented such market; reforms. • The market size increased after market liberalisation; and The International Energy Agency reported • Countries with liberalised markets have in 2005 that “Electricity market liberalisation has harmonised their rules and regulations. delivered considerable economic benefits. Under pressure from competition, assets in the electricity sector are used more efficiently, thereby bringing real, long-term benefits to consumers. Liberalisation to introduce competition is, however, a long process

It is important that market liberalisation Electricity market liberalisation has addresses the whole electricity market value delivered considerable economic chain. Important issues in this respect are benefits. Under pressure from energy security, adequacy of supply and competition, assets in the electricity sector are used more efficiently, thereby system security. bringing real, long-term benefits to consumers. Liberalisation to introduce competition is, however, a long process rather than an event: it requires on-going government commitment to resolve challenges when vested interests and cross-subsidies are unwound (International Energy Agency, 2005).

Figure 31: The value chain for reliable energy supply (International Energy Agency, 2005)

Many countries have adopted a standard • Separation of network maintenance model for electricity liberalisation. This is from generation; called the "British model" (Thomas, 2005) • Separation of direct supply from the and consists of six reforms: generation of electricity; • Creation of an incentive structure to set • Creation of a competitive market for market prices in monopolistic electricity; competition; and • Breakup of monopolized supply such • Privatization of formerly state-owned that each consumer can select his assets. provider;

Regions like Chile and Texas have adopted protection. The role of regulation has the models similar to the British model been to address problems of major and (Joskow, 2006). This has led to greater unavoidable monopoly power. One such demand price-response, allowing for the example is the access to and pricing of more efficient use of electricity and monopoly network services. The focus increasing the response of consumers to in this area of regulation has been to prices so fewer costs are afforded to them. regulate networks so as to facilitate The greater interconnectedness of networks competition; in these models has allowed for markets to • Private Ownership. Private ownership be more able to respond to peak energy has been a key focus of the regulation demand and thereby increase the security of model since the 1980’s; and energy networks. • Strong Legal Processes and Well- defined Appeal Rights. Strong legal The key characteristics of the British model processes and appeal rights have been a are (Stern, 2014): central feature of the British model. The regulatory system makes provision for • Independence. The independence adequate appeal mechanisms. covers two important aspects, o Independence from government; Governments of countries in which market and, liberalisation took place have also been able o Independence from regulated to reduce the greenhouse gas emissions of companies; fossil-fuel power stations. This was achieved • Forward-looking Incentive by securing greater environmental Regulation. This model focusses protection concurrently to the market strongly on price regulation through the reform process. The increased price- periodic resetting of regulated prices in response of liberated markets provides for the context of expectations of efficiency more efficient companies. This is based on gains and investment requirements. The increasing the visibility of price signals from electricity price cap period has been in the market. the order of 5 years. More recently, periods have been extended to 8 years; An analysis of electricity market reform in • Focus on Consumers and their economies in transition (Pollitt, 2007) Welfare. The regulatory environment in concluded that: this model has a strong focus on consumers and the prices. The quality of • Political and judicial institutions and service and security of supply is also energy resource endowments matter for important; progress with reform; • An Emphasis on Competition. • Privatisation improves efficiency if Competition has been seen by the UK accompanied by independent regulation, as the best means of maximising the o Competition improves efficiency in welfare of consumers of utility industry generation; and services since the 1980’s. The view is o Independent regulation alone is not that regulation is a poor substitute for significant for efficiency regulation when it comes to consumer improvements;

• Impacts on prices: The IBL Liberalization Index (Istituto Bruno Leoni, 2014)for the electricity sector o Privatisation has no significant effect on prices; evaluates the degree of liberalization and competition characterizing electricity market o Competition has a mixed effect on prices; and segments such as generation, transmission, distribution, and supply. According to the o Regulation has no significant effect on prices. 2014 Index of Liberalizations, the EU15 • Private investment is stimulated by the member state with the most liberalized strength of property rights protection electricity market is the UK (that under the and the presence of independent 2014 Index methodology scores 100%), regulation; and followed by Portugal (99%) and Spain • Vertical integration reduces the amount (97%). The least liberalized country is and value of privatisation. France (48%), followed by Luxembourg (58%) and Denmark (59%).

Figure 32: Index of electricity market liberalisation in 2014 (Istituto Bruno Leoni, 2014)

Research by the OECD on the impacts of • Liberalisation of electricity markets has electricity market reform came to the delivered significant benefits based on following conclusions (Nguyen, 2008): the experience of OECD countries;

• Effective competition requires high demand flexibility and controlled independent system operation and price volatility, flexible and predictable transparency; tariffs; liquid markets for trading of • Cost reflective prices is the corner stone energy and grid services; for efficient market response; • Interoperability of regional electricity • Competitive markets need an improved networks: supporting the framework to empower consumers for implementation of the internal market; demand participation; efficient management of cross border • Institutional arrangements are required and transit network congestion; for market monitoring and coordinated improving the long-distance transport planning; and and integration of renewable energy sources; strengthening security of supply • There is no “one-size-fits-all” market through enhanced transfer capabilities; model. • Distributed generation and Electricity market reform must be done in renewable energy sources: local response to needs – it cannot happen for its energy management, losses and own sake or in a vacuum. There are a emissions reduction, integration within number of ways in which these needs can be power networks; articulated. Some of these are (European • Central generation: renewal of the Commission, 2006): existing power-plants, development of efficiency improvements, increased • Security of supply: limited primary flexibility towards the system services, resources of traditional energy sources, integration with renewable energy flexible storage; need for higher sources and distributed generation; reliability and quality; increase network • Environmental issues: reaching and generation capacity; internationally agreed emission • Electricity networks renewal and reduction targets; evaluate their impact innovation: pursuing efficient asset on the electricity transits; reduce losses; management, increasing the degree of increasing social responsibility and automation for better quality of service; sustainability; optimising visual impact using system wide remote control; and land-use; reduce permission times applying efficient investments to solve for new infrastructure; infrastructure ageing; • Demand response and demand side • User-centric approach: This can be management: developing strategies for driven by increased interest in electricity local demand modulation and load market opportunities, value added control by electronic metering and services, flexible demand for energy, automatic meter management systems; lower prices, microgeneration and opportunities; • Politics and regulatory aspects: • Liberalised markets: responding to the continuing development and requirements and opportunities of harmonisation of policies and regulatory liberalisation by developing and enabling frameworks. both new products and new services;

5.2 Role of national electricity (transmission) and the distributor will price the distribution of electricity to the utilities in end use. Additional services may be priced transformation for the retail of electricity, where wholesalers will buy from distributors and sell to end The centralised model of electricity consumers. Prices are determined by market generation is oriented around concentrated forces at each part of the value chain rather sources of energy which are developed than a price regulator. The market also through large power stations located at allows transparent price signals to be sent to sources of energy and rely on transmission all parties being active in the market which lines to transport generated electricity to results in increased competition in the points of demand. A centralised national market. The transmission and distribution utility is often a single government owned grids, however, are natural monopolies and entity charged with generating, transporting require regulation to ensure fair pricing. or distributing electricity (typically national government for generation and Allowing private entities to generate transmissions and local government for electricity alongside the national utility distribution). In several of the SADC provides for more capital to be invested in countries all services are conducted entirely the sector and government funds to be by the national utility. The national utility spent on other social goods. The came to be as cheap electricity was competitive nature of the market leads to recognised as an essential input into the average price of electricity being driven economic development. Parts of the down in the region. A market operator electricity supply system are natural would only regulate the market to ensure monopolies such as transmission networks collusion and price fixing does not occur. and are typically funded by government. With large infrastructure project such as An example of an electricity market that has hydropower stations, nuclear and large coal liberalised is the Nord Pool Spot market. It power stations it is only governments who is the largest electricity trading market in the have sufficient resources to finance them. Europe. Countries trading in the Noord Pool Spot include Norway, Denmark, 5.3 Liberalised Sweden, Finland, Estonia, Latvia, Lithuania, Germany and the UK. The Nord Pool Spot markets was the world’s first multinational exchange for trading electric power. A liberalised electricity market may be defined as an electricity market where the For various reasons including raising of competitive environment determines the capital, introduction of competition, price of electricity. The individual reducing cross subsidisation across independent components of the electricity electricity systems and general economic supply system have clearly defined reform governments have embarked on boundaries for the services they provide and liberalisation or deregulation of their are price according to these services. The electricity systems. This would usually IPP will price the electricity they sell to the involve in the national utilities being grid, the grid will price the transport of

unbundled through legislation so that but the national utility who provides access certain services such as generation or to the grid also has a vested interest in the distribution, which form part of the profitability of its generation plants. electricity supply chain, are sold to independent companies. The purpose of the 5.4 Future Markets unbundling is to remove conflicts of interest and separate the market into different areas The global landscape for electricity markets of competition so that one part of the value is changing at a rapid rate. The change is chain cannot subsidise another part creating driven by technological innovation, cost an unfair advantage. This is particularly the reductions, changing energy business case when market liberalisation opens the models and market perceptions. The way for independent power producers who demands for future electricity system are need to compete with existing power plants shown in Figure 33.

Figure 33: Demand for future electricity systems (European Commission, 2006)

The changes in the electricity markets are distributed generation (DG) to systems with driven by a move away from highly significant levels of embedded and centralised systems with little to no distributed generation.

Figure 34: Development of electricity industry (European Commission, 2006)

Market liberalisation under current their energy demand (and supply) based conditions will be constrained by the grid on instantaneous grid and market and the system operator’s ability to handle conditions. large numbers of generators, many of which may be intermitted suppliers. (EurActiv, The grid of the future will be further 2008). These constraints will however impacted by nascent technologies that will change over time as global electricity further enhance the ability of power markets are going through rapid consumers to manage their demand: transformation that is un-connected to • market regulation and liberalisation. This Energy storage will enable both transformation is driven by technological generators and consumers to match advances including: their grid behaviour with instantaneous grid and market conditions; and • Rapidly declining costs of distributed • The Internet of Things (IoT) will renewable energy generation. This is provide intelligent devices that can enabling many homes, offices and manage its energy demand based on factories to install power generating instantaneous grid and market systems such as solar PV system; and conditions. This will have a dramatic • Development of smart grid technology. impact on demand flexibility. This allows users to accurately manage

Figure 35: Future grids (European Commission, 2006)

One of the strongest requirements for the change. The historical situation with respect reform of the global electricity market lies in to energy planning is shown in Figure 36 the need to decarbonise the electricity sector (CERES, 2010). In this scenario planning is over the next 3 decades. This means that the driven by growth and the minimisation of fundamental drivers of the system have to costs.

Figure 36: Traditional electricity planning approach

The requirements for the current scenarios o Portfolio choices are complicated by are significantly different from the historic balance sheet impacts of stringent situation. In the current situation the renewable energy mandates and following needs to be considered: pending GHG disclosure requirements; • Market Drivers and Constraints impact o Carbon costs could impair coal on: generation assets impacting balance o How carbon costs are recovered, sheet or trigger adjustment clauses in and the resultant financial impact, power purchase agreements, can impact portfolio choices; impacting costs; and Resources availability, grid o o Portfolio choices can be complicated integration and transmission issues by electricity rate impacts associated for renewables can have varying with balancing lower carbon financial impacts, influencing compliance costs with the high portfolio choices; and installation costs of renewables; o Time lags between load growth and • All of the above in turn impact on: renewable mandates could result in o Generation Level and Fuel Mix of over capacity, impacting finances; Portfolio. • Regulatory Requirements impacts on:

Figure 37: Driver of future market decisions

Another view on the future structure of the • Municipal and industrial owned and electricity industry involves the development financed generation, where long term of new types of businesses (Nelson, 2014). low carbon energy supplies are These could include: purchased directly from developers. For companies, this provides long-term • YieldCos: New infrastructure style energy price certainty, while for companies or funds will become the municipalities it can leverage lower cost owners of non-dispatchable, larger-scale financing to provide energy to meet its low carbon generation such as wind and own needs and supply those of its nuclear. These assets will be owned by residents; institutions and other investors seeking • Crowdsourced energy investment steady, predictable, bond-like returns. where consumers can buy shares of YieldCo vehicles have already begun to generating units or companies and emerge in 2013, with NRG’s spin off of receive payments as a share of energy a YieldCo and UK’s Greencoat Wind rather than financial return. This idea is fund’s initial public offering; in early stages as significant legal and regulatory obstacles remain, but the

longer term benefit for consumers to dominated by intermittent renewable purchase fixed price, long term energy energy. They will focus on providing supplies (and potentially bundle the balancing services using flexible fossil- supply with a property) could make the fuel and hydroelectric generation and system attractive; and storage systems. The majority of their • Balancing generation companies profits will be derived from their (Balancing GenCos) will play an flexibility rather than the units of increasingly important role in a future electricity provided.

Figure 38: Possible future electricity industry structure (Nelson, 2014)

The UK roadmap for the electricity industry consumer, following the successful roll-out of the future consists of three phases of smart meters across Great Britain. The (Ofgem, 2014). The first phase is focused on third phase will see the country achieve its capturing the short-term benefits of vision objectives, where a smart grid enables deploying smart technologies and solutions, it to develop a fully integrated smart energy whilst also preparing for the accelerated system and a platform for the further deployment of distributed generation and development of technologies to support the increasing electrification of heating and increasing electrification of the heating and transport projected to take place in the transport sector as well as smarter homes 2020s. The second phase of smart grid and businesses. deployment sees a much greater role for the

Figure 39: UK roadmap to future electricity industry structure (Ofgem, 2014)

5.5 Pathways to for electricity market deregulation in Southern Africa; Electricity Market • Liberalised markets moved from Transformation in regulated prices for electricity to using Southern Africa the market to set the prices. In the UK the deregulation was followed by a This section analyses potential pathways to period in which a price ceiling was set market liberalisation in Southern Africa. The by the regulator; after this the price for main areas of focus in this research are: certain customers was totally unregulated. The question in this • Market liberalisation in many countries research is if a market can have areas focussed on the creation of a where customers buy from a regulated competitive market through the price concurrently with a system where privatisation of state assets. The customers buy at an unregulated price; question is if this is a necessary step for and electricity market deregulation in • Countries in Southern Africa seem to Southern Africa; prefer the single buyer model. In areas • Market liberalisation focussed on the like the UK and Europe the first phase separation of generation from of liberalisation consisted of a system transmission and distribution. This was where a single buyer was present. deemed necessary as is it seen as Generators had to compete with each uncompetitive if companies have to other to supply power to this single procure services from their competitors. buyer. As market liberalisation The question is if this is a necessary step progressed, the single buyer model was

changed to allow direct competition electricity. The risk either reverts to the state between off takers as well. The question or the tariff payer if the regulator allows for is if one can have a competitive market tariff increases. running concurrently with a single buyer model. This research concludes that privatisation of existing infrastructure is not a required step 5.5.1 Privatisation in the market liberalisation of the Southern African region as sufficient diversity of The privatisation of the state assets was supply can be created by simply allowing deemed to be necessary in many of the areas new entrants to bring generation capacity to where electricity market liberalisation the market. The concurrent benefits of such occurred over the last 20 years. The a step would be to alleviate the supply motivation for this step lied in that it was shortage that currently exists in the market. seen as a prerequisite to the creation of a The necessary frameworks will need to be in competitive environment. It must, however, place to ensure the private funders are able be kept in mind that there was an to gain an adequate return on their oversupply of generation capacity in many investments. This depends on the sovereign of these countries. The only way to create credit ratings and the certainty of being able competition between generators was to collect revenues. therefore to sell off existing generation capacity. 5.5.2 Unbundling

The countries in Southern Africa do not Unbundling of transmission and generation have excess generation capacity. The was a prerequisite in many of the areas opposite is true in that there is a severe considered in this reserach. This is shortage of supply. Competition can be motivated by the idea that a fair market created in such an environment by simply would not require a company to purchase allowing new entrants to compete with new services from a competitor. If a company is capacity in a competitive market place. forced to do so, it may lead to unfair business practices as the owner of the Another justification for market reform is services that need to be shared could unduly allowing the private sector to supply capital benefit himself to the disadvantage of the for the construction of new generation competitor. capacity. In many of the regions this formed part of the longer term planning scenarios. Unbundling of electricity generation and In the Southern Africa region the supply of transmission can happen at two levels: capital is an immediate need. The experience accounting unbundling and legal with the REI4P in South Africa has shown unbundling. When the generation and that significant levels of capital can be transmission is unbundled on an accounting available in the market if a scheme is level, it allows for separate cost structures structured in a way that is acceptable to according to which grid access costs and private sector funders. Risks to private usage charges can be managed. Legal funders were mitigated by providing state unbundling speaks to the separation of guarantees that the single buyer will buy the ownership of the generation and

transmission assets into separate legal 5.5.4 Single Buyer Model entities. The European Union unbundled the electricity system on an accounting basis Many countries in the Southern Africa in 1996 and on an ownership level in 2003. region have a single buyer model whereby all generated electricity is first sold to a This research finds that, as long as third national utility before being distributed. This party access to the grid can be guaranteed is similar to the UK where the first phase of and a mechanism for fair pricing of grid market liberalisation established the “Pool”. access can be established, full legal All generators had to sell power to the Pool. unbundling should not be a prerequisite for The Pool then sold the electricity on to the electricity market reform. end users.

An example where accounting unbundling The question in this regard is if it is possible in Southern Africa can be seen is with the to operate a totally liberated market where structuring of Eskom in South Africa. generators sell directly to loads in parallel Transmissions, distribution and generation with a market where generators sell to a are separate divisions in the company. The single buyer or if the consumers can directly Eskom tariffs are structured in a way that access the power pool. This research shows gives clear visibility of the cost of energy as that that such an arrangement is possible. opposed to the network access charges. One example is the Japanese market where the first phase of market liberalisation 5.5.3 Price regulation allowed large consumers to buy power directly from generators and wheel the The transition of regulated electricity pricing power through the grid. The CEC within to free market pricing differed in many of the SAPP membership also provides an the areas covered by this research. In some example of an independent transmission countries, like the UK, the first step to free company which can buy from the pool and market pricing was to set a price ceiling. transmit to large consumers. Other countries, like Japan, allowed only large consumer to buy at market prices in The study concludes that it is possible to the first rounds. The logical conclusion of allow certain sections of the market to trade the deregulation process is to remove all directly between generators and loads forms of price regulation when the process through the wheeling of electricity through is complete. the grid, while other parts of the market sells electricity to a “single buyer”. The essential The pathway to follow to unregulated prices element, which in many cases is already in is a major decision in any market place, is to balance the network through the liberalisation strategy. It is clear from the appropriate flow of information to the cases considered in this research that a system operator. transition period in which both liberated and regulated prices exist in the same space is possible.

6 CASE STUDIES OF TRANSFORMATION INSTRUMENTS

6.1 Bio2Watt this project is that it created 10 jobs per MW of generation capacity. Bio2Watt was established in 2007 by Sean Thomas. The company develops, owns and Under normal circumstances, an off-taker operates waste-to-energy projects in Africa. would purchase electricity at the cheapest Bio2Watt is the first commercially viable possible rate. As the national utility has a renewable energy IPP in South Africa that large pool of generation facilities with very makes use of embedded generation to high generation capacity and sunk costs for supply its off-taker with electricity. The older generation plants, the average cost per Bronkhorstspruit Biogas Plant (BBP) started unit of electricity is low compared with the producing electricity on 10 October 2015, 7 marginal cost of new generation capacity. years after project inception. The off-taker This makes it difficult for IPPs to penetrate of the electricity is BMW. The electricity is the market as their cost per unit of distributed from the generation facility that electricity produced is almost always more is situated at the Beefcor Farm, in the expensive than that of the national average Bronkhorstspruit municipal region, to the cost. Market penetration is further limited BMW plant situated in Rosslyn, Pretoria. by wheeling charges which are added to the proposed tariff of the IPP. Off-takers would The biogas plant project has a maximum prefer to purchase electricity from the installed capacity of 4.4 MW with an national utility. additional 3 MW of energy available in the form of heat if the need for it arises. In the Bio2Watt case however, BMW has a Organic waste from food producers that renewable energy policy in which they would conventionally be sent to landfill commit to using electricity generated from sites, is collected and used as feedstock renewable sources where possible. BMW along with cattle manure to produce biogas was thus willing to pay a premium for the by means of anaerobic digestion. Electricity electricity generated by the Bio2Watt BBP is then generated by means of engines that project. BMW signed a power purchase combust the methane rich biogas. The agreement (PPA) with Bio2Watt as the generation of electricity from biogas in this primary off-taker of the electricity generated project has the added benefit of reducing by the BBP project. The BBP project is the emissions from organic waste and stopping first commercially viable biogas project in the leakage of toxins into the surrounding South Africa (Bio2Watt, 2016) natural water system. The project is a The success of the first commercially viable sustainable solution for waste treatment as it biogas project in South Africa however was treats approximately 90 000 metric tonnes not without challenges. The major barriers per annum. One of the greatest benefit of to making this project a success were

funding, licensing, gaining buy-in from the Water Use Licence Agreement (WULA), landowners from which the organic waste Waste Licence, Air Emissions Licence and was produced, negotiating the PPA with Subdivision of Agricultural Land Act BMW, negotiating the wheeling agreements (SALA) lease. The Tshwane Municipality with Eskom and Tshwane Municipality and had to issue a building plan approval and lengthy waiting periods associated with consent of use for the project. A letter from issuance of required licences, PPA and the Department of Energy (DoE) was wheeling agreements. required to gain a generation licence from NERSA and access to the grid had to be The project funding barrier resulted from granted by Eskom. high project development costs, finding investors willing to take the high risk, not The wheeling agreement with Tshwane being able to use off-the-shelf technology, Municipality was the major barrier to getting fluctuations in currency, the current cost of the PPA signed with BMW. This was due to electricity, the intricacies of project finance the complexities associated with the requirements and low return on investment wheeling agreement and negotiations of the project. The funding barrier was regarding the tariff, revenue management overcome by finding investors who were system and billing system. patient and willing to invest even though the return on investment would take a lengthy The Bio2Watt BBP project has highlighted period of time. The project was funded that IPPs who wish to produce and sell through capital from Bio2Watt, a grant fund electricity to an off-taker other than Eskom from the Department of Trade and Industry will face many barriers in terms of funding, and a loan from the Industrial Development licencing and agreements with Eskom and Corporation. local municipalities. Bio2Watt has however proved that IPPs can penetrate the One of the greatest if not the largest barrier electricity supply industry in South Africa was with respect to gaining all the required with the aid of patient investors, willing off- licenses, permits and agreements signed. It takers of renewable electricity and patience took approximately 6 years to get all the with respect to licenses, agreements with required licences and agreements signed. Eskom and permits from municipalities. The project required a pre-feasibility study (1 year), environmental impact assessment Recommendations that could assist IPPs in (approximately 2 years), a supply agreement penetrating the electricity supply industry and PPA with BMW (just over 2 years), with a bit more ease include the following: connection agreement with Eskom and a In terms of licencing, the EIA process needs wheeling agreement with the Tshwane to be shortened. All licenses required should Municipality (approximately 2.5 years) and have clear time frames in which they need to gain approval for all the required licenses be processed. Currently no time frame exists and permits that are listed below for the processing of licensing applications. (approximately 4 years). The duration of the processing of the Licenses required included an application is dependent on the official who Environmental Impact Assessment (EIA), evaluates it.

Municipalities require clear directives for in 22 countries in Africa and the Middle waste management and a protocol for East (MTN, 2015). wheeling of electricity. As these items are not yet in place, the process is slowed Over the last seven years, MTN South considerably due to municipal officials not Africa has embarked on a programme to having any protocols that outline the exact develop and commission alternative, clean procedure that needs to be followed. energy facilities to power the company’s operations in South Africa. Included in this Lastly the DoE, NERSA and Eskom should programme are a 2 MW trigeneration outline a strong policy framework that is facility, various small solar and wind plants, clear, fair and robust. The application to and a larger concentrated solar cooling plant gain access to the grid also needs to be (330 kW) which is the first-of-its-kind on simplified and streamlined as it currently the continent (HTXT AFRICA, 2014). acts as a barrier for IPPs to penetrate the These projects are aligned with the South African electricity supply industry, company’s aims to make its head office, in particularly at the municipal level. Access to the Westrand of Johannesburg, independent the grid should ideally be managed by an of grid-electricity in the near- to medium- independent broker rather than a future. government entity (Bio2Watt, 2015). The trigeneration plant is particularly 6.2 MTN Own successful example. Commissioned in 2010, the facility provides 2 MW of the head Generation office’s electricity demand which is between 5.5 MW and 7.5 MW (Engineering News The MTN Group is a multinational Online, 2010). The trigeneration plant has telecommunications operator with over three collaborative functions as depicted in 229.2 million subscribers across its markets Figure 40.

Figure 40: MTN's Trigeneration Facility

Cooling the company’s data centre is one of subsequently used to cool the IT equipment the most expensive components of MTN in the data centre. South Africa’s operation, with between 700 kW/m2 and 1 400 kW/m2 required for The commissioning of the trigeneration and air-conditioning of the area. This, coupled solar facilities at MTN’s head office in South with electricity price increases, meant that Africa are part of the company’s massive MTN’s return on investment was expected investments into its South African network. within five years of commissioning The operator is increasingly focussed on (Engineering News Online, 2010). rolling out infrastructure in rural areas where access to electricity from the grid may be MTN’s concentrated solar cooling plant was limited. commissioned in 2015. The plant produces high temperature water under high pressure. Up until now, the lack of electrical power in This heat source is used to power remote areas made it costly and difficult for absorption chillers that supplements the operators to roll out network infrastructure. chilling requirements on site. This lowers The use of own generated electricity is their dependence on the local electricity therefore proving to be an innovative and grid. successful strategy to enter into previously inaccessible market territories. The system consists of 242 solar mirrors covering a total area of 484 m2.which track While the company carries the risks the sun to generate pressurised hot water at associated with such capital expenses, MTN 180ºC. Much like the trigeneration process, is able to mitigate operational risks the hot water from the solar facility powers associated with downtime due to power an absorption chiller. The chilled water is failures or load shedding, through own

generation. Even though the capital costs of photovoltaic facility on its premises in such facilities remain comparatively high, Gaborone. these technologies (particularly solar and wind) have matured to a stage where they Botswana has excellent solar resources, are now viable alternatives to both no- making such investments particularly power scenarios and back-up diesel- attractive. While licences for own generation powered generators. Consider that MTN facilities under 25 kW do not require Group spends more than $100m/year on licences from the Department of Energy diesel for its operations across the continent, Affairs (which is also the regulating and where diesel accounted for 6% of MTN authority in the country), there is currently Nigeria’s operational expenditure in 2010 no third party access to the grid and no (Tech Central Online, 2010). wheeling. This limits the opportunities for selling excess power to third parties. As the second largest market player in the highly competitive telecommunications 6.4 Kamuzu (Malawi) space in South Africa, MTN’s response to and Moshoeshoe I electricity constraints and concerns regarding security of supply have been very (Lesotho) proactive. While the strategy has successfully International enabled the company to grow its market Airports share in new territories, the opportunities associated with excess power are yet to be The Japanese government provided grant exploited. funding for the installation of small solar photovoltaic farms at two international 6.3 Kalahari Energy airports in Malawi and Lesotho. Both plants were commissioned in 2013. Kalahari Energy is a gas exploration and development company based in Gaborone, The 830 kW facility at Malawi’s Kamuzu Botswana. The company possesses a International Airport is the first ever solar number of prospecting permits in eastern power project connected to the national grid Botswana. The company’s focus is on in Malawi, which is owned by ESCOM, the capitalising a significant recoverable base of state utility (Embassy of Japan in Malawi, coal bed methane which has been identified 2013). The smaller 281 kW solar plant at in the area by global energy producers as Lesotho’s Moshoeshoe I International well as independent feasibility studies. Airport is also connected to the grid (Mokheseng, 2015). Both facilities provide Kalahari Energy was part of the consortium electricity which feeds the respective that commissioned and owns the 90 MW airports. They have also been designed to Orapa duel fuel power plant. This feed excess electricity back into the national consortium is also reported to be the first grids. IPP in the country (Frost & Sullivan, 2012). Kalahari Energy has, in conjunction with a The regulatory environment in Lesotho is number of its sister companies, particularly supportive of such activities, commissioned and installed a small solar where own generation (and commercial

generation) facilities only require a licence in purchased, based on long-term (10, 15 to 20 they are greater than 2 MW. The regulations years) contracts (Euston-Brown, Ferry , & pertaining to own generators in Malawi are Giljov, 2014). not so clear, whereas all commercial generation activities in the country require a The aggregator’s largest customer to date is licence from the regulator. the Nelson Mandela Bay Municipality, which in 2012 signed a 20 year Wheeling or While comparatively small in size, these Use of System Agreement with Amatola projects are significant as clean energy Green Power. This agreement allows the developments. They simultaneously provide aggregator to trade up to 10% of the electricity to national key points (such as municipality’s consumption. airports) in countries that are severely constrained in their generation capacities. The six-year projections for renewable Furthermore their design as embedded energy supply from Amatola Green Power’s generators demonstrates that the activity can various solar, wind and biomass generators be realised and replicated in both Malawi are detailed in the trader’s licence (NERSA, and Lesotho. 2014) and provided in the table below:

6.5 Amatola Green Energy

Amatola Green Power (Pty) is an electricity aggregator. The company is the only private sector business issued with a trading licence from the National Energy Regulator of South Africa to buy and sell renewable energy within the voluntary market in South Africa19. Amatola Green Power does so by matching the demand of various loads to the supply of electricity from a portfolio of generators.

While each power purchase agreement is different, Amatola Green Power reportedly pays its generators between R0.62 and R1.05 per kWh supplied. The aggregator subsequently charges is customers between R0.80 and R1.40 per kWh of electricity

19 Amatola’s trading licence was renewed and extended on the 15 January 2014 for a term of 15 years.

Table 4: Amatola Green Power's generation capacity projections

2013 2014 2015 2016 2017 2018 kWh equivalent 3 376 234 5 428 604 15 740 539 15 714 106 15 687 806 15 661 637 Total cumulative 1.84 1.86 3.60 3.60 3.60 3.60 projections (MW)

Some of the company’s notable generators project investment somewhat easier include the Electrawinds facility in the (Euston-Brown, Ferry , & Giljov, 2014). Coega Industrial Development Zone as well as a rooftop solar facility in the area. With Nelson Mandela Bay was the ideal regards to the Electrawinds’ project, Municipality in which to pilot the aggregator Amatola Green Power sources 5 GWh per concept. The Coega Industrial Development annum from the facility at an agreed price. Zone, situated within Municipality, has been The electricity is subsequently placed in a established as the green technology metaphorical ‘aggregators pool’, allowing manufacturing hub of South Africa and Amatola Green Power to broker purchase there are also plans to build up to 1200 MW agreements from the ‘stock’ in the ‘pool’ of renewable energy there (Euston-Brown, with off takers. Ferry , & Giljov, 2014). Furthermore, the Nelson Mandela Bay Metropolitan Amatola Green Power wheels its electricity, Municipality was the first in South Africa to transmitted via the Municipality’s grid allow small scale embedded generation network, to its various customers including below 100 kW, without the requirement of a BHP Billiton, Bridgestone, SPAR retail generation licence. The motivation behind outlets and others that have signed long- this regulatory adjustment was to expedite term power purchase agreements with the the development of small scale, affordable aggregator. Renewable electricity typically electricity generation in the country. The accounts for between 27% and 100% of country’s electricity shortages in turn Amatola Green Power’s customers’ contributed to the market need in this demands (NERSA, 2014). regard, as businesses and industry in South Africa began to feel the adverse effects of Agreements are made with Amatola Green disruptions and restrictions in the electricity Power’s customers on a “take or pay basis”. supply. This means that if a customer commits to purchasing a certain amount of green energy Amatola Green Power identified the and actually uses less, that customer will still market-gap, where the current energy crisis be required to pay for the energy that it did calls for innovation and private sector not use. This commercial framework, based involvement. The company has therefore on agreed prices on an extensive term as implemented a mixed business strategy noted above, substantially reduces the based on product differentiation and cost project risk for the renewable energy competition to achieve its aims. One of the developer. A reduction in risk ultimately primary goals in this regard is the makes sourcing the necessary funds for the

stimulation of the small scale, clean energy Amatola Green Power’s business model is segment of the electricity market. successful because it matches the needs of its clients (electricity users) in addition to the While the aggregator only represents a small needs of its suppliers. In the process the percentage of the Nelson Mandela Bay needs of the Municipality are also accounted Municipality’s total annual electricity for, as the link between economic demand, the novel wheeling agreement with development and energy provision is the Amatola Green Power has opened the leveraged. way for further power generation projects. A case study commissioned by the South Another key factor in Amatola Green African Local Government Association Power’s success is its niche focus on small notes that these included a private scale renewable energy. The company does development of an additional 24 wind not compete for market share in the highly turbines as well as a 10 MW PV installation competitive large scale renewables segment within Coega (Euston-Brown, Ferry , & of the South African electricity sector, and Giljov, 2014). thus avoids direct competition with Eskom, the large state owned and vertical integrated Amatola Green Power achieves its strategic utility. Amatola Green Power remains the goals by matching smaller scale renewable only private entity with a trading licence in energy generators (or the excess capacity of the country. larger generators) with demand, typically in the industrial or commercial sectors. The The Amatola Green Power model transactions are seamless and convenient as compliments the concept of splitting the facilitated by appropriate information and value of the physical electricity that is communication technology. Furthermore, generated and traded from the electricity’s the price structures benefit the generator ‘green’ component. The ‘greenness’ could be and consumer. sold to clients who have environmental conservation requirements, such as The advantages of the aggregator model also multinational companies who are required flow to the Nelson Mandela Bay to reduce their greenhouse gas emissions. Municipality, which benefits in terms of Such transactions could be facilitated by wheeling charges access to additional registering the renewable energy projects on sources of clean power, investments in the platforms that facilitate the generation of green economy via increased manufacturing various renewable energy certificates. Many processes and job creation. In addition, of these certificates are recognised as increased generation capacity ensures that tradable Proof of Origin instruments, and the economy in the Municipality is not this market mechanism is proven and used hampered as a result of inadequate supply around the world20. A small renewable while simultaneously providing a saving on the municipality’s network demand changes from the national utility, which could be 20 Examples of such platforms include the Clean significant in the future. Development Mechanism, the Verified Carbon Standard and the Gold Standard, among others.

100

energy certificate market does exist in South and some municipalities have published Africa, and could be leveraged to the benefit regulations (e.g. Johannesburg and Cape of existing and potential renewable energy Town). The general approach is to keep the IPPs in the country and further afield in the resellers price of electricity in line with the region. municipal price of electricity. This provides an opportunity for resellers as they do not A number of other municipalities in South need to subsidize other services from Africa have also recently embraced the electricity sales like municipalities. In the concept of embedded generation in their short term this will help cover the higher local regulations, supporting the basis of the capital cost of the PV plants. But as aggregator model. These municipalities technology costs decrease and municipal include the City of Cape Town, the City of cost increase the resellers may make windfall Johannesburg and eThekwini. One of the profits in the longer term. key opportunities in this regard relates to the unbundling of tariffs through cost of supply Situated in Roodepoort to the west of studies. The case study commissioned by the Johannesburg, Clearwater Mall was built in South African Local Government 2010 by Hyprop, a property development Association notes that such measures can company. A 500 kW solar photovoltaic facilitate an increasingly dynamic tariff facility was initially installed on the mall’s setting process. Flexible and dynamic tariffs roof-space for its own-use, and the facility may assist municipalities not only with was recently increased by 1 000 kW. The wheeling of electricity, but also with a range panels cover an area of approximately of processes related to efficiency and 12 000 m², making it the largest rooftop renewable energy development, such as system in Africa to date (Engineering News establishing small scale renewable energy Online, 2015). feed-in rates (Euston-Brown, Ferry , & Giljov, 2014). These in turn may be catalysts The 1 500 kW facility is expected to provide for the transformation of the region’s up to 10% of the mall’s total consumption, electricity markets. and Hyprop intends to replicate the model across its portfolio of properties in the near 6.6 Resellers future. On average, the system generates 2 500 000 kWh electricity a year, which is Resellers buy electricity in bulk or generate the equivalent of the consumption of their own electricity and sell it within their approximately 347 average households in own private network. Many examples of the same period. The photovoltaic facility resellers exist in the housing sector such as saves approximately 3 000 tonnes of coal blocks of flats or other sectional title per year, which is an equivalent saving of accommodation. Many shopping centres are 2 500 tonnes of carbon dioxide emissions resellers and there is a trend in installing PV per year (Eprop.co.za, 2015). Clearwater above parking areas to generate electricity. Mall is able to resell its own-generated renewable supply of electricity to its tenants, Recently guidelines were published by the who deal directly with the Mall as opposed National Energy Regulator of South Africa to the national utility. to guide the pricing of electricity by resellers

101

As the majority of the mall’s operations are model, particularly with regards to solar undertaken in daylight hours, seven days a photovoltaic facilities. The updated Integrated week, the solar facility is the ideal alternate Resource Plan 2010-30 states that 9 770 MW energy source for the property development of solar photovoltaic capacity is planned for company. As weekends are typically peak South Africa by 2030. The plan estimates shopping times for malls, the use of the that, ideally, 22.5 GW could be supplied by solar system at this time means that the asset photovoltaic embedded generators in the is efficiently utilised, thereby reducing the residential and commercial sectors by 2030. payback period on the capital investment. A While this may be optimistic, it indicates further benefit is that the photovoltaic that there is significant potential in this panels and system require minimal electricity segment. maintenance. Furthermore the National Energy Regulator The motivation behind increased instances of South Africa exempts small scale, own- of embedded generation stem from a use generators (under 1 MW installed number of factors. Dramatic increases in the capacity) from applying for generation price of electricity, coupled with rising risks licences (Republic of South Africa, 2011, p. of load shedding in the country, are 37). Regulations withstanding, there are undoubtedly major drivers of this however concerns that the cost implications phenomenon. Furthermore the costs to the grid owner (notably Eskom) and the associated with commissioning renewable required infrastructure have not yet been energy (solar facilities in particular) have considered or configured appropriately in decreased as market demand and order to safely facilitate embedded innovations have increased. Globally there generation on a meaningful scale in the have also been increased public and country. regulatory pressures to mitigate the effects of climate change through the adoption of Additional national licensing and connection measures such as solar photovoltaic systems. frameworks are therefore in various stages of development in South Africa. In the These factors have driven the likes of the interim, a number of municipalities21 have City of Johannesburg to champion published policies and tariff structures that embedded generation as one of the various enable them to accommodate embedded initiatives to alleviate load-shedding, which generation in their networks, on the basis simultaneously meets market demands for that parties will comply with the terms of cleaner electricity sources. While the mall any future regulatory system implemented does not have excess capacity at this point by the Regulator. to feed electricity back into the grid (i.e. operate as a ‘net’ generator), it does mitigate the need for additional supply from the City of Johannesburg, which means that this 21 At the time of writing these included the City of quantity can be used elsewhere. Cape Town, the City of Johannesburg, the Drakenstein Municipality, Ekurhuleni The regulatory frameworks in South Africa Municipality and eThekwini Municipality. also support the embedded generator

102

The rate of growth in this sector is therefore likely to escalate dramatically in the near future as electricity resellers take advantage of the favourable business environments. One of the drivers behind the growing instances of reseller models relates to the increasing technological innovations in global solar markets which are inversely proportionate to the costs of these technologies.

The disruptive potential of solar power is discussed extensively in the McKinsey Quarterly (David Frankel, 2014). The article asserts that the sharp decline in installation costs for solar photovoltaic systems has further boosted the competitiveness of solar power. These cost reductions could soon put solar on a par with traditional power- generation technologies, such as coal, natural gas and nuclear energy. While grid- parity is increasingly evident in the South African environment, the reseller model represents an opportunity for transformation in the local electricity markets within the region.

103

7 POTENTIAL PLAYERS IN A REFORMED MARKET IN SADC

7.1 Expanding role of surplus capacity available to assist other countries that could not meet their demand. existing market operators The SAPP manages the trading of electricity between members with the use of an A market operator is the independent entity electronic trading platform. This market responsibility for overseeing the clearing and platform allows for week ahead, day ahead settlement of transactions (bids and offers) and intraday trading. The most popular undertaken on the market platform. markets at the moment are the day ahead and intraday. Electricity is physically The commodities within an electricity transferred between SAPP members by market generally consist of three types: means of interconnectors between member power, energy and derivatives. Power is the countries. metered net electrical transfer rate at any given moment and is measured in The SAPP constitution allows for megawatts (MW). Energy is electricity that independent power producers and flows through a metered point for a given independent grid operators to join the period and is measured in megawatt hours organisation. Increased membership within (MWh). Derivatives typically consist of the SAPP will strengthen the basis of a futures and options. The derivative is based competitive electricity market in the region. on an underlying metric or index. These are typically measured at fair value, established The SAPP market was expanded by allowing using various valuation techniques. Independent Power Producers and Independent Transmission Companies to 7.1.1 Southern African join the national utilities as members of the Power Pool market. The first member to join SAPP that was not a national utility was The The Southern African power pool (SAPP) Copperbelt Energy Corporation (CEC) was set up by the Southern African from Zambia. They joined as an Development Community as a means for Independent Transmission Company who national electricity utilities to trade electricity bought electricity on the market and amongst each other. Initially SAPP’s provided spare capacity for the Zambian members consisted only of national utilities national utility when required. from the Southern African region. Electricity was primarily traded between To date, trading volumes have been South Africa and other Southern African relatively low as many of the member countries as South Africa had interconnectors between countries are not developed well enough to trade large

104

quantities of electricity. The largest barrier futures traded and 9th by the number of to trade at present is the low market currency derivatives traded in 2012 in the liquidity. As the members consist mainly of World Federation of Exchanges Annual national utilities, electricity is only traded Derivatives Market Survey. The JSE offers when the member country is in need of derivative trading of futures and options on electricity, or when it has spare some equities, bonds, indices, interest rates, capacity. By allowing more independent currencies and commodities (JSE, 2013). entities to enter the market, generators will The potential to trade electricity derivatives, start to produce electricity not just to meet such as renewable energy certificates, is yet their own national demand, but with the to be fully explored. intension of selling it on the market as a commodity to make a profit. This increases 7.1.3 Resellers - Micro market liquidity as competition between monopolies generators would facilitate more trades to take place as prices per unit electricity would The reselling of electricity occurs when an be reduced. off-taker purchases bulk quantities of electricity from a regulated electricity 7.1.2 Johannesburg Stock supplier (national utilities or municipalities Exchange that are licensed by the national regulatory authority to sell electricity to end-users) and The Johannesburg Stock Exchange (JSE) is then resells the electricity to captive end- ranked the 19th largest stock exchange in users - tenants in residential complexes or the world by market capitalisation and the store owners within shopping centres. The largest exchange on the African continent. reselling of electricity occurs via an embedded network that is owned by the The bourse offers a number of primary and reseller. secondary capital markets across a diverse range of securities. These include the A reseller is defined by the South African alternative exchange for small and mid-sized Energy Regulator as a non-licensed trader of listings, the Yield X for interest rate and electricity, that supplies electricity to currency instruments, the South African dwellings in high density housing complex; Futures Exchange, the Bond Exchange of residential flat building, residential gated South Africa and five financial markets (JSE, sectional title units and/or free stands in a 2013). complex, shopping complex, commercial building and has the ability to meter its While the JSE has various sophisticated customers and provide a bill clearly stating commodities markets which could be used the kilowatt hours consumed, the tariff per to trade power and energy across the kilowatt hour and the total amount charged. Southern African region (and further), it is the bourse’s derivatives markets which are As the reselling of electricity is not regulated of particular interest in the context of this by NERSA in South Africa, resellers are report. The JSE has a very well established able to sell the electricity at rates that are derivatives platform. It was ranked the 6th higher than the prescribed tariffs rates for largest exchange by number of single stock licensed suppliers. As the reseller makes use

105

of an embedded network to supply regulation reserves, 10-minute reserves, electricity to the captive users, specialist emergency and supplemental reserves. utility management services (sub-metering and maintenance of embedded network) are Voltage regulation, among others, refers to required to assist the reseller in monitoring the provision of generation and load exact usage and recovery of costs associated response capability that responds to with each captive user’s consumption. This automatic control signals issued by the results in additional charges which are system operator. Load following refers to typically passed through to the captive user the provision of generation and load which results in tariffs that are higher than response capability that is dispatched by the that prescribed for licensed electricity system operator to match electricity retailers. generation and demand in a scheduling period. Resellers may also generate their own electricity (embedded generation) and sell Black Start refers to the provision of this to consumers within their private generation equipment that, following a total network. This is not usually regulated but system collapse can start without an external regulators may have guidelines as to how the electrical supply and re-energise a electricity is priced. predefined segment of the interconnected transmission system to act as a start-up 7.2 Market for supply for other units in the interconnected transmission system. Islanded units refer to Ancillary services units within the interconnected transmission system that can continue operating in the Ancillary services are defined as a collection event that a total system collapse occurs. of services which are required to ensure the reliable, secure and efficient transmission Reactive supply and voltage control is inter- and distribution of electricity to end-users related in the sense that the voltage is exclusive of basic energy and transmission affected by changes in the reactive power services. flow. System stability depends on the voltage profile across the interconnected The following services in the electricity transmission and distribution systems. In supply industry are defined as ancillary certain instances it is required to employ services: operating reserves; regulation and certain power stations to supply or consume load following; black start and islanding; reactive power whether or not they are reactive power supply and voltage control producing active electricity, for the purpose from generation sources; and energy of voltage control across the interconnected imbalance. transmission and distribution system. Operating reserves are required to ensure Energy imbalance is the service supplied by secure capacity is available for reliable and a power station (typically a thermal or secure balancing of supply and demand in nuclear power station) by constraining its real-time. Operating reserves are currently power output below or above the classified as: instantaneous reserves, unconstrained schedule level. The service is

106

required to ensure that the interconnected power system remains between appropriate operational thermal, voltage or stability limits.

Ancillary services may be outsourced to private companies to facilitate competition and liquidity in an electricity supply industry. Ancillary services could be traded on the same platform as the Day-Ahead or Intraday markets. Market liquidity would be increased by opening up the trade for ancillary services as independent companies could offer any of the ancillary services mentioned above for both national utilities and private companies. Ancillary service supply could thus become cheaper as national utilities would not be the only participant that could supply these services.

107

8 BUSINESS MODELS FOR NEW PARTICIPANTS

One of the starting points of this research purchase and sale contracts. A broker is was to try and formulate a pathway to defined as a portfolio manager. The broker market liberalisation in the Southern African sets up supply and distribution contracts region that could be implemented within the between generators and end-users but does context of the existing regulatory not actively partake as a trader in the market infrastructure. itself.

8.1 Virtual Power Aggregators are also distinct from distributors. Distributors will usually buy in Stations/Market bulk from the national utility and sell this Aggregators electricity to many consumers. The role of the distributor relates primarily to the 8.1.1 Concept physical distribution of electricity. An aggregator collects (or aggregates) electricity The concept of a regional aggregator and from multiple generators and sells this to related trading platform was proposed as a multiple consumers. The role of the potential tool to reform the electricity aggregator is therefore virtual, in that it does market. not typically take delivery of the electricity. An aggregator relies on the infrastructure Vertically-integrated utilities and energy owned by others i.e. the transmission and cooperatives are examples of traditional distribution network owners. In a way, the electricity aggregators because they pool the aggregator plays a market operator role. electricity generated from multiple power stations and facilitate the needs of a group The traditional form of aggregators is clearly of customers with the aim of achieving changing as electricity markets world-wide optimum tariffs and efficiencies. By this are transforming. In particular, more and definition, an aggregator may refer to a wide more utilities have been fully or partially range of operations, from business unbundled and utilities in Southern Africa associations, tenants' association or are by-and-large following suite. This has, in municipalities that supply end customers part, motivated the development of private with electricity. electricity aggregators which broker supply agreements from different electricity In essence, an aggregator acts as a buyer sources. from generators and seller to the end-user. The aggregator could act either as a trader Aggregators often assume other roles in or a broker. An electricity trader will buy order to provide customers with efficiencies and sell electricity in the same way that and savings. They carry the risk and gain the commodities are bought and sold. The benefits of a mixed portfolio of technologies trader buys from multiple generators and with varying characteristics. sells to multiple end-users via pre-negotiated

108

8.1.2 Examples of taker to choose from which Aggregators generator/supplier they wish to purchase electricity. The electricity market in North- Amatola Western Europe become liberalised as a result of reduced electricity costs in the Amatola currently acts as an aggregator in liberated market as opposed to only have a South Africa. The cost of electricity fixed regulated market. The European generation was noted as the largest barrier electricity market has ring-fenced specialities to entering this market as a competitor to for each step in the electricity market cycle. Amatola because the green premium on Amatola’s electricity makes the cost of Each seller/reseller of electricity has a base generating electricity competitive with that (financial investment/target) from which of Eskom’s. Amatola currently only wheels they work each year – the quantity of physical electricity as opposed to derivatives electricity purchased and traded is based on such as tradable renewable energy this base value of the seller/reseller. certificates (RECs). Some specific examples in international Smartestenergy electricity markets which are liberalised include the UK market which has an over The UK’s Smartestenergy and Aggregated the counter (OTC) scheme as well as a Micro Power were noted as successful case regulated supply market in which suppliers studies of aggregators. in the liberated electricity market will try to In Europe and the USA the market has sell off contracts if the supply cannot be sufficient liquidity due to the large amount met; the spot price of electricity is of buyers and sellers who make use of the determined in real time every 5 minutes in liberated electricity market. This facilitates the Australian electricity market and; the competition between generators and Norwegian market has sufficient liquidity distributors of electricity which allow and confidence in the market itself that competitive prices for the off-taker. physical trade is factored out and only Regulatory costs related to the trade of financial trades take place. electricity in a liberated market amount to Google uses renewable energy for all of the approximately 30% (Maintenance, data centres in Europe as a measure of Transmission and Distribution, Grid energy security and control. Making use of support costs). The remaining 70% of the renewable energy sources allows the cost to cost related to electricity trading is variable – be controlled more effectively as Google which facilitates competition between believes the cost of using energy derived generators, traders and distributors. from fossil fuel will be much higher than Interconnections between European that of renewable sources in 10 years’ time. countries allow prices to be competitive as electricity may be traded between countries from numerous generators/suppliers – Variations in electricity prices (per unit) in different countries allow the trader or off-

109

8.1.3 Considerations for a Embedded generators are typically grid-tied potential aggregator and rely on a utility to supply them with model in South Africa electricity when their generation capacity does not meet their consumption demand. Different possible permutations of an Conversely, during periods of surplus aggregator platform exist. If the aggregator supply, embedded generators are able to is a trader they would take the risk of feed electricity back into the grid. unserved load and costs associated with end-users not purchasing generated Grid-tied embedded generators therefore electricity. The aggregator thus effectively have the potential to supply various end becomes an off-taker if it takes on the role users, so long as they share access to the of a trader. The aggregator could then do same grid. Where the grid is owned by a back to back transactions to sell the separate entity, the embedded generator purchased electricity which it procured from must enter into an agreement with the grid- a recent trade. In this way the aggregator owner to determine the conditions and fees could act as a platform to connect buyers for ‘wheeling’ the electricity over the and sellers in the SAPP region. electrical network to the third party, electricity consumer. It was reiterated that such a concept is theoretical in nature as constraints of Even though the practice of embedded growth in the IPP sector are hampering generation is fairly new in the SADC region, liquidity in the electricity market. The role of the number is growing as electricity the Integrated Resource Plan (to be updated constraints and insecurity of supply persist. in 2016) in South Africa was identified as a Furthermore the costs associated with the potential constraint to stimulating growth in respective energy technologies (particularly the IPP sector. NERSA is apparently relating to rooftop photovoltaics) are reluctant to licence new IPPs unless they are decreasing. While licences are required for allocated under the national IRP and it was commercial generation operations across the agreed that the regulatory environment region, there are thresholds (that differ would need to support an aggregator model. across nation states) under which generators may operate without requiring licences. Embedded generators could support the Smaller facilities are often exempt from aggregator model if their volumes were requirements in this regard, increasing the sufficient considering that they are typically ease of installing such facilities. small to medium in size. An embedded generator is defined as an entity that The following case study examines a recent operates one or more electric power embedded generation development in South generation units that are connected to a Africa, which may be replicated in the near distribution system (NERSA, 2015, p. 4). future. While the fuel sources of embedded Some legislative aspects that should be generators may vary, in the SADC context considered in the aggregator model are: the term is frequently used in reference to generation from small photovoltaic facilities. • The aggregator (trader or broker) could potentially require overarching SAPP

110

import/export licences to facilitate the • Currently there is little liquidity in the trade for both generators and suppliers SAPP. In South Africa for example, across regional borders between the banks will not provide funding for long- SAPP member countries; term power generation unless the • Imbalances in the contractual generator can provide the quantity of requirements between generator and electricity produced and an extensive list load needs may exist. Generators of buyers who have signed contracts typically want a 25 year off-take agreeing to purchase the electricity from agreement with either traders or off- the generator (long term PPA); takers. Traders typically want a 5 year • The current cost at which Eskom agreement and off-takers typically want produces electricity makes wheeling a 1 – 3 year agreement. Liquidity was unfavourable as the IPPs produce raised again as a barrier; electricity at a much higher cost per unit. • For the market to be successful, However it was noted that the utility competitive and robust standardised bears costs in this regard which need to agreements on the market platform are be recouped; required for electricity and regulatory • Other financial implications associated contracts. It was proposed that the with imbalances between generators and regulatory requirements for an electricity suppliers were also analysed. In the import/export license in South Africa event that a generator cannot produce are among the largest constraints the agreed upon load, it could face currently barring the trade market in penalty charges as the market operator South Africa. It was noted that or aggregator would have to source the according to the Competition Act, the electricity from an alternative generator dominant market player is an entity that that would potentially charge a higher controls 45% of the market share. No rate per unit of electricity sold. A similar dominant player may refuse a new scenario could exist if the off-taker does player/entity to gain access to critical not purchase the entire amount of infrastructure (grids or markets – that agreed upon electricity from the cannot be easily replicated); and generator/supplier. The supplier would • The legislative and regulatory thus carry the financial liability of environments are complex within the generated electricity that cannot be sold SAPP region. Ideally, the market should at the agreed upon price and would be regulated to the correct extent that it potentially have to sell the capacity at a can allow free trade but still protect the lower rate per unit of electricity and consumer. A more flexible market is a according reducing the more economical market but the market generator/supplier’s profit margin; and should always first and foremost protect • ‘Supplier of Last Resort’ concept needs the end-user. to be addressed in the aggregator model. The default supplier (of last resort) is Some financial aspects that should be activated when the customer cannot find considered in the aggregator model are: a supplier on the market. It was noted

111

that this could however be a barrier for or determined from another indicator (or market entry for new suppliers. value) within the market such as the prevailing market price, stock value or With respect to infrastructure requirements: market index.

• The electricity passing through the Derivatives are typically used as a form of transmission network (grid) could be insurance against interest rate or energy labelled at the point of generation as price increases. They can also be used to being either renewable (green) or fossil improve the investment quality of a utility’s fuel based (brown) electricity; issues of bonds or other types of • Balancing rules would be required if commodity securities additional generators are added to the (PricewaterhouseCoopers, 2008). current system to effectively manage all generation and supply and distribution A contract for difference (CfD) is a form of networks. Currently the rules for derivative which can be used between an balancing demand and supply in South electricity generator (typically generating Africa are implemented within the electricity from a low-carbon source or national utility (Eskom). In the event renewable energy) and a government-owned that more generators come onto the entity. The contract for difference is used as regional grid, a dedicated system a market tool to account for over or under operator (SO) would be required to estimation of electricity prices and can be balance the loads moving across all used to help financing of electricity interconnectors. Scheduling dispatch generation infrastructure. rules already allow for multiple buyers The contract for difference is used to pay and sellers in South Africa; the difference between the strike price (the • It is noted that ancillary services would projected market price of electricity) and the be critical in order to manage system reference price (a measure of the average reliability and electricity quality as there market price for electricity in the market). are different reserve categories related to This tool adds additional stability and start-up and the size and time at which security for private companies in the electricity is required; and electricity supply industry that makes large • Infrastructure and network constraints investments in infrastructure to generate across SAPP were noted a priority areas electricity. It reduces the private generator’s underpinning market reform across exposure to volatile wholesale prices and Southern Africa. It was agreed that ensures a relatively constant stream of proper metering is one of the first step revenue. It also protects the end-users from required to enable a successful electricity unreasonably high electricity prices by market. mitigating the need for the end-user to carry additional cost of the generator that choses 8.2 Market tools to use a renewable generation source that typically has a higher cost of generation (UK A derivative is a risk management Department of Energy and Climate Change, instrument that can be used in electricity 2014). markets. The value of a derivative is derived

112

9 CONCLUSION AND RECOMMENDATIONS

The information and analysis presented in system that is reflective of the cost of power this report finds that there is general generation in new plant. acceptance globally that competition in electricity markets will yield, and has yielded, The issue of independence of generators significant benefits. The benefits include from transmission operators can be lower prices (except in areas where historic achieved in a number of ways. The subsidies led to non-cost reflective prices), European Union followed an interesting better allocation of capital, increased access approach by first unbundling generation to capital and better long term planning. from transmission on an accounting basis in 1996. This was followed by full legal It is generally thought that there are a separation 6 years later in 2003. France number of prerequisites for competition in however still has a vertically integrated utility the electricity markets. The first is a (large) with only accounting separation. number of independent generators, the second is independence between the This research found that electricity reform generators and the transmission system and in the Southern African region started at lastly reasonable, cost reflective market very much the same time as what it prices. happened globally. The Southern African Power Pool was formed by the Southern A large number of countries viewed African Development Community in 1995. privatisation of the generation industry as a This was 6 years after the UK market prerequisite to achieving the first reform started, but 1 year before the first requirement mentioned above - a large market reform directive of the European number of independent generators. In Union. Japan also started the electricity some countries (like Norway) privatisation reform in 1995 and Texas only started in was not required to achieve this, while in 1999. countries like the UK, where there was only one national utility, it was necessary. The intent to entrench the reform was very strong in many of the SAPP member It is however of significance that many countries at the time. South Africa countries where privatisation was required published the White Paper on Energy Policy were facing an oversupply of electricity in 1998. This document, if implemented, generation capacity at the time of the start would have achieved a fully liberated market of the market reform. The analysis in this in the country with separately owned project found that areas where a shortage of Regional Electricity Distributors (REDs) supply exists (like the SADC region in 2016) and access to the grid for independent can achieve sufficient levels of competition power producers. simply by allowing new entrants to the market to enter the market with new Namibia introduced the concept of generation capacity. Such a move would independent regional electricity distributers however require electricity prices on the in their 1998 White Paper and implemented the first REDs in 2005. Zambia introduced

113

an independent transmission system principle of free and fair access to the operator, the Copperbelt Energy grid stands. Corporation (CEC) in 1997 with the • The fact that there Eskom has privatisation of the Zambia Consolidated unbundled the transmission and Copper Mines (ZCCM) Power Division. distribution in South Africa on both This independent transmission operator accounting and management levels operates within the framework created by means that some of the benefits of the 1995 Electricity Regulation Act. unbundled transmission and distribution do exists in South Africa. Th enigma in the Southern African region is • Some impediments to market therefore that many of the building blocks development in the region still exist in for a liberated electricity market actually the following: exist, but such a market does not exist. The Limits to interconnector capacity process of creating a liberated market was o between countries. derailed in December 2010 when the South Progress is still to be made towards African cabinet terminated the o fully cost reflective tariffs in some of implementation of the unbundling of the the countries in the region. electricity distribution industry through the Some licensing issues still exist in REDs. o South Africa. One such example is South Africa has traditionally produced over the ministerial determinations 75% of the electricity in the SAPP region. It required by the legislation in terms of has done so at prices that was significantly the country’s integrated resource plan. below levels required for the operation of an Within the context of the above, this efficient market. research project concludes that there are at The failure of South Africa to implement least two reasons why the development of a the 1998 White Paper on Energy Policy has liquid market for electricity is possible significantly impacted on the development without further regulatory reform: of an electricity market in the whole region. • The first is that there has been sufficient The resulting situation in the first quarter of reform in the regulatory environment to 2016 is as follows: make such a market possible. • Secondly, the electricity crisis in South • The regulatory infrastructure required Africa has precipitated a rising electricity for a liberated electricity market is price path that brings the region within substantially in place in many of the reach of cost reflective prices. jurisdictions in the region. • Even though the reform process was The study concludes that the two most likely stopped in South Africa with the pathways to the creation of a liquid market abandonment of the REDs legislation in in the short term are: 2010 and the subsequent abandonment • Scaling up the participation in the SAPP. of the ISMO Bill in 2015, the legislated This will only happen if independent

115

power producers and large off takers will join the SAPP in larger numbers. • The development of an electricity aggregator that trades on one of the established trading platforms in the region such as the JSE.

116

10 BIBLIOGRAPHY

AFRICAINVEST. (2016). Zambia-Invest.com. Retrieved February 11, 2016, from http://www.zambia- invest.com/energy Bio2Watt. (2015). The developement of the Bronkhorstspruit Biogas Project. Pretoria: Bio2Watt. Bio2Watt. (2016). Bio2Wat Purely Green Energy. Retrieved 02 05, 2016, from http://www.bio2watt.com/bio2watt%E2%80%99s-bronkhorstspruit-biogas-plant-(pty)-ltd.html Bloomberg New Energy Finance. (2015). Africa, Malawi. Retrieved from Climatescope 2015: http://global-climatescope.org/en/country/malawi/#/details Botswana Power Corporation. (2015). Annual Report: 2014. Breeze, D. P. (2014, January). Electricity in Malawi. PennEnergy Research. British Embassy Harare. (2016). Stakeholder consultation in Zimbabwe. Harare: Promethium Carbon. Business Day Live. (2014). National. Retrieved December 2015, from http://www.bdlive.co.za/national/2014/08/13/local-debt-to-eskom-points-to-dire-crisis Bye, T., & Hope, E. (2005). Deregulation of electricity markets—The Norwegian experience. Statistics Norway, Research Department. CERES. (2010). The 21st Century Electric Utility , Positioning for a Low-Carbon Future. Boston, MA. Clean Energy Info Portal. (2012). Mozambique. Retrieved January 2016, from http://www.reegle.info/policy-and-regulatory-overviews/MZ Clean Energy Info Portal. (2014). Botswana. Retrieved January 2016, from http://www.reegle.info/policy- and-regulatory-overviews/BW Confederation of Zimbabwe Industries. (2016). Stakeholder consultation in Zimbabwe. Harare: Promethium Carbon. Copperbelt Energy Corporation. (2015, October 26). Electricity supply industry stakeholder consultation in Zambia. Lusaka: Promethium Carbon. Counterfactual. (2016). Stakeholder consultation in Zimbabwe. Harare: Promethium Carbon. David Frankel, K. O. (2014, April). The disruptive potential of solar power. McKinsey Quarterly. de la Rue du Can, S., Letschert, V., Leventis, G., & Covary, T. (2013). Energy Efficiency Country Study: Republic Of South Africa. Ernest Orlando Lawrence Berkeley National Laboratory, Environmental Energy Technologies Division. Department of Energy. (2012). Renewable Energy Independent Power Producer Programme. Retrieved December 2015, from http://www.energy.gov.za/IPP/Aug%202011/Fact%20Sheet%20for%20the%20Media%20Brie fing%20Session%20on%2031%20August%202011%20re%20the%20REIPPP.pdf di Panzu, V. (2011). Energy Sector Reform in the Democratic iin Democratiic Republliic of Congo (DRC). IInga III and Grand Inga Hydro Projects Development. Cape Town: Ministry of Energy of the Democratic Republic of Congo. Economic Consulting Associates. (2009). The Potential of Regional Power Sector Integration, South African Power Pool (SAPP) Transmission & Trading Case Study. Electricity Supply Corporation of Malawi. (2012). Executive Exchange on Developing an ancillary service market for SAPP. Embassy of Japan in Malawi. (2013). Grant Aid Program for Environment and Climate Change. Retrieved February 19, 2016, from http://www.mw.emb-

117

japan.go.jp/Handover%20ceremony%20of%20Solar%20Electricity%20Generation%20System% 20at%20Kamuzu%20International%20Airport.html Energy Regulation Board. (2014). Energy Sector Report. Lusaka: Energy Regulation Board. Engineering News. (2015). Article: Botswana ‘to be power exporter by 2018’. Retrieved January 2016, from http://www.engineeringnews.co.za/article/botswana-to-be-power-exporter-by-2018-2015-10-26 Engineering News Online. (2010). MTN unveils R22m trigeneration power plant. Retrieved February 2016, from http://www.engineeringnews.co.za/article/mtn-unveils-r22m-trigeneration-power-plant- 2010-08-02 Engineering News Online. (2015). Gauteng shopping centre boasts largest rooftop PV installation in Africa. Retrieved February 2016, from http://www.engineeringnews.co.za/article/shoppingcentrehaslargestpvinstallationinafrica201510 09 Eprop.co.za. (2015). Clearwater Mall triples solar photovoltaic PV plant output and boasts Africa’s largest rooftop Solar PV system. Retrieved February 2016, from http://www.eprop.co.za/commercial-property- news/item/19245-clearwater-mall-triples-solar-photovoltaic-pv-plant-output-and-boasts-africa-s- largest-rooftop-solar-pv-system.html ESI AFRICA. (2015). Zimbabwe: Government commands IPPs to deliver. Retrieved February 11, 2016, from http://www.esi-africa.com/news/zimbabwe-government-commands-ipps-to-deliver/ Eskom. (2015). Company Information. Retrieved December 2015, from http://www.eskom.co.za/OurCompany/CompanyInformation/Pages/Company_Information_ 1.aspx Eskom. (2015). Eskom Fact Sheet: 2015. Eskom. (2015). Map of Eskom Power Stations. Retrieved November 2015, from http://www.eskom.co.za/Whatweredoing/ElectricityGeneration/PowerStations/Pages/Map_O f_Eskom_Power_Stations.aspx Eskom. (2015). Supply Status. Retrieved November 2015, from http://www.eskom.co.za/Whatweredoing/SupplyStatus/Pages/Supply_Status2.aspx EurActiv. (2008). EU Electricity Market Liberalisation. European Commission. (2006). EUR 22040 — European Technology Platform SmartGrids. Luxembourg: Office for Official Publications of the European Communities. Euston-Brown, M., Ferry , A., & Giljov, S. (2014). Nelson Mandela Bay Metro Municipality: Renewable Energy Wheeling Agreement Amatola Green Power Trading. SALGA. Eye Witness News. (2014). Latest News. Retrieved December 2015, from http://ewn.co.za/2015/02/14/Maintenance-to-blame-for-Eskoms-power-problems Frost & Sullivan. (2012). Frost & Sullivan Bestows Power Generation Competitive Strategy Leadership Award on Karoo Sustainable Energy Ltd. Retrieved February 19, 2016, from http://www.frost.com/prod/servlet/press-release.pag?docid=268230388 Germany Trade and Invest. (2016). Germany's Energy Concept. Germany Trade and Invest. Global Climatescope. (2016). Mozambique. Retrieved January 2016, from http://global- climatescope.org/en/country/mozambique/#/details Government of the Kingdom of Swaziland. (2015, April). Renewable Energy and Independent Power Producer Policy. Draft – April 2015. Mbabane. Hammons, T. J. (2011). Electricity Infrastructures in the Global Marketplace. InTech. HTXT AFRICA. (2014). Using Solar to Power MTN's Air Conditioning. Retrieved February 2016, from http://www.htxt.co.za/2014/07/09/using-solar-energy-to-power-mtns-air-conditioning/

118

htxt.co.za. (2015). Latest News. Retrieved November 2015, from http://www.htxt.co.za/2015/08/21/telkom-wants-to-rely-less-on-eskom-with-3mw-solar-plant/ Infrastructure Consortium for Africa. (2011). Regional Power Status in African Power Pools. International Energy Agency. (2005). Energy Market Experience - Lessons from Liberalised Electrcity Markets. Paris: International Energy Agency Head of Publications Service. Istituto Bruno Leoni. (2014). Index of Liberalizations 2014. Istituto Bruno Leoni. Joskow, P. L. (2006). Lessons Learned From Electricity Market Liberalization. The Energy Journal, 9 - 42. JSE. (2013). About. Retrieved February 20, 2016, from https://www.jse.co.za/about/history-company- overview Kadiayi, A. (2013). OVERVIEW OF THE ELECTRICITY SECTOR IN THE DEMOCRATIC REPUBLIC OF CONGO. Kinshasha: SOCIETE NATIONALE D’ELECTRICITE. Karan, M. B., & Kazdagli, H. (2011). Financial Aspects in Energy, The Development of Energy Markets in Europe. Berlin: pringer-Verlag. Kessides, I. (2012). Electricity Reforms:P What Some Countries Did Right and Others Can Do Better. Washington: The World Bank. Khoza, B. (2015, January 20). Power generation applications flooding SERA. Swaziland. Klees, A. (2014). Electricity Law in South Africa (1st ed.). Cape Town: Juta. Kleit, A. N., & Kiesling, L. (2009). Electricity Restructuring, The Texas Story. Washington, DC: The AEI Press. Lapukeno, P. G. (2013, June). Status of Energy policy in Malawi. Presented at Jica International Centre . Tokyo, Japan. Law Business Research. (2015). The Energy Regulation and Markets Review: Mozambique. Lesotho Energy Policy: 2015-2025. (n.d.). Kingdom of Lesotho. Low Carbon Contracts Company. (2015). CFD Implementation Event: Introduction for New Applicants. Low Carbon Contracts Company. Lukamba-Muhiya, J. M., & Uken, E. (2006). The electricity supply industry in the Democratic Republic of the Congo. Journal of Energy in Southern Africa Vol 17 No 3, 21-28. Lunsemfwa Hydro Power Company. (2015, October 27). Electricity supply stakeholder consultation in Zambia. Kabwe: Promethium Carbon. Mail & Guardian Online. (2015, February 17). Will the Cahora Bassa Dam Deal Be Renegotiated? Retrieved January 2016, from http://mg.co.za/article/2015-02-17-will-the-cahora-bassa-dam- deal-still-be-renegotiated Manyame, R. (2015, May). Africa Utility Week presentation ECB. Namibia: Electricity Control Board (ECB). Market Monitor LLP. (2014). Energy in the Democratic Republic of Congo (2014): The current electricity rationing program highlights a pressing problem. Retrieved February 17, 2016, from http://www.marketonpoint.com/energy-in-the-drc-dancing-in-the-dark/ MBendi Information Services. (2016). Electrical Power in Zimbabwe - Overview. Retrieved February 11, 2016, from http://www.mbendi.com/indy/powr/af/zi/p0005.htm Minister of Energy. (2012, October 29). Media Briefing by the Minister of Energy, Ms Dipuo Peters, MP. Retrieved December 2015, from http://www.energy.gov.za/IPP/Minister%20Remarks%20- %20IPP%20W1%20Announcement%20-%2029Oct2012.pdf

119

MMEGI Online. (2015). Business. Retrieved January 2016, from http://www.mmegi.bw/index.php?aid=51020&dir=2015/may/08 Mokheseng, M. (2015, December). Collection of Renewable Energy. Retrieved February 19, 2016, from http://www.irena.org/EventDocs/Lesotho.pdf Montmasson-Clair, G., & Ryan, G. (2014). Repositioning electricity planning at the core: An evaluation of South Africa’s Integrated Resource Plan. Pretoria: Trade & Industrial Policy Strategies (TIPS). Mozambique Regional Gateway Programme. (2013). Southern Africa Energy Situational Analysis Report. MTN. (2015). Annual Integrated Report for the Year Ended 31 December 2014. Johannesburg: MTN. NamPower. (2015). NamPower Annual Report 2015. Windhoek. National Infrastructure Commission. (2016). Smart Power. National Infrastructure Commission report. Nelson, D. (2014). Roadmap to a Low Carbon Electricity System in the U.S. and Europe. Climate Policy Initiative. NERSA. (2014). Electricity Licence: Amatola Green Power. Pretoria: NERSA. Nersa. (2015). Consultation Paper on Small-Scale Embedded Generation. Netherlands for the World Bank. (2015). Renewable energy strategy Botswana. Retrieved January 2016, from http://nl4worldbank.org/2015/02/02/renewable-energy-strategy-botswana/ Nguyen, F. (2008). Liberalised electricity market experience in OECD countries,. OECD Office of Long Term Co-operation and Policy Analysis. Nkambule, N. (2014, December 4). Ubombo Sugar Limited gets 25-year long power generating licence. Swaziland. Nord Pool. (2004). The Nordic Power Market . Nord Pool Spot. (n.d.). The Nordic Electricity Exchange and The Nordic Model for a Liberalized Electricity Market. Nord Pool Spot. Nordic Energy Regulators. (2010). The Nordic financial electricity market. Nordic Energy Regulators, Energy Markets Inspectorate, Eskilstuna. Norton Rose Fulbright. (2013). Investing in the African electricity sector - Namibia, ten things to know. Namibia. Norton Rose Fulbright. (2013). Investing in the African electricity sector – Mozambique – ten things to know. Johannesburg: Norton Rose Fulbright. Ofgem. (2014). Smart Grid Vision and Routemap. Department of Energy and Climate Change. Penados, C. V. (2008). Role of the Physical Power Exchanges in Role of the Physical Power Exchanges in. UNIVERSIDAD PONTIFICIA COMILLAS, ESCUELA TECNICA SUPERIOR DE INGENIERiA. Pollitt, M. (2004). Electricity Reform in Chile Lessons for Developing Countries. Cambridge: Center for Energy and Environmental Poilcy Research. Pollitt, M. (2007). Evaluating the Evidence on Electricity Reform: Lessons for the South East Europe (SEE) market. CCP Working Paper 08-5, University of Cambridge, ESRC Electricity Policy Research Group and Judge Business School. Pollitt, M. (2009). Electricity Liberalisation In The European Union. Electricity Policy Research Group, University of Cambridge. PricewaterhouseCoopers. (2008). Industries: Energy, Utilities & Mining Glossary. Chicago: PricewaterhouseCoopers. Promethium Carbon. (2015). Minutes 5 November 2015, meetings with Cenkal and Kalahari Energy. Gabarone.

120

Promethium Carbon. (2015). Minutes from 1 December 2015, meeting with FUNAE. Maputo: Promethium Carbon. Promethium Carbon. (2015). Minutes from 12 December 2015, meeting with Standard Bank. Johannesburg. Promethium Carbon. (2015). Minutes from 13 October 2015, meeting with the dti. Johannesburg. Promethium Carbon. (2015). Minutes from 27 October 2015, meeting with the IDC. Johannesburg. Promethium Carbon. (2015). Minutes from 29 September 2015, meeting with Eskom Simmerpan. Johannesburg. Promethium Carbon. (2015). Minutes from 30 November 2015, meeting with Agrekko. Maputo. Promethium Carbon. (2015). Minutes from 30 November 2015, meeting with DfID, Maputo. Maputo. Promethium Carbon. (2015). Minutes from 5 November 2015, meeting with Botswana's DoE. Gabarone. Promethium Carbon. (2015). Presentation: Eskom Risk Analysis. Promethium Carbon. (2015). Promethium Progress Report 4. Johannesburg: Promethium Carbon. Promethium Carbon. (2016, February 5). Meeting to gain understanding of the regulatory environment for electricity in Lesotho. Maseru, Lesotho: Promethium Carbon. Promethium Carbon. (2016, February 01). Meeting with Malawi Energy Regulatory Authority to gain understanding of the regulatory environment for electricity in Malawi. Lilongwe, Malawi: Promethium Carbon. Promethium Carbon. (2016). Minutes from 13 January 2016, meeting with SAWEA. Johannesburg. Promethium Carbon. (2016). Minutes from 18 January 2016, meeting with SAIPPA. Johannesburg. Promethium Carbon. (2016). Minutes from 19 January 2016, meeting with Cennergi. Johannesburg. PwC. (2015). European Energy MArket REform - COuntry Profile: Germany. REEEP & REN21. (2013). Lesotho 2012. Retrieved from Reegle: http://www.reegle.info/policy-and- regulatory-overviews/LS REEEP & REN21. (2014). Namibia 2014. Retrieved from Reegle: http://www.reegle.info/policy-and- regulatory-overviews/NA REEEP International Secretariat. (2012). Swaziland (2012). Retrieved from Reegle: http://www.reegle.info/policy-and-regulatory-overviews/SZ Republic of Botswana. (2015). Botswana' Intended Nationally Determined Contribution. Republic of Botswana. (n.d.). Global MMWER. Retrieved January 2016, from http://www.gov.bw/Global/MMWER/dgscbmstudy.pdf Republic of South Africa. (2011). Electricity Regulation Second Amendment Bill. RERA. (2013). Electricity Tariffs and Selected Performance Indicators for the SADC Region 2012 and 2013. RERA. Sichone, E. C. (2012). Clean Energy Developments in the Southern African Region. Washington DC,: USEA Global Workshop on Clean Energy Development. Sichone, E., & Roets, D. (2011). RERA & its regional initiatives on energy regulation and security of supply. ICER Workshop on Energy Regulation and Security of Supply. Simmonds, G. (2002). Regulation of the UK Electricity Industry. Indutry Brief, University of Bath, School of Management . Societe Nationale D'Electricite. (2013). Overview of the electricity sector in the Democratic Repulic of Congo. Kinshasha: Societe Nationale D'Electricite.

121

Soukaina, A., & Amal, E. G. (2015). The UK Electricity Industry Reform - The effect of the Electricity reform on domestic electricity prices in the United Kingdom. EUROPEAN REGULATORY ECONOMICS. South Africa. (2013). Integrated Resource Plan for Electricity 2010-2030: Update. South African Government. (2015). Energy. Retrieved November 2015, from http://www.gov.za/about- sa/energy Southern African Development Community Secretariat. (2012). The SADC REgional Infrsatructure Master Plan. Stavseth, E. C. (2013). The Nordic/Baltic Power Market. Nord Pool SPot. Stern, J. (2014). The British Regulatory Model: It's recent history and future prospects. CCRP Working Paper No 23, City University London, Centre for Competition and Regulatory Policy (CCRP), London. Swaziland Electricity Company. (2014). Annual Report 13/14. Mbabane. Taulo, J. L. (2015). Energy Supply in Malawi: Options and issues. Journal of Energy in Southern Africa, Vol 26 No 2. Tech Central Online. (2010). MTN expands rural presence as part of R18bn network investment. Retrieved September 19, 2010, from http://www.techcentral.co.za/mtn-expands-rural-presence-as-part-of- r18bn-network-investment/17022/ TEPCO. (2014). Liberalization of the Electric Power Market. Web report. The Financial Gazette. (2016). Govt crafting IPPs policy. Retrieved February 11, 2016, from http://www.financialgazette.co.zw/govt-crafting-ipps-policy/ The Guardian. (2015). Environment. Retrieved December 2015, from http://www.theguardian.com/environment/2015/jun/01/how-renewable-energy-in-south- africa-is-quietly-stealing-a-march-on-coal The World Bank Group. (2016). Access to electricity (% of population). Retrieved February 11, 2016, from http://data.worldbank.org/indicator/EG.ELC.ACCS.ZS Thomas, S. (2005). British experience of electricity liberalisation: A model for India? University of Greenwich. Trollip, H. B. (2014). Energy Security in South Africa . Cape Town: MAPS . UK Department of Energy and Climate Change. (2014). Electricity Market Reform: CfD for Private Network Generators Policy Overview. London: Crown. USAID, U. A. (2008, May). Electricity Supply Industry of Lesotho. Washington DC. von Oertzen, D. D. (2012). Namibia’s Energy Future – A case of renewables. Windhoek: Konrad Adeauer Stiftung. Wade Publications CC. (2015). Water and Energy. Retrieved from The Lesotho Review: http://www.lesothoreview.com/water-energy-2015.php Yamazaki, T. (2015). Japan’s Electricity Market Reform and Beyond. Ministry of Economy, Trade and Industry, Agency for Natural Resources and Energy (ANRE). Zimbabwe Electricity Supply Authority. (2016). Stakeholder consultation in Zimbabwe. Harare: Promethium Carbon.

122

Promethium Carbon is a dedicated carbon and climate change advisory firm helping major international clients gain global competitive advantage in the fast-emerging low carbon economy.

CONTACT NUMBERS:

0861 CARBON (0861 227 266) Tel : +27 (0)11 706 8185

CONTACT DETAILS:

Robbie Louw Director +27 (0)82 557 8646 [email protected]

Harmke Immink Director +27 (0)83 228 1781 [email protected]

HJ Swanepoel Director +27 (0)82 460 8840 [email protected]

OFFICE ADDRESS:

Ballyoaks Office Park Lacey Oak House 2nd Floor 35 Ballyclare Drive Bryanston South Africa

Dissemination of the contents of this document is encouraged. Please give full acknowledgement of the source when reproducing extracts in other published work. No responsibility for any person acting or refraining to act as a result of material in this document can be accepted by Promethium Carbon.