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The inclusion of IPP's in power generation

Independent Power Providers (IPP’s) have asked to have the market demonopolise so that they can provide power directly to the end user. This would help alleviate strain on governments aging infrastructure and be beneficial to government and consumers alike.

According to Doug Kuni, formerly from Eskom Generation, there are two issues. “Firstly, Eskom and the government do recognise the need for IPP participation. However neither has thus far demonstrated a credible and clear programme to attract IPP participation. Eskom implemented its PNCP and MTPPP program, which elicited a lot of criticism from IPPs. How much Eskom spent on financial and legal advisors to compile its power purchase agreements (PPAs), which were then presented fait accompli to the IPPs. In the end, not a single PPA was signed. Secondly, it now turns out that Eskom does not have the funding to support an IPP programme. The Department of Minerals and Energy (DME) undertook its own procurement of open cycle gas turbines (OGCTs). However, it too did not conclude a successful programme. IPPs, Eskom and government have incurred huge costs without a result,” says Kuni.

How should IPP’s react to this situation? Both government and Eskom have been making lots of noises about how important it is for IPPs to come to South Africa, yet the evidence of their performance so far is quite the opposite of what they purport. Through the process and the publication of the new generation procurement regulations by the Department of Energy (DoE), it seems that some concrete steps are now being taken by government to address the situation. The separation of the System Operator as an independent entity is a step in the right direction to deal with IPPs. The identification of funding to support the cogeneration program is very important to get a quick result in the IPP program.

As we have seen since 2008 and the rolling black outs that South Africa experienced. It is clear that Eskom does not have the requirements to provide stable power generation on its own and does not have the resources to meet the demand. Although they have addressed various issues and have launched campaigns that have educated consumers and alleviated some strain on the aging grid, more still needs to be done. The country will need the participation of IPPs. Cogeneration is potentially a quick and effective response as there are manypotential participants already in the economy. By Eskom’s own estimation, a potential of about 900 MW from industrial cogeneration exists.

One such example already in use is a nameplate 8.0 MW own generation project that uses off-gases from an Arc-furnace at SA Calcium Carbide near the town of Newcastle in KwaZulu-Natal. The Newcastle region uses a peak of some 100 MW to 120 MW of power and Calcium Carbide is the largest power user. The company’s arc-furnace which operates at some 2200 OC has an electrical demand maximum of 50 MW, though due to the raw materials flow and the processes currently utilised by SACC a maximum of some 42 MW is applicable. The own generation project which will see the company offset some 6.0 MW of its electricity usage, features four units of 2.0 MW, each with an average capacity of some 1.7 MW per engine. Thus the project offers significant benefit to the Newcastle municipality by reducing electrical load on the grid by about 10%, which enables residential and commercial expansion in the municipal area.

This although it is a private initiative it is a very good example of how IPP’s could help provide energy generation and feed it back into the grid. The next step would be to negotiate competitive deals between Eskom and IPP’s when they are able to become part of energy generation.