Wheeling is the new catchphrase in South Africa’s electricity industry, being proffered as the answer to the nation’s energy crisis and to the rising demand for renewable energy to meet companies’ ESG commitments.

Third-party wheeling – the transport of electricity from a private producer to a private user or off-taker over the grid – is not a new phenomenon in South Africa; Eskom approved its use in 2008. Indeed, it is a common practice globally. Any dispatchable energy, no matter its source, can be wheeled, but it is renewable energy that offers the real added value.

The Nelson Mandela Bay (NMB) municipality decided as far back as 2012 to source 10% of its energy needs from renewable sources. To date 5 000 MWh of renewable energy is wheeled each year through the municipal network.

Virtual wheeling takes third-party wheeling a step further by allowing multiple generators and multiple suppliers across the grid as well as independent electricity traders. In addition, according to Mutenda Tshipala, Eskom’s senior manager for strategy development, traditional wheeling is typically restricted to medium-voltage (MV) and high-voltage (HV) suppliers, while virtual wheeling will allow for low-voltage (LV) generation from embedded renewable generation. It also employs digital billing and metering, which simplifies the complicated remuneration process.

The flexibility of virtual wheeling – in tandem with the relaxation of South Africa’s electricity regulation environment, notably the removal in January 2023 of the 100 MW cap on embedded generation – is driving the surge in interest in wheeling of renewable energy.

In September 2023, the City of Cape Town announced that the first electrons of renewable energy had been wheeled across the city’s network as part of a six-month pilot into the feasibility of third-party virtual wheeling. In this case Growthpoint Properties wheeled excess solar energy generated from solar PV panels atop its Constantia Village mall to one of its buildings on the Foreshore, on the other side of Table Mountain.

Cape Town Mayor Geordin Hill-Lewis said at the time that virtual wheeling of renewable energy was a value-add for Cape Town, making it a more ‘investable’ destination for multinationals that needed to meet their carbon commitments. He stressed that while ‘it is exciting what this unlocks’, it was important to get the billing and metering ‘100% correct’, which was the aim of the pilot project. The pilot involved eight producers and 40 customers, including Amazon, he told eNCA in an interview at the time.

Estienne de Klerk, Growthpoint CEO (South Africa), said it was the first time in the country that a private company had wheeled renewable energy from one of its sites in the city to another over a municipal grid. The wheeling was facilitated by energy trader Etana Energy, which is licensed through the National Energy Regulator of South Africa (NERSA). ‘[It] is the starting point to providing clean green energy to our tenants in Cape Town to further their environmental commitments,’ De Klerk told News24.

Then, at the end of January 2024, Growthpoint announced that it had entered into a multi-jurisdictional power purchase agreement with Etana to wheel 195 GWh a year of renewable energy to its buildings in several municipalities, including Ekurhuleni, Cape Town, Johannesburg and NMB.

In addition, the energy will come from an array of renewable sources – wind and hydro, as well as solar. In terms of its agreement with Etana, Growthpoint will offtake the full complement of the 30 GWh a year generated by Serengeti Power’s 5 MW hydro facility under construction on the Ash river in the Free State, within the Lesotho Highlands Water Scheme.

Another NERSA-licensed electricity trader is the newly launched Discovery Green, which describes itself as ‘a renewable energy platform that connects businesses across South Africa to renewable power generated by utility-scale renewable plants’.

Discovery Group CEO Adrian Gore says the platform will procure up to 1 GW of wind and solar energy from ‘a curated list’ of independent power producers. He estimates it will stimulate a ZAR25 billion investment in South Africa’s energy infrastructure, sufficient to build 2 700 rugby fields of solar farms or 200 to 250 wind turbines.

The Discovery Green platform is expected to start supplying customers in 2026. It will initially be open to medium to large consumers connected to Eskom’s grid, starting with Discovery’s own network of corporate partners, and will expand as virtual wheeling and new wheeling frameworks through municipalities become available.

‘While many South African corporates have set laudable carbon emissions targets, the biggest driver behind the transition to renewables is cost,’ says Andre Nepgen, head of Discovery Green. ‘South Africa’s utility prices increased, erratically, by CPI +8% per annum over the past five years. As a renewable energy platform, through our experience of onboarding clients across various industries, we’ve seen two features of our products resonate broadly among them.

‘Firstly, companies are drawn to our renewable energy offering due to its significant discount to the current utility prices. Secondly, and arguably more attractive, is that future price increases are capped at CPI. In tough economic conditions, the savings and the price certainty provided by wheeling renewable energy creates a welcome relief for any CFO.’

In George in the Western Cape, where the municipality is trialling virtual wheeling, head of electricity Bongani Mandla highlights the advantages for municipalities. He says for the municipality, it is revenue-neutral as the municipality still charges the buyer for the use of the distribution grid. In addition, by buying the electricity in bulk, costs are reduced and it offers price certainty to private buyers. Of course it also reduces the municipality’s reliance on Eskom.

Last year Eskom started trialling its virtual wheeling platform. Tshipala explains that it encompasses LV as well as MV and HV suppliers and allows multiple generators to supply multiple users through contracts with a middleman or traders.

Also in 2023, Eskom onboarded Vodacom as a test case, to wheel power from renewable sources to its telecoms masts around the country. At the time Vodacom Group CEO Shameel Joosub said the company wanted to ‘play a role in trying to assist with the power shortages. What we are looking to do is to commit to signing up the IPPs, and then contributing the power to the grid and use a virtual wheeling system to offset our power usage’. Eskom is now looking to expand the pilot project to include new partners to test alternative billing systems.

Tshipala says the utility also aims to test onboarding a trader on the platform, with the trader acting as a buyer and Eskom as the bulk energy supplier. Eskom hopes its virtual wheeling platform will be up and running by the end of 2024.

It has, meanwhile, struck a wheeling deal with data centre provider Teraco. Having secured grid capacity from Eskom, Teraco is proceeding with plans to build a 120 MW solar PV plant in the Free State from where it will wheel across municipal and national grids to its data centres across South Africa. ‘This presents an incredible opportunity to meet our near-term renewable energy goals while adding additional power capacity to a generation-constrained grid,’ says Teraco CEO Jan Hnizdo.

However, wheeling is not without its challenges. Writing in an online post, Bongani Maliwa, investment analyst at Futuregrowth Asset Management, cautions about the ambiguity of use-of-system charges. ‘Eskom charges a wheeling tariff, but that rate hasn’t been standardised. In the few contracts concluded between Eskom and the wheeling parties, the wheeling and use-of-system charges have been negotiated on a case-by-case basis, which is both time-consuming and unpredictable,’ he says.

‘It is crucial to develop a general wheeling framework that applies to all IPPs, to maximise the potential private sector energy generation can offer to alleviate the power crisis.Simplifying the costs and how the wheeling agreements will work will provide power producers with more certainty and enable them to fast-track wheeling arrangements with Eskom and the municipalities.’ A wheeling framework drafted by the Presidency’s National Energy Crisis Committee still awaits finalisation.

Then there’s the not so small matter of the stability of the grid itself, as you need a grid to wheel electricity.

As the City of Cape Town’s manager of electricity retail management, Hoosain Essop, made clear at a recent solar energy conference, wheeling does not make you immune to load shedding, ‘unless you take part in a curtailment programme where you reduce consumption along with your neighbours. For wheeling to become viable, it is important that the grid is maintained’.

It is well known that grid capacity in the Western Cape and Eastern Cape is at its limit. But in January 2024, Eskom announced it was introducing a 10% curtailment for energy generators, which would unlock 2 680 MW of grid capacity in the Western Cape and 790 MW in the Eastern Cape. With Eskom indicating it is willing to come to the party, virtual wheeling stands a real chance of alleviating the country’s power crisis.

By Robyn Leary
Images: Unsplash, iStock