POLICY, LEGAL AND REGULATORY CONSIDERATIONS FOR VIRTUAL WHEELING OF ELECTRICITY IN AFRICA
INTRODUCTION
In South Africa, the emerging landscape for electricity wheeling is evident in several pilot projects across the country. Municipalities are showing interest in embracing wheeling as a means to facilitate energy transport across networks, albeit being hindered by the absence of a national framework. Despite hurdles, there is enthusiasm for pilot projects such as the City of Cape Town’s initiative, which explores various wheeling options. However, wheeling does not render areas immune to load shedding, and challenges persist regarding grid maintenance and billing systems. Additionally, the private sector views long-term customer commitment as crucial for the success of power generation projects, with mines and data centers emerging as promising clients. Overall, while there is optimism and progress, the need for a robust policy framework and sustained investor confidence remains paramount for the widespread adoption of electricity wheeling in South Africa.
VIRTUAL WHEELING OF ELECTRICITY IN AFRICA
In Africa, virtual wheeling is becoming increasingly popular as an alternative solution for challenges with electricity distribution. Stakeholders are examining its potential to enable transmission of energy across networks through discussions and pilot projects.[1] Despite issues like the lack of a national framework, programs like the Eskom pilot project are presenting possibilities for innovative solutions. In addition to addressing infrastructure challenges, virtual wheeling presents opportunities for business owners to get involved in addressing problems in energy distribution. Virtual wheeling has the potential to change the energy scene in Africa, even though it is still in its early stages.[2] This innovative solution will expand the capacity of the electricity grids and help the system operator get closer to its objective(s) of generating electricity from renewable sources by set target years.
The primary objective of the "virtual wheeling agreement" that telecom provider Vodacom and state-owned power company Eskom in South Africa signed is to advance efforts to address the nation’s energy crisis.
Wheeling is an increasingly popular approach in South Africa for filling in energy deficiencies. It is the process of supplying power generated by private companies to consumers across national power grids owned by the government. [3] Wheeling, which operates on a willing buyer/seller model, enables the transmission of privately generated power to customers across the national grid. By enabling the transmission of renewable energy through virtual power lines, it is easier for corporate, industrial, and homeowners whose locations lack sufficient energy resource(s), such as sunlight and wind, to receive renewable energy from sites with good wind and solar radiation. Furthermore, wheeling presents utilities with the opportunity to recover the administrative expense of running the electrical networks via the generator use system charges. [4]
By using multiple generators to supply to multiple offtakers, virtual wheeling makes it possible to implement contracts with buyers like traders or corporate entities. For time of use (ToU), virtual wheeling necessitates the measurement and reporting of energy consumption every 30 minutes. Every consumer buyer will need to have the required meters in order to facilitate this arrangement.
The Virtual wheeling platform (VWP) is intended to get around some of the drawbacks of the current system, which employs the “third-party wheeling” strategy. According to this traditional method, in order for larger independent power producers (IPPs) to sell wheeled energy to buyers connected at medium and high voltages (above 1 kV), Power Purchase Agreements (PPAs) must be signed by the IPP and the buyers.[5]
The VWP has the potential to give the African electricity market the much-needed flexibility; attracting investors, independent generators, and buyers in the industry.
Numerous businesses with ESG goals, are aiming to implement virtual wheeling in order to ensure that renewable energy is available. Businesses that can run entirely on virtual wheeling power will be able to reach their goal of net zero carbon emissions at a quicker pace.
In general, the full implementation of the VWP will contribute to increasing access to a diverse pool of off-takers, including small, medium, and large-scale industrial, commercial, and manufacturing enterprises. Additionally, it will increase the utilization of renewable energy sources, which is essential for assisting businesses in lowering their carbon footprints. Additionally, it will contribute to limiting and reducing increases in power costs and bringing more clean, higher-quality power into the grid, which will be adequate to end ongoing power shortages. [6]
POLICY, LEGAL AND REGULATORY CONSIDERATIONS FOR VIRTUAL WHEELING OF ELECTRICITY IN AFRICA
The policy, legal, and regulatory frameworks surrounding virtual wheeling in Africa are crucial for ensuring its effective implementation and operation. These frameworks typically encompass several key components:
1. Licensing and Regulation of Traders:
Regulatory agencies are in charge of granting licenses and supervising independent contractors who engage in virtual wheeling transactions. To maintain the reliability and stability of the electricity market, these regulations set forth requirements for eligibility, compliance, and behavior. The use of virtual wheeling should be outlined in detail in national regulations and directives, along with eligibility requirements, technical specifications, and billing procedures. These regulations would need to address matters such as compensation strategies, handling surplus generation, and credit distribution. [7]
2. Interconnection and Wheeling Agreements: Clear guidelines and procedures are needed for establishing interconnection agreements between generators, traders, and off-takers involved in virtual wheeling arrangements. These agreements outline technical requirements, contractual obligations, and dispute resolution mechanisms to facilitate seamless energy transactions across different networks. Frameworks for interconnection rules and procedures should also be formulated, to link renewable energy sources to the grid and facilitate the transmission of shared energy to remote consumers. This includes addressing issues related to grid capacity and stability.[8]
3. Billing and Compensation: Clear mechanisms need to be established for calculating and distributing credits to remote consumers engaged in virtual wheeling. This could involve calculations based on time-of-use, determining avoided costs, or establishing equitable market values for shared energy.[9]
4. Tariff and Pricing Mechanisms: Transparent tariff structures and pricing mechanisms are essential for determining the costs and benefits associated with virtual wheeling activities. Regulators may establish tariff frameworks that account for grid usage, energy transmission, and ancillary services to ensure fair compensation and cost recovery for all parties involved.[10]
5. Metering and Billing Standards: Standardized metering protocols and billing systems are necessary for accurately measuring, monitoring, and invoicing energy transactions within virtual wheeling schemes. These standards help to prevent disputes, ensure billing accuracy, and facilitate financial settlements between traders, generators, and off-takers. [11]
6. Consumer Protection: It is imperative to ensure that consumers participating in virtual wheeling understand the terms, advantages, and potential risks involved. Providing transparent information about the program, including potential credit fluctuations and associated costs, is vital for safeguarding consumer interests.[12]
Conclusion
In conclusion, the rise of virtual wheeling in South Africa and Africa in general offers both promise and challenges in energy distribution. While pilot projects like the City of Cape Town show potential, hurdles such as the absence of a national framework persist. Yet, virtual wheeling presents a solution for energy deficiencies and infrastructure challenges. By enabling renewable energy transmission, it allows businesses to participate in energy solutions, aiding Africa’s electricity grid expansion and renewable energy goals.
To fully benefit from virtual wheeling, robust policy, legal, and regulatory frameworks are essential. These should cover licensing, interconnection, billing, consumer protection, and environmental sustainability. By addressing these aspects, policymakers can foster competition, transparency, and resilience in energy distribution, driving Africa towards a sustainable energy future. Nevertheless, collaboration amongst stakeholders is key to overcoming challenges and realizing the transformative potential of virtual wheeling.
[1] Roberts E, ‘Virtual Wheeling Platform to Shake up South Africa’s Renewable Energy Market’ (Pinsent Masons, 20 December 2023) https://www.pinsentmasons.com/out-law/analysis/virtual-wheeling-south-africa-renewable-energy-market accessed 22 February 2024
[2] Lipscombe P and Smolaks M, ‘South Africa’s Vodacom Signs Virtual Wheeling Agreement with Eskom’ (All Content RSS, 31 August 2023) https://www.datacenterdynamics.com/en/news/south-africas-vodacom-signs-virtual-wheeling-agreement-with-eskom/ accessed 22 February 2024
[3] Gilbert P, ‘Vodacom, Eskom Sign “Virtual Wheeling” Power Deal in Sa – Connecting …’ (Vodacom, Eskom sign ‘virtual wheeling’ power deal in SA, 2023) https://www.connectingafrica.com/author.asp?section_id=761&doc_id=786337 accessed 22 February 2024
[4] Malinga S, ‘Vodacom Power Wheeling Pilot Will Be “Transformational”’ (ITWeb, 16 May 2023) https://www.itweb.co.za/article/vodacom-power-wheeling-pilot-will-be-transformational/KzQenqjylQgMZd2r accessed 23 February 2024
[5] Roberts E, ‘Virtual Wheeling Platform to Shake up South Africa’s Renewable Energy Market’ (Pinsent Masons, 20 December 2023) https://www.pinsentmasons.com/out-law/analysis/virtual-wheeling-south-africa-renewable-energy-market accessed 23 February 2024
[6] Ibid., 5
[7] Roberts E, ‘Virtual Wheeling Platform to Shake up South Africa’s Renewable Energy Market’ (Pinsent Masons, 20 December 2023) https://www.pinsentmasons.com/out-law/analysis/virtual-wheeling-south-africa-renewable-energy-market accessed 23 February 2024
[8] Utilities One, ‘Interconnectivity and Integration in Renewable Energy Communication Infrastructure’ (Utilities One, 2023) https://utilitiesone.com/interconnectivity-and-integration-in-renewable-energy-communication-infrastructure accessed 23 February 2024
[9] Clean Energy Regulator, ‘Compliance-Education-Monitioring-and-Enforcement-Activities // ’ (Clean Energy Regulator Crest, 2022) https://www.cleanenergyregulator.gov.au/About/Policies-and-publications/Compliance-policy-for-education-monitoring-and-enforcement-activities accessed 23 February 2024
[10] Yelland LD and C, ‘Analysis: How Eskom’s New “Virtual Wheeling” Is a Game Changer’ (Business, 2023) https://www.news24.com/fin24/opinion/analysis-how-eskoms-new-virtual-wheeling-is-a-game-changer-20230821 accessed 23 February 2024
[11] Person, Alecia and Pienaar, ‘Virtual Wheeling Agreements: A New Frontier in Renewable Energy Supply Solutions’ (Cliffe Dekker Hofmeyr, 2023) https://www.cliffedekkerhofmeyr.com/news/publications/2023/Sectors/Energy/energy-and-power-alert-13-September-virtual-wheeling-agreements-a-new-frontier-in-renewable-energy-supply-solutions accessed 23 February 2024
[12] Ibid