Eskom May Face Review by Competition Authorities
Eskom may come under scrutiny from competition regulators after inviting major power users to participate in long-term power purchase agreements (PPAs) for solar energy generated at its existing power plants.
This Request for Proposals (RFP) seems to be part of a strategy by the utility to directly address the growing threat posed by the expanding landscape of private electricity trading.
Read: Electricity minister urges Eskom to drop litigation over trading licenses
Dr. Grové Steyn, MD of Meridian Economics, sees Eskom’s strategy as clearly anti-competitive, particularly since the utility remains a vertically integrated entity that continues to receive government bailouts.
The South African Independent Power Producers Association (Saippa) is considering filing a complaint with the Competition Commission.
“We have been discussing this, and it will be on the agenda of our management committee meeting tomorrow,” reported Saippa chair Leonè Human to Moneyweb.
Eskom’s press release states that the utility is “inviting large electricity consumers to procure 291MW of solar photovoltaic (PV) capacity through long-term PPAs from renewable energy assets owned by Eskom.”
Eskom’s documents suggest a willingness to enter agreements that range from five to 25 years, requiring a minimum of 10MW and allowing a maximum of 291MW. The ‘offtakers’ will use the energy as it is generated, based on sunlight availability, while managing their own load balancing.
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Eskom spokesperson Daphne Mokoena told Moneyweb: “The RFP was conducted through Eskom’s Distribution division and complied with all necessary governance protocols. The contract approval process will meet all requirements set by Nersa [National Energy Regulator of South Africa].”
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This announcement comes as Eskom is challenging in court Nersa’s approval of five trading licenses and one import/export license granted to private entities.
Eskom’s primary concern is the absence of developed trading regulations, which Nersa is still working on, as it fears that traders might target its most profitable customers.
As of now, Eskom has not publicly responded on this issue.
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Steyn raises alarm over Eskom’s intention to compete with traders and Independent Power Producers (IPPs) while still operating under a vertically integrated model that encompasses both generation and trading, along with its monopolistic network operations.
He asserts that the National Transmission Company of South Africa (NTCSA) and Eskom’s distribution division must first gain independence from the parent organization to foster a truly competitive environment.
Steyn also underlines that, in the private sector, investors take on significant risk, which drives efficiency and prevents the large budget overruns seen in Eskom’s coal and pump-storage mega-projects. “Eskom does not face the same level of risk; it holds a dominant market position and benefits from implicit government support viewed as too big to fail.”
Debt financing
Given these circumstances, it remains unclear whether Eskom will gain approval from National Treasury for debt financing related to these initiatives, according to Steyn.
An unnamed electricity pricing expert notes that the pricing for these proposed agreements will require Nersa’s approval, similar to previous negotiated pricing agreements established for distressed large power consumers under a framework developed with the Department of Trade, Industry and Competition, as well as for any other long-term PPAs in the industry.
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“Eskom is a regulated entity, and Nersa must ensure that current customers do not incur negative impacts due to Eskom’s actions,” the expert explains.
It is important to note that Eskom is launching a program akin to those operated by licensed traders, despite the absence of formal trading regulations, while simultaneously contesting Nersa’s decisions granting trading licenses to those same traders in court.
Read:
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Nellis Bester, chairperson of the Ferro Alloys Producers Association, mentions that Eskom will provide green energy at a premium to companies looking to minimize their carbon footprints. Smelters are already struggling to cope with Eskom’s current pricing, making it likely unfeasible for them; however, smaller factories operating during daylight hours may find it appealing, he suggests.
He indicates the fierce competition among private sector traders. “A ten- to twenty-year power purchase agreement today could result in energy costs that are 40% lower than Eskom’s Megaflex 2026 tariff.”
‘Blended’ private offering
Private traders also offer a blended solution that combines wind and solar power with battery storage, tailored for customers with continuous operational needs, he explains.
Bester underscores that by reserving green energy for selected clients, Eskom risks weakening the renewable energy contribution available to the broader national grid, adversely affecting a large number of businesses.
Currently, Eskom’s energy mix consists of 80% coal. If a considerable portion of renewables is removed, the dependency on coal will undoubtedly rise, causing existing customers to face higher carbon taxes, he warns.
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