Proposed framework for

charges for generators

connected to the
Distribution network
Please note that the contents of this presentation
are proposals at this stage and are not yet
approved Eskom stances
Introduction

• Generators and loads are both customers of the network provider

• Loads pay published and approved charges for the use of the network

• These may be explicit unbundled charges or not!

• There is currently no regulated framework for use-of-system charges

for embedded generators (generators connected to the Distribution
network)

• This presentation sets out a proposed framework for use of system

charges
Background

• Some generators may sell to Eskom through approved power purchase

agreements, whilst others may wish to wheel energy to third parties

• Eskom will allow wheeling BUT the wheeling arrangement is subject to the
generator receiving its approvals to generate and trade

• Generators that wish to wheel energy face challenges related to the use-of-
system charges.

• Use-of-system charges for generators selling to the Eskom have no risk

associated with use-of-system charges but generators that want to wheel
energy are exposed to the risk of the level and structure of these charges.

• There is urgent need to address these issues and propose a framework for
use of system charges
• The proposed framework together with the Eskom wheeling policy aims to
reduce barriers to entry and risk for non-Eskom generators
• In particular for generators that wish to wheel energy
 Transactions with generators
• The generator will contract with the network Useof
Use ofsystem
system The proposed
provider to provide network services. The chargesfor
charges for framework with deals
network provider will raise charges for these Generators
Generators the generator
services. use of system
charges
• The generator will contract with the entity PPA
PPA
purchasing the energy through a PPA and between
this may be with Eskom, a third party or for between
generator
generator
own generation. andbuyer
buyer
and
• If the energy is sold to a third party, the
electricity bill must be adjusted for the Useofofsystem
system
wheeled energy through a supplementary Use
contract. The customer will pay the chargesfor
charges for
standard tariffs associated with the cost of Loads
Loads
delivering the energy.

• All of the above transactions are separate

contracts and deal with different issues.
 Wheeling charges

• Generators are liable for charges for the use of the network
• Loads are liable for charges for the use of the network
• The 2 are NOT linked.
• Generators, whether they sell energy to Eskom or wheel energy to
third parties will pay equitable use-of-system charges
• Loads that receive wheeled energy from a non-Eskom generator
or energy from Eskom will pay the equitable use of system
charges
• A wheeling transaction is a financial adjustment for the energy not
supplied by Eskom.
• The service provided with regard to the use of the network is
independent from who owns the energy
• Any use-of-system benefit or cost associated with a generator’s
location accrues to that generator and not to the purchaser of the
energy.
Allocation of network charges between loads
and generators
 Generator
R/kVA network charge Generators will pay
equitably for the network
usage
Generator A
Load  R/kVA network charge
Meter
100 kWh Sum of all load and  Load R/kVA
generator network network charge
charges

Meter
= Distribution
revenue requirement Load A

Meter 1000 kWh

Loads will pay
equitably for the network Meter
Generator B usage

Generator Load B  Load R/kVA

R/kVA network network charge
charge
Buys (non-Eskom) energy
100 kWh
Use of system charges for embedded generators

• It is significantly more complex to determine network charges for generators

connected to a distribution network and this is a challenge for distributors
everywhere in the world.

• What needs to be resolved is how to make the situation fair, transparent and
predictable.

• A framework must be developed on use-of-system charges for all embedded

generators

• Level the playing field for generators selling energy to Eskom and generators
selling energy to third parties without resorting to special pricing arrangements.

• As there are not sufficient generators connected to the Distribution network

on which to calculate network charges, a theoretical, practical and simple to
apply approach is proposed.

• Based on the research and inputs from stakeholders, the following are
considered potential options regarding network charges (all would require
NERSA framework and approval):
Options considered/recommended
Option Comments
1. A network charges framework” based on date of • Will require known increases
generator connection. • Subsidies if generator does not export.
• Justify on the basis of reduction of losses and the benefit to SA Inc. but
not necessarily cost reflective.
2. Network charges based on the cost-reflective • Lower than current HV network charges but much higher for MV.
urban use-of-system costs as calculated for loads • Simple to apply, but will require publication
• Justifiable
3. As (1) or (2) but only raised or HV and not raised • Will be significantly lower than current network charges for HV supplies.
for MV and lower • Justifiable as MV connected generators reduce capacity on networks
and losses.
4. As (1), but network charges are zero for first block • Simple to apply and predictable
• Would require cross-subsides and no incentive to generate energy.
• Not justifiable
5. As for (2) but network charges rebated on energy • Includes a locational signal
produced using standard tariff loss factors. • For generators with high load factors the network charge could be fully
rebated.
• Generators located in the Cape will receive higher rebates
• Justified on the basis of reduction of losses and incentivising generator
production.
6. As (2) but base network charges on maintenance • Would be subject to average price increase.
and operation cost • This should be an average value
7. Ignore the benefit of losses • Simple to apply and predictable
• Not cost reflective.
8. Charge cost of losses or provide a negative charge • Complex to apply and not predictable.
if losses reduced • Requires different charges/benefits per generator
• Applicable for certain period.
• Should only be applicable if cost-reflective charges are raised.
9. Evaluate how connection charges are raised • Will require a change in policy and the Code
10. For co-generators the use-of-system charges • Based on international precedent.
based on the higher of import or export. charge • Load and generator should not pay twice for the same network capacity.
Proposed framework for Generator use of
system charges (GUoS)
• The use-of-system charges will comprise,
• network charges,
• network charge rebate,
• reliability services charges (same as criteria for loads) and
• service and administration charges (same as criteria for loads).
• The network charge will comprise
• A HV R/kVA tariff network charge (>66kV < 132 KV) using the average cost-reflective distribution
network costs as currently calculated determined for loads, based on the maximum export capacity.
• This charge will increase at a given indexed value.
• The HV network charges are rebated
• Based on energy produced based on the standard tariff loss factors, per transmission zone and
voltage at the base WEPS/Megaflex energy rates (the rate excluding losses and reliability services),
• Not rebated beyond extinction.
• For medium voltage (<66 KV – mainly 11 and 22 kV) connected generators, no network charges to be
raised
• The rebate scheme to be revaluated in the future, but it is proposed that all generators that connect in the
next 5 years will remain on the rebate scheme until termination.
Network charge rebate
• The rebate is based on the reduction of (technical) losses to Eskom
• The generator’s network charge is reduced by a c/kWh rebate based on the amount of
energy produced by the generator.
• Justified by assumed reduction of cost of losses on the Distribution network.
• Cost of losses is costs calculated as c/kWh energy rates at standard tariff loss factors
• The rebate incentivises generators:
• That have higher load factors
• That are located in areas with high loss factors
• While the rebate approach provides a signal for the losses benefit - it is not cost
reflective, therefore
• The rebate should be never be beyond extinction.
• The rebate should not be applied to the service, administration and reliability service
charges.
Network charge rebate
= {Delivered energyt x (distribution loss factorV x transmission loss factorZ-1) x Pt}
Where:
V = at the relevant voltage level
Z= transmission zone and
t = the appropriate peak, standard or off peak time period and
Pt= Megaflex energy price excluding losses and reliability services for each PSO time period.
Cost reflective network charges

Urban network charge

Network access Network demand

Voltage category charge [R/kVA/m] charge [R/kVA/m]
< 500V R 7.32 R 13.88
≥500 V & < 66 kV R 6.72 R 12.73
≥132
≤66 kV
kV& R 6.50 R 12.34
> 132 kV R 0.00 R 11.12

Indicative cost reflective network cost per KVA

Monthly cost
Voltage category R/kVA (NMD)
< 500V R 33.79
≥500V & < 66kV R 19.03
≥132kV
≤66kV & R 3.85
> 132kV R 0.00
Example
Table 1 – Example: generator characteristics

Voltage ≥132kV
≤66kV &
Transmission Zone 1
MEC (MW) 300
Load factor % 60%

Based on the above formula the rebate (c/kWh) is then determined as follows:
Table 2 – Example: rebate per peak standard and off-peak period
Peak Standard Off Peak
PSO ratio 17% 42% 42%
Losses c/kWh
High demand season [Jun - Aug] 7.45 1.93 1.02
Low demand season [Sep - May] 2.07 1.26 0.88

The average annual rebate is determined as follows:

Equation 1: Average annual rebate based on load profile

Losses c/kWh x % (P,S,O x 3 /12) + (P,S,O x 9/12) (winter/summer usage) = average

losses c/kWh rebate

Table 3 – Example: average rebate based on load profile

Calculation of rebate based on load profile Peak Std Off peak
Load profile % PSO 17 42 42
Benefit of losses (c/kWh) Peak Standard Off-Peak Total
High demand season [Jun - Aug] 1.25 0.80 0.43 2.48
Low demand season [Sep - May] 0.35 0.53 0.37 1.24
Average annual rebate c/kWh 0.57 0.59 0.38 1.55
Example

Based on peak,
Based on peak,
standard and off-peak
standard and off-peak
generation profile
generation profile

The higher the load factor,

the greater the rebate.
At a load factor of 60%,
the network charge
is fully rebated.
Connection Charges

• Generators will pay the cost of dedicated incremental costs

associated with the connection as an upfront connection charge.
• Where there are upstream costs, these will not be charged directly
to the customer, but a signal for actual upstream cost will be given
by raising an early termination guarantee equal to the value of an
appropriate share of upstream costs.
Proposed framework continued

• When the Distribution network is unavailable, due to Eskom-induced

supply interruptions, Eskom's forced outages (unplanned load shedding
events) and Force Majeure a demand exemption will be given on the
network charge for the period of unavailability.
• An indicative forward price curve is provided to enable better estimation of
use-of-system charges and rebates.
• For co-generators (both importer and exporter of energy), the network
use-of-system charges are based on the higher of import (load) or export
(generator) network charges
 Summary of proposed framework
1. Generators use-of-system charges will comprise, connection charges, network charges, network charge rebate, reliability
services charges (same as criteria for loads) and service and administration charges (same as criteria for loads).
2. Connection charges:
a. Generators will pay the cost of dedicated incremental costs associated with the connection as an upfront connection charge.
Where there are upstream costs, these will not be charged directly to the customer, but to mitigate the risk of stranded
assets in the event of early termination, a signal for actual upstream cost will be given by raising an early termination
guarantee equal to the value of an appropriate share of upstream costs.
3. Network charges
a. A R/kVA tariff network charge will be raised for generators connected at high voltage (>66kV <132 KV) using the average
cost-reflective distribution network costs as currently calculated determined for loads, based on the maximum export
capacity. This charge will increase at a given indexed value.
b. The HV network charges will be rebated on energy produced based on the standard tariff loss factors, per transmission
zone and voltage at the Megaflex energy rates[1] excluding losses and reliability services, but not beyond extinction.
c. The rebate scheme to be revaluated in the future, but it is proposed that all generators that connect in the next 5 years will
remain on the rebate scheme until termination.
d. For medium voltage (11 and 22 kV) connected generators, no network charges to be raised.
4. General:
a. When the Distribution network is unavailable, due to Eskom-induced supply interruptions, Eskom's forced outages
(unplanned load shedding events) and Force Majeure a demand exemption will be given on the network charge for the
period of unavailability.
b. An indicative forward price curve is provided to enable better estimation of use-of-system charges and rebates.
c. For co-generators (both importer and exporter of energy), the network use-of-system charges are based on the higher of
import (load) or export (generator) network charges.
Conclusion

• Framework will be submitted to NERSA once

approved within Eskom

• The eventual framework implemented will be that

finalised and approved by NERSA

• Once approved, Eskom will calculate and submit

rates for approval