South Africa’s urgent attempts to increase its power generation capacity have been boosted by the emergence of an energy trader which plans to help unlock more than an estimated 5GW of renewable energy over five years – the equivalent of the energy consumption of about 3-million households or 12-million people.
Enpower Trading is the first energy trader to secure a licence from the National Energy Regulator (NERSA) in over a decade and is one of only three licenced energy traders in the country. It will play a critical role in accelerating private investment in new generation capacity.
South Africa’s energy sector is transitioning from a vertically integrated single buyer model, in which Eskom purchases power from independent power producers (IPPs) and sells to municipalities and businesses, to an unbundled, competitive market where the private sector will operate and compete in South Africa’s electricity value chain.
There have been significant policy changes to support this transition and increase the number of IPPs, including some of the announcements under President Cyril Ramaphosa’s recent “energy action plan”. Of particular importance is that IPPs will no longer need to apply for an electricity generation licence from NERSA. However, IPPs are still not coming online fast enough to meet South Africa’s demand.
“There are too many, primarily renewable energy projects which are shovel-ready but remain unfinanced owing to the expectation of a 20-year PPA as a basis for building projects even though, on aggregate, merchant demand now far outstrips supply,” says Enpower CEO, James Beatty. “Enpower Trading is collaborating with the development finance community and private sector to unleash the merchant market segment where demand is met through dynamic trade.”
He says energy trading plays a critical role in ensuring the relationship between IPPs and customers. Enpower will source competitively priced, predominantly renewable energy from multiple IPPs and transport or “wheel” this energy across the national and municipal grid networks. They will then sell to customers at a discount to the prevailing tariff.
In addition to buying excess power generated by existing IPPs, Enpower will also guarantee offtake and thus ensure bankability – independent of government support – for new generation projects. Because energy traders are able to “pool” customers and offset any fluctuations in demand, they are able to enter into the kinds of long-term power purchase agreements which investors want to see.
“We estimate that there is the potential for energy trading to unlock over 5GW of generation capacity over the next five to ten years,” says Beatty.
Enpower has significant financial backing and recently closed a further investment round in which funding was secured from highly experienced traders in the global gas and power, and Africa markets. They have existing customers in several municipalities in the Western Cape and were recently accepted into the wheeling pilot project in the City of Cape Town.
“We are incredibly excited about the road ahead,” says Beatty. “We recognise that there are still a lot of regulatory and other challenges which need to be addressed. But the opportunity for energy trading to have an immediate impact is massive.”