Energy Council says 'phased transition' to State-owned TSO needed to mitigate risks

The Energy Council of South Africa has reiterated its support for the creation of an independent, State-owned Transmission System Operator (TSO), but has also called for a "phased transition" to mitigate the commercial and fiscal risks associated with Eskom's unbundling.

In a statement issued on behalf of the council's board, which is chaired by Sasol's Simon Baloyi, the council welcomed the creation by President Cyril Ramaphosa of a task team to develop an implementation roadmap for an independent TSO that would also own the transmission assets.

However, the council argued that the establishment of a new independent TSO was but one aspect to be considered in the roadmap, and outlined seven issues that should also be addressed, including:

The early creation of an independent Market Operator to ensure confidence, transparency and regulatory compliance with the licence conditions of the National Energy Regulator of South Africa;Independent grid planning and allocation for fair access;A bankable investment model to lower borrowing costs and attract private investment;The financial and operational stability at Eskom during its unbundling, including full transfer of fixed assets, and management of loan covenants and maturities;Meeting the Electricity Regulation Amendment Act (ERAA) deadline of January 2030;Minimising fiscal risks, especially those arising from municipal debt and stranded asset costs of aging, high-cost coal stations; andEnsuring that all entities (new and old) were well-governed, resourced, and competitive in a future liberalised market.

It also called for a holistic analysis of Eskom's unbundling, floating a proposal for the "early establishment of a new State-owned TSO entity in law, followed by the separation of transmission assets through an independent State-owned National Transmission Company South Africa (NTCSA) as a dedicated transmission owner and operator".

"These are viable options that will meet the reform objectives, the ERAA requirements and give improved system and risk benefits," the statement reads, without providing any timeframes for the proposed phasing.

In his February 12 State of the Nation Address (SoNA), Ramaphosa said the TSO should own the transmission assets, contradicting an earlier Eskom Holdings proposal for NTCSA to retain the assets and remain a subsidiary.

He also set a three-month deadline for the task team to address issues relating to the restructuring process, including setting timeframes for its phased implementation.

In response to the statement, Professor Anton Eberhard, of the Power Futures Lab at the University of Cape Town's Graduate School of Business, said it was unclear whether the council was supportive of the establishment of the TSO, with the transmission assets, within the five years stipulated in the ERAA.

In addition, the proposal by the council for the early creation of the TSO, but with a separate ongoing NTCSA holding onto transmission assets and operations, contradicted both the ERAA and the President's SoNA statement.

"Asking stakeholders, especially Eskom, to commit to at least an outer timeframe for the unbundling of the transmission assets into the TSO, is a litmus test of their commitment to restructuring the power sector – it's what will take us forward.

"In contrast, a continued refusal to commit publicly to a timeframe is taking us backwards, with profound consequences for competition, investment and future security of supply.

"This reluctance leads to the not unreasonable suspicion that Eskom's actual commitment to full unbundling is less than resolute.

"It's thus baffling that the Energy Council is not more robustly defending the interests of its non-Eskom members," Eberhard said.