Network Contracting with Generators (incl Network Contracting with Generators (incl. Independent Power Producers (IPPs)) Presentation to AMEU Pricing Committee, 10 November 2010 Juan la Grange

Purpose of this presentation To provide background on the contracting requirements for generators To clarify the network contracting framework for generators, taking into consideration: Electricity Regulation Act, License, Grid and Distribution Code requirements (technical and contracting) Physical vs contractual power flows Multitude of expected IPP generators, majority will be <100 MW and thus embedded (within a distributor). The urgency and importance of efficiently connecting generators, especially during the next few years of expected generating capacity shortages. 2018/11/23

Electricity Regulation Act (ERA) (Act 4 of 2006) requirements “A … distribution licensee must … provide non-discriminatory access to the … distribution system to third parties. (Section 21, subsection (3)).” Interpreted, this means fair treatment by the network provider ito Network pricing Network connections The use of the network Standard legal terms and conditions in agreements For all generators and loads 2018/11/23

Types of IPP energy transactions Embedded in Munic, selling to the same Munic Embedded in Munic, selling to Single Buyer (SB) or Other (eg Wheeling) Embedded in Distribution, selling to the same Distribution region Embedded in Distribution, selling to SB or Other, or wheeling Transmission connected, selling to SB or Other or wheeling Embedded in a customer’s plant, selling to that plant or own use Embedded in a customer’s plant, selling to SB or Other or wheeling International IPPs selling to International Trader 2018/11/23

The split between energy and network IPPs will typically have Power Purchase Agreements (PPAs) with some other party for the sale of their energy. But they also need an agreement with the network provider, to allow connection and the use of the network or system. Thus Distributors and Transmission will need network-only agreements with IPPs. 2018/11/23

Distribution Code contracting requirements Distribution Code requires Connection, Use of System (UoS) agreements, for generators and loads. Operating agreements where required by the Network Provider license. Each Licensee should have standard legal terms and conditions, so as to comply with their licence and the ERA requirement of non- discriminatory access. We need to harmonise these agreements as far as possible. Other processes and principles also need a framework / standardisation: Use of system pricing Connection standards Quotation process 2018/11/23

Transmission License and Grid Code requirements Licensee (NTC) shall provide non-discriminatory access to users of the Transmission System This implies standard contractual terms and conditions, and thus standard contracts Three types of contracts are required: Connection agreement (for a new or upgraded connection) Transmission Use of System agreement Operating Agreement An Ancillary Services agreement is possible if the parties agree. 2018/11/23

Grid Code requirements: contracting 2018/11/23

Physical vs Contractual electricity flows Contractual electricity flows assume that the electricity flows between the contracting parties. Physical flows are subject to the laws of physics, cannot be determined second to second, and change according to system conditions and events. For example, an embedded generator may sell to the Single Buyer: The physical flow may normally be restricted to the surrounding distribution system and loads (unless the loads disconnect due to an abnormal event). The contractual flow will be across a number of distribution systems and the transmission system to the Single Buyer. Or viewed differently, the transaction is only possible if the distribution and transmission systems exist. 2018/11/23

Contractual arrangements Type of IPP Type of network contracts Embedded in Munic, selling to same Munic or Single Buyer or Other (eg wheeling) Munic network agreement including compliance to the Grid Code PLUS Operating Agreement with Eskom Transmission and System Operations when PS≥50 MW or network configuration referred by Munic, then Transmission to decide Embedded in Eskom Distribution, selling to same Distribution Region or Single Buyer or Other Distribution network agreement; including compliance to the Grid Code PLUS Operating Agreement with Eskom Transmission and System Operations when PS≥50 MW or network configuration referred by Eskom Distribution, then Transmission to decide Connected to Transmission selling to Single Buyer or Other Transmission agreements only Note. The types of contracts will not be influenced by the energy transactions, it is size and Distribution / Transmission connection point that matters. 2018/11/23

Contractual arrangements (cont.) Type of IPP Type of network contracts Embedded in a Distribution connected customer’s plant, selling to that plant or own use or selling to Single Buyer or Other (eg wheeling) Distribution network agreement; including compliance to the Grid Code PLUS Operating Agreement with Eskom Transmission and System Operations (proposed) when PS≥50 MW ; or network configuration referred by Distribution, then Transmission to decide Embedded in a Transmission-connected customer’s plant, selling to that plant or own use or selling to SB or Other (eg wheeling) Transmission agreements International IPPs Distribution and / or Transmission agreements depending on connection point 2018/11/23

Action Name Date Action Plan Request SA Grid Code change to set out the requirements for embedded generators contracting with Transmission (> 50 MW) Eskom Transmission to submit to the GCAC 2018/11/23