LUNGILE MASHELE: The ups and downs of trading in green energy

There has been a lot of debate, and perhaps apprehension, over energy trading in SA. As a practice this has been in place for decades — SA started buying electricity from Hidroelectrica Cahora Bassa of Mozambique as early as the 1970s in a bilateral trade agreement. Despite a brief pause as a result of the war in Mozambique, the contract is still in execution, with about 1,400MW traded daily. 

The Southern African Power Pool, a regional electricity grid and Africa’s largest trading pool, has played an increasingly important role in recent years, helping to improve the reliability and security of electricity supply in the member countries. It has also helped to reduce the cost of electricity. The power pool trades an average of 2,800MW a day, which is dwarfed by Europe’s Nord Pool, which trades 23,300MW a day on average.

In recent years we have seen the emergence of smaller regional traders such as PowerX and Copperbelt Energy Company, which trade with specific customers in SA and the region, respectively. 

Energy trading in SA is being driven by the need for clean energy. As many companies try to reduce their carbon footprint and meet their net-zero targets, there is a growing need for renewable technologies to reduce their scope 2 emissions. This has resulted in the emergence of various companies in telecom and financial services offering energy trading services. 

Energy trading in a liberalised market essentially means Company A can buy electricity from Trader A, which will be delivered via the Eskom or municipal grid system. Company A will not be burdened by the high capex costs of building generation capacity, will take no construction risk and will not have to worry about operating and maintaining a power plant.

Green energy trading can reduce the cost of electricity, especially if the load profile fits that of solar (traders are offering on average 10%-20% less than the Eskom Megaflex tariff) and reduce emissions. However, before companies rush into trading agreements they need to be mindful of the following points. 

Green energy trading has its limitations. Traders cannot sell what they don’t have, so if there’s no sun or wind, or output is severely reduced, they will not be able to sell electricity. Occasionally, Eskom curtails wind or solar plants due to over-production or system disturbances, so if a company is buying renewable energy exclusively, the trader will not be able to sell electricity. Batteries could solve this challenge, but would invariably increase the cost of electricity. 

Green energy trading does not offer protection against load-shedding, which means buyers still need to be connected to Eskom and they need to provide backup in the form of batteries or diesel generators. 

Most traders offer energy markets and not capacity markets. This means they only sell what is available. A renewable plant can have 100MW installed capacity, but may only give you 10MW of energy at any given time. One only needs to look at Eskom’s 6pm daily variability to grasp this concept. Despite an installed renewable capacity in excess of 6,000MW, actual output can be as little as 1MW or as high as 3,500MW. 

The other major challenge relates to municipal networks and whether they can absorb a many-sellers-to-many-buyers model. This may lead to network congestion, network losses, trips and increased system outages. Municipal networks are often opaque, leading to a lack of transparency. They are also subject to high levels of theft, vandalism and incorrect billing.  

That said, energy trading is hugely beneficial to any organisation whose load profile tracks solar output and is looking to reduce their emissions and decrease their daytime electricity cost. It’s not a silver bullet, but it certainly achieves most net-zero objectives. 

• Mashele is an independent energy economist.