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Electricity Regulation Act, 2006 (Act No. 4 of 2006)


Regulatory Rules for Power Purchase Cost Recovery

11. Recoverable costs


Where authorised by NERSA, power purchase costs will be recovered by the buyer as part of its regulated annual revenue allowance, with cost variances subject to provisions for review as set out in rule 16. Recoverable costs include:


11.1 Power purchase payments made to the seller including, without limitation, any fixed capacity payments, variable energy payments, and other payments as set out in a PPA inclusive of the indexation of such payments as prescribed by a PPA.


11.2 Black start and ancillary services payments made to the private producer if purchased outside of (or in addition to) the terms and conditions of a PPA.


11.3 Hedging costs


These include prudently incurred costs by the buyer and/or an IPP in taking out hedging positions to mitigate, or in obtaining insurance or otherwise indemnifying itself and/or themselves against the risks allocated to the buyer and/or seller under a PPA including, without limitation, the costs of hedging its and/or their exposure in respect of commodity and foreign exchange risks linked to the price of fuel and/or foreign exchange risks linked to the repayment of debt.


11.4 Administration of PPAs including professional services


These include contract management services required to develop, manage, monitor and account for its payment and financial obligations under a PPA.


11.5 Market integration/industry restructuring costs


These are costs that may result from the transition to a wholesale market and integration of the IPP in the market, or costs resulting from industry restructuring.


11.6 Termination costs


These are costs to the buyer associated with a seller’s termination.


11.7 Stranded contracts


These may be due to change in market structure, change in electricity demand, or change in the relative cost of power supply.


11.8 Other Costs


Any other costs not covered on the list which are prudently/efficiently incurred will be allowed by the Energy Regulator as PPA costs and they will be passed through.