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


Regulatory Rules for Power Purchase Cost Recovery

3. Principles


3.1 Recovery of cost-effective power purchases


3.1.1 In addressing the key objectives set out above, the overarching principle is that power purchases covered under these rules are to be procured by the buyer on a cost-effective basis. This overarching principle is fundamental to each of the objectives, and has been shown in numerous jurisdictions to provide a robust and practical benchmark for assessing the long term benefits to customers of power purchases. Subject to other relevant principles and conditions set out in these rules, this cost-effectiveness benchmark will set the primary hurdle for recovery of power purchase costs by the buyer as part of its regulated revenue allowance.


3.1.2 In assessing the cost effectiveness of power purchases, factors that will be considered include
(a) the cost of alternative supply options;
(b) direct cost of power purchase, inclusive of fuel;
(c) timing (time-of-use differentials and date of commissioning);
(d) network (locational) benefits and costs;
(e) security of supply;
(f) firmness of supply;
(g) laws and regulations as well as environmental considerations;
(h) fuel diversification objectives; and
(i) quantifiable risks


3.1.3 The principle of cost-effectiveness will apply across a range of generation supply solutions including (but no [sic] limited to) Small Power Projects, greenfields or brownfields projects and domestic or cross- border projects.


3.1.4 Where found to be cost-effective (and subject to other conditions set out in these rules) power purchase costs would be passed through to customers.