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


Regulatory Rules for Power Purchase Cost Recovery

1. Definitions


In these rules any word or expression to which a meaning has been assigned in the regulations shall have the meaning so assigned unless the context indicates otherwise



means Electricity Regulations Act, 2006 (Act No. 4 of 2006);


"Ancillary services costs"

means the cost of services that are necessary for the reliable and secure operation of the electrical system, including the transmission of electrical energy from generators to distributors and other customers;



means any person or entity or entity designated by the Minister of Energy in terms of section 34(1)(4) and (d) of the Act and authorised under a licence, this includes any person or entity running a procurement process in respect of the IPP bid programme or entering into a power purchase agreement;


"Capacity payments"

means payments to be provided under the terms of a power purchase agreement with regard to the fixed cost of power supply and could extend to fixed costs associated with primary energy. Such payments would typically require threshold levels of availability by the generator with price adjustments made if these thresholds are not met;


"Energy payments"

means payments to be provided under the terms of a power purchase agreement with regard to variable cost of power supply. Such payments would typically be made in reference to energy generated and supplied to the power purchaser;


"Firmness of supply"

means the level of certainty provided in regard to supply of capacity and energy under a power purchase agreement. As an example only, large centrally dispatched projects might typically provide (and be paid for) firm supply, whereas smaller projects might self dispatch on an ‘as available’ basis. While not a general rule, firm supply would more often obtain a greater level of remuneration that non-firm supply;


"Hedging costs"

means costs related to the purchase and administration of hedging instruments. These costs would typically include direct payments to intermediaries (those that effectively sell hedges) and any contingent liabilities emanating from mark to market accounting rules and/ or collateral requirements, and indirect costs of administration of the hedging activity by the purchasing utility.


"Independent Power Producer (IPP)"

means any undertaking by any person or entity which the government of South Africa does not hold a controlling ownership interest (whether direct or indirect), of new generation capacity at a generation facility following a determination made by the Minister of Energy in terms of section 34(1) of the Act;


"Independent Power Producer Control Account"

means a regulatory account which accumulates under and over recovery of regulated revenues related to the IPPs during the course of a multi-year price control period.


"Integrated Resource Planning (IRP)"

means a public national planning process and framework within which the costs and benefits of both demand- and supply-side resources are evaluated to develop the least-total-cost mix of utility power generation resource options, risk adjusted for probability and government policy;


"Transmission Network benefits"

means benefits obtained at system level in regard to location of new generation facilities whereby the network can be operated more efficiently, providing greater reliability and/or stability and/ or reducing transmission cost of supply and/or reduces electricity losses from what those costs would otherwise have been without the new generation facility;


"Regulatory Clearing account"

means a regulatory account which accumulates under and over recovery of regulated revenues [except for IPPs related revenues] during the course of a multi-year price control period;


"Stranded contracts"

means contracted energy purchases that over time become more expensive than comparable sources of supply (at that future point in time);


"Take-or-pay provisions"

means the obligation of the energy buyer to purchase from the independent power producer specified quantities of power in a defined period or otherwise pay for those specified quantities if not taken. These provisions are typically linked to primary energy obligations in the value chain;


"Termination payments"

means the payment by or to the power purchaser for termination of a Power Purchase Agreement. The terms, conditions and consequences of termination would typically be set out in the Power Purchase Agreement;


"Time of use (TOU) pricing"

means the method of price differentiation with reference to the time of day and/or week and/ or year in which power is supplied. Simple methods might attach separate prices as defined by peak, off-peak and shoulder periods, whereby more complex methods might define numerous TOU periods, and the relative price differentials might also change on a dynamic basis;


"Vested PPAs"

means power purchase agreements assigned to an off-taker (e.g. buyer, host utility, distribution business, etc) perhaps as a result of Ministerial directive.