Under the Coal Baseload IPP Procurement Programme projects may be required to provide ancillary services to Eskom as grid provider to support the reliable and secure operation of the transmission system by Eskom. The ancillary services will be procured under a separate agreement to the power purchase agreement (PPA), namely the Ancillary Services Agreement (ASA). Despite the fact that the PPA and the ASA will operate separately, there will be some linkage between the two agreements.

The form of the ASA was not released with the request for qualification and proposals for new generation capacity under the Coal Baseload IPP Procurement Programme (RFP) and will be issued by way of a briefing note in due course.

Nature of the ancillary services

Ancillary services will be defined in more detail in the ASA. The ASA will specify all of the technical requirements (both mandatory and non-mandatory) applicable to those services and the particular project. It will also set out the required testing regime and the applicable availability declaration and dispatch process relating to those services. Non-mandatory services will be subject to later selection and negotiation between the project and Eskom during the preferred bidder stage.

The ASA will limit the number of times some of the ancillary services may be requested by Eskom within a given period and from a specific facility or a unit of that facility.

Ancillary services will include reactive power or voltage control, the islanding of units forming part of the facility and requirements for operating reserves (including instantaneous and regulating reserves). At this stage it is not anticipated by the Department of Energy that those ancillary services will include black start, synchronous condenser operation, emergency reserve and supplemental reserve.

Payment and penalties

Eskom will make payments to the project for the delivery of the ancillary services. These payments are separate to any payments made by Eskom under the PPA for available capacity or the sale of energy. The nature of the payments is not clear, but the ASA will specify the payments due to the project as well as the approach and any penalty regime to be implemented for failing to comply with the requirements of the ASA.

Even though payment by Eskom for ancillary services will be invoiced separately from payments due under the PPA, penalties incurred for non-provision of an Ancillary Service under the ASA may be recovered through payments made under either the ASA or the PPA.

Financial considerations

The project may incur additional capital and operating costs in order to perform the ancillary services. The capital cost element of the ancillary services must be included in the charge rates specified in the bidder’s qualification and evaluation prices submitted in the bid response to the RFP.

Any additional fuel or operating costs incurred as a result of the provision of the ancillary services may be recovered as charge rates under the ASA. These charge rates are subject to the terms and conditions specified in the ASA and are fixed and not subject to negotiation or adjustment.

Accordingly the bidder will have to ensure that any anticipated cost difference between the charge rates and actual additional costs to be incurred is taken into account when determining its charge rates to be included in the PPA.