The Ancillary Services Agreement (ASA) was introduced in briefing note 4 of the Coal Baseload IPP Procurement Programme (the Baseload RFP). The ASA will be entered into by Eskom with each seller of power generated from coal IPP power stations being developed under the Baseload RFP, in parallel with a power purchase agreement with Eskom.
The ancillary services contemplated by the ASA consist of:
- Unit Islanding – the disconnection of a Unit from the grid but such that it is able to continue to supply itself, maintain control of its auxiliary consumption (and possibly power a local circuit) even without the ability to supply externally;
- Instantaneous Reserve – generating capacity or demand-side managed load that is available to respond fully within 10 seconds where grid frequency deviates outside of the acceptable bandwidth;
- Regulating Reserve – generating capacity or demand-side managed load that is available to respond within 10 seconds and be fully activated within 10 minutes where grid frequency is within the acceptable bandwidth but is approaching the upper or lower limit; and
- Reactive power and voltage control – (reactive power is generally controlled through the use of capacitors while voltage control entails introducing equipment to measure the voltage at a specific point and taking measures to maintain the required levels) this ancillary service allows Eskom to perform its main function of supplying electrical power while maintaining required levels of supply quality and security.
Each Unit with the requisite capacity must be capable of providing the ancillary services even during commissioning and testing although the seller will only be entitled to payment from the unit commercial operation date.
Testing, monitoring and certification
To provide ancillary services, the seller’s facility must be tested and certified in accordance with the South African grid codes and the ASA. The testing and on-going monitoring procedures under the ASA are critical to the project. Consequences of a failed test are significant and include decertification, withdrawal of ancillary service certificates and payment of penalties.
Payment and penalties
The payment structures for each of the ancillary services vary and should be examined separately. The ASA imposes a frequency threshold for provision of each of the ancillary services that must be exceeded in order for the Seller to be entitled to payments.
A seller will pay penalties if a unit is decertified and the ancillary service certificate is withdrawn. Penalties are applied and escalated monthly until the unit is recertified, or for a maximum of 180 months.
ASA interaction with EPC and O&M
The ASA creates obligations that will impact on the engineering, procurement and construction contract (EPC) and operation & maintenance (O&M) arrangements. Accordingly, additional considerations must be taken into account for EPC and O&M purposes, for example:
- EPC design specifications must accommodate the requirements of the ancillary services;
- the commissioning and testing process must accommodate the testing and certification procedure under the ASA;
- the EPC and O&M contractor must undertake to comply with ancillary service instructions and coordinate with Eskom under the ASA; and
- performance and availability guarantees given under the EPC and O&M will also need to take into account the provision and frequency of ancillary services required by Eskom under the ASA.
Ultimately, it is the seller’s responsibility to discharge any obligations imposed under the ASA despite the appointment of contractors.
Relief & Dispute Resolution
The ASA allows claims for relief (for events such as a system unavailability event, a compensation event, force majeure, change in law, unforeseeable change) to be included in the corresponding claims under the power purchase agreement provisions and for relief to be provided simultaneously under the power purchase agreement.
The dispute resolution procedures under a power purchase agreement and ASA are similar. Any disputes under the ASA that relate to any disputes under a power purchase agreement must be joined to form part of the related dispute under the power purchase agreement.