Unlocking the power of virtual wheeling for South Africa’s energy future

Virtual Wheeling offers a promising pathway to increase the availability of cost-effective, sustainable energy in South Africa. However, realising this potential will require trust, strong public-private collaboration, and a shift away from traditional energy paradigms.

“Cheaper energy is going to become essential because electricity price increases – at a factor of close to three of the rate of inflation over the last 15 years – are making it hugely expensive for industry to rely solely on the state operator for power.” says Jaco Burger, Head: Corporate Venturing at Standard Bank. “Green energy is essential for the Just Energy Transition of the country and for achieving the sustainability goals of private sector. It can also provide a mechanism to produce sustainable energy at scale to make it economical and increase and diversify our energy sources away from coal”.

What is virtual wheeling?

‘Wheeling’ is the process of transporting electricity from a power generation source to a different location, typically across a utility’s grid, for use by a third party.

In direct wheeling, both the renewable energy source and the energy user—the offtaker—are connected to the Eskom grid. The offtaker signs an agreement with Eskom to use the renewable power generated and receives a discount on their electricity bill through a credit mechanism, explains Burger.

In contrast, virtual wheeling involves an Independent Power Producer (IPP) that is connected to the Eskom grid, while the offtaker is typically behind a municipal meter. "Eskom will pay a refund to an offtaker for the electricity they wheeled, given they received payment from a municipality for those electrons, without needing to generate it themselves. But Eskom will only refund an offtaker if the municipality is in ‘good standing’ with Eskom – a status that many municipalities lack,” says Burger.

Both the offtaker and potential Independent Power Producers (IPPs), along with their funders, take on the credit risk associated with Eskom. This requires the private sector to adopt a long-term risk perspective on both Eskom and the municipalities involved. However, historical municipal debt impacts the feasibility of virtual wheeling, as it influences the financial stability required to make the system work. As Burger sees it, the dilemma is that we’re holding back renewable energy potential—a cornerstone of the JET—due to historical debts and poor municipal financial performance.

“Someone needs to mitigate and manage the financial risk, and at PowerPulse, we believe we can address this challenge with our virtual wheeling solution.”

Scaling the solution

PowerPulse’s approach aims to shift the risk from the public sector to the private sector, requiring collaboration to manage the generation and distribution of renewable energy via the grid while managing the settlement and data.” says Burger.

“We believe we have a viable solution, but we need to demonstrate its effectiveness and ability to scale, to assure participants that virtual wheeling can become a reality. Our goal is to develop a solution that benefits all participants, is economically sound, and fosters collaboration.”

Overcoming hurdles

Participating in virtual wheeling requires forward-thinking, cooperative stakeholders willing to navigate challenges. “These obstacles aren’t insurmountable, and it’s clear that our virtual wheeling model has significant potential. We’re eager to collaborate with the right stakeholders to prove that the model works at scale and benefits everyone—from Eskom to the JET, and offtakers pursuing net zero goals and green credits,” says Burger.

He adds that technology can help overcome these barriers. “Smart metering and an independent data platform provider are crucial for virtual wheeling to succeed, and the private sector can play a key role in establishing this infrastructure. By eliminating cumbersome manual processes and streamlining reconciliations, we can improve efficiencies,” says Burger. “We need to leverage smart meters to gather data, use independent data aggregators to enable the calculations and settlement of the virtual wheeling refund by Eskom.”

“Challenges within the existing framework make this complex, but with the participation of the private sector and collaboration with the public sector to revise policies, we can make significant progress in the JET and provide more cost-effective renewable electricity to South African offtakers.”