Electricity wheeling

Gary Mockler
Group Chief Executive Officer

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(Electricity) Wheeling and Dealing

What is it, how does it work, and how can this become an investment opportunity?

Why

Electricity wheeling, globally recognised as a contemporary component in the modern energy landscape, not only facilitates the efficient transfer of electricity but also presents a lucrative investment avenue for discerning investors. Traditionally used as a mechanism for utility networks to balance supply and demand, wheeling has evolved into an attractive proposition for investors willing to back electricity producers.

How

At its core, electricity wheeling refers to the process of transmitting electricity from one location to another through existing transmission infrastructure.  This mechanism enables electricity producers, whether they are renewable energy developers, independent power producers (IPP’s), or our sole utility company, Eskom, to transport their generated electricity to consumers or markets where demand is high from locations where generation occurs.

The investment perspective

For investors, sponsoring electricity producers engaged in wheeling operations can offer numerous benefits and opportunities.  Firstly, by investing in wheeling infrastructure or supporting producers who engage in wheeling, investors can tap into diverse revenue streams generated from the sale of electricity across different regions or markets.  This diversification not only mitigates risks associated with localised market conditions but also enhances the diversity and resilience of investment portfolios.

Regulation

Electricity wheeling projects enjoy favourable regulatory frameworks and incentives aimed at promoting renewable energy integration and fostering market competition – in various markets around the world.  While existing South African legislation allows for the wheeling of electricity, a National Wheeling Framework has only now been called for, to define how wheeling should be implemented.

The Presidency’s National Energy Crisis Committee (NECOM) led the drafting of a NECOM Wheeling Framework which included consultation with municipalities.  It is anticipated that once the NECOM Wheeling Framework is finalised, NECOM will engage NERSA on the next steps with the intention of developing a set of Wheeling Regulatory Rules.  This regulatory certainty is a requirement before investors can leverage these regulatory provisions seeking to enhance project profitability and optimise returns on what will otherwise be a fairly speculative investment.

The opportunity

Electricity wheeling presents an opportunity for investors to contribute to the transition towards sustainable energy systems.  By supporting or investing in renewable energy producers engaged in wheeling operations, investors play a pivotal role in accelerating the adoption of clean energy sources and reducing carbon emissions.

In addition to financial gains, investing in electricity wheeling projects aligns with broader environmental, social, and governance (ESG) objectives increasingly prioritised by institutional and individual investors. By allocating capital towards projects that facilitate the efficient transmission of renewable energy, investors can demonstrate their commitment to sustainability and responsible investing practices.

In assessing investment opportunities in electricity wheeling, investors should consider various factors, including the regulatory landscape, market dynamics, technological advancements, and the track record of project developers. Conducting thorough due diligence and risk assessments is crucial for identifying viable investment prospects and maximizing long-term returns. Electricity wheeling represents more than just a mechanism for transferring electricity—it embodies a compelling investment opportunity for investors seeking to capitalise on the transition towards cleaner and more efficient energy systems.

GTC’s investment committee, in conjunction with our Asset Management team, is well aware of electricity wheeling as an international practice and is closely following Government’s proposed regulations and logistics in this regard.  To the extent that this becomes an investable opportunity appropriate for our clients, we will bring this to your attention.