Property developers seek an "open forum" with Eskom to clarify the rules of engagement for new connections.

The South African property development sector has entered an extremely challenging environment as demand visibility has all but disappeared, for the short term at least, and uncertainty around access to funding increases.

But compounding matters is that the sector also has been left somewhat in the dark with respect to what the precise new connections policy regarding sizeable new developments.

For that reason, the South African Property Owners Association (Sapoa), which has been assessing the impact of power constraints on the industrial and commercial property sector, still believes it is urgent that the new connections policy be fully dealt with as a matter of priority.

"At this point, uncertainty does not help the industry at all," says Sapoa national developers committee chairperson and Iprop director Richard Bennett.

"Although planning for new developments is obviously going ahead, this planning necessitates that we look a long way, even beyond the current challenges. "In such a context, uncertainty around the rules associated with power supply affects planners and could, ultimately, even lead to delays," Bennett outlines.

Sapoa, which represents companies that control 90% of all commercial and industrial property in the country, explains that, given the planning lead times (24 months for commercial projects and at least 12 months for accommodation), work has to continue, despite the current low-growth scenario.

Having uncertainty around power connections simply adds to the risks, which will affect the planning cycle. And, in the context of a rising risk temperature, generally - whether this be associated with uncertainty around demand, the future costs of utilities, the release of new land for industrial and commercial development, access to capital, or ensuring the introduction of green building techniques to reduce total carbon footprint and environmental impacts - continued foot dragging on the new connections policy is a major concern.

Sapoa's research indicated that the current uncertainty, particularly at municipal level, has already delayed decisions, and is, together with blockages in the release of new development land, a serious obstacle in the way of the project pipeline. Admittedly, the overall performance of the commercial market is mostly dependent on a reduction in interest rates, positive economic growth and an upturn in the global economy.

From the beginning of the year, the consumer-sensitive retail sector has been affected by the high interest rates and inflation, while the contraction in household spending is extending the down cycle.

One-size-fits-all Policy Dubbed Disingenuous
But in the industrial and office sectors, Eskom's restriction on developments requiring power of 100kVA and above is a key constraint. "The decision made by Eskom to limit supply to new developments over 100kVA is disingenuous in the extreme," Bennett asserts.

"One cannot put a one-size-fits-all solution to the development industry, and we definitely need real clarity on how power connections are going to be made available without the crazy restrictions that have been proposed. The industry needs to have an open forum with Eskom and those involved with the release of power for the new developments and we need honest and clear answers," warns Bennett.

Sapoa's legal services manager, Tsakane Shilubane, adds that one request from all the organisation's committees is for Eskom to come up with clearer answers and solutions to problems facing the commercial property industry.

What is encouraging for the property development industry is that Eskom will continue to pursue an aggressive planning and development schedule in 2009 for a third new generation coal-fired power station, as well as other baseload projects, despite a marked slowdown in demand.

Powering Ahead
Indeed, Eskom chief officer: generation Brian Dames told Engineering News that it was also prioritising the independent power producer programme as part of a plan to close future supply-side gaps, while spreading project and funding risk beyond Eskom's balance sheet.

All projects under construction would also be pursued in line with previously agreed schedules, with only the Nuclear-1 and the second pumped-storage project (the R19-billion 1 520-MW Tubatse scheme, in Limpopo province) having been reviewed - the former on economic grounds, the latter on implication of peaking demand, given the current economic slowdown.

But Bennett is somewhat concerned that Eskom will begin factoring in negative or zero growth for the long term, which could result in a return to the challenges experienced at the start of 2008 once the economy begins growing again.

"Even with the difficulty with raising the capital for new power plants, these must be built and the planning for the new connections must be permitted at more than 100 kVA a connection,"

"No customer has been denied power"
Eskom spokesperson Fani Zulu tells Engineering News that the company is connecting all applications that will use less than 20 MVA, provided the necessary energy-efficiency requirements are met and applicants commit to saving electricity at any existing points of demand that they may have in South Africa.

This, he asserts, is necessary to ensure that additional electricity is used efficiently and to create the necessary space on the system to supply additional load.

"No customer has been denied connection owing to supply constraints," Zulu asserts, adding that connections could only be because of local network constraints.

"Supply constraints are still real and will remain so for several years. The additional loads can only be sustained through energy savings by all," he adds, noting that all new connections in this category will be connected according to standard Eskom processes.

New connections of more than 20 MVA will also be dependent on available supply capacity. Since loads in this category will collectively add a significant amount of load to the system, Zulu says that it is essential that connections be more closely managed.

This said, these loads will be prioritised for supply on a basis that will be give maximum social and economic benefits to South Africa. This will be done accordingly to criteria, which the government is in the process of developing.

“No new connections above 20 MVA have been made, apart from where we made legal commitments prior to the moratorium.

“Supply dates for new loads in this category will only be determined once the prioritisation criteria have been finalised, in consultation with the National Economic Development and Labour Council, and if system supply and demand forecasts confirm the sustained availability of supply,” Zulu outlines.

But the property sector still feels somewhat out on a limb.

Broll Property Group utility manager, Douw De Kock says that the new connections policy is far from clear and is still seen as a constraint, in spite of falling demand for power in South Africa.

“Although the National Energy Regulator of South Africa’s (Nersa’s) new “Consultation Paper on Power Conservation Rules Programme’, released in December last year, stipulates that government is looking at making power available, availability remains a concern.

“I think the current economic situation, which led to smelters closing down, has helped for the moment, but this is still a 15 year problem that we will have to try to navigate,” De Kock proffers.

Responding Responsibility
He believes that the property sector is responding in a responsible way, but urges his colleagues to truly start using alternative sources of energy and reducing the energy draw of their buildings.

“South Africa’s electricity crisis has been the focal point of green building and will continue to drive the adoption of green building principles, but it may well be following by a water crisis and property owners need to prepare themselves now for the green building initiatives of the future.”

Old Mutual Investment Group Property Investments (OMIGPI) executive for property development Brent Wiltshire says that the company is still studying Nersa’s consultation paper to identify what the future requirements will mean for its portfolio.

Wiltshire notes that, based on Eskom’s statement regarding a freeze in projects exceeding 100MVA, as well as the potential requirement to develop a property without sufficient downstream capacity, it could translate into higher development and operational costs.

“Capacity constraints could either stall a project, or cost the developer in terms of infrastructure development, which the local municipality may or may not contribute to.”

OMIGPI has divided its response into active and passive conservation plans. Passive opportunities are focused on the design end, which could contribute indirectly to a reduction in energy demand by reducing the overall draw of heating, ventilating and air conditioning (HVAC) and lighting.