Competition in Transmission Infrastructure Development

1. Introduction

Transmission infrastructure includes high-voltage lines, substations, transformers, control systems and related facilities used to move electricity from generation centres to distribution networks. Transmission is essential for connecting large power stations, renewable-energy projects, storage facilities and electricity consumers.

Competition in transmission infrastructure is different from ordinary market competition. Transmission networks generally have natural-monopoly characteristics because constructing multiple parallel high-voltage networks can be extremely expensive. Therefore, competition law focuses less on competing transmission wires and more on competitive infrastructure development, procurement, access, investment and governance.

2. Meaning of Competition

Competition in transmission infrastructure development may occur through:

competitive procurement of transmission projects;

independent developers competing for infrastructure contracts;

competition among equipment suppliers;

competitive financing and construction;

innovation in grid technology;

competitive connection projects; and

transparent investment planning.

The objective is to obtain reliable infrastructure at reasonable cost while preventing dominant firms from excluding competitors.

3. Natural Monopoly

Transmission networks are usually regarded as natural monopolies because their infrastructure involves substantial fixed costs and economies of scale.

If two companies construct parallel transmission lines between the same locations, the additional infrastructure may not generate enough economic benefits to justify its cost.

Therefore, regulation often substitutes for direct infrastructure competition. The legal framework must ensure that the transmission operator behaves neutrally toward generators, distributors, traders and other market participants.

4. Competition in Infrastructure Procurement

One important area of competition is the procurement and construction of transmission infrastructure.

Competitive tendering can allow different engineering, construction and technology companies to compete for transmission projects. This can improve:

price efficiency;

construction quality;

technological innovation;

project delivery; and

transparency.

However, procurement can create competition concerns where companies engage in price fixing, bid rigging or market allocation.

The Competition Commission v Waco Africa proceedings are relevant because they concerned alleged collusive tendering associated with Eskom procurement. The case demonstrates the importance of competition law in electricity-related procurement.

5. Network Access and Competition

Once transmission infrastructure has been developed, access becomes a central competition issue.

A transmission operator may control infrastructure that competitors cannot easily reproduce. It could potentially restrict access, discriminate between users, delay connections or provide preferential treatment to affiliated businesses.

Competition law therefore needs to operate alongside electricity regulation to ensure transparent and non-discriminatory access.

6. Senwes Case

The Constitutional Court decision in Competition Commission of South Africa v Senwes Ltd provides a useful comparative principle.

Senwes involved control over grain-storage facilities and related downstream markets. The Court considered exclusionary conduct and the effect of controlling an important facility.

Although the case concerned agricultural storage rather than electricity transmission, the reasoning is relevant by analogy. A transmission operator controlling infrastructure essential for reaching electricity markets may similarly affect the ability of competing businesses to participate.

7. Telkom and Network Infrastructure

Competition Commission v Telkom SA Ltd provides another useful comparative precedent concerning network infrastructure.

The case involved allegations of exclusionary conduct in telecommunications. Its relevance to electricity transmission is that a network owner can potentially influence competition in downstream markets through control over access to infrastructure.

The principle is particularly important where the infrastructure owner also has commercial interests in generation, trading or other electricity services.

8. South African Competition Law

The Competition Act 89 of 1998 provides the general competition framework.

Section 4 addresses certain restrictive horizontal practices, section 5 addresses specified vertical restrictive practices, and section 8 regulates prohibited conduct by dominant firms.

The mere existence of a transmission monopoly is not automatically unlawful. The legal concern arises when a dominant firm engages in conduct prohibited by the Competition Act.

Transmission regulation must also be coordinated with the electricity regulatory framework and the functions of NERSA.

9. Renewable Energy and Transmission Competition

The expansion of renewable energy has increased the importance of transmission development. Wind and solar resources may be located far from major electricity-demand centres.

If transmission capacity is insufficient, renewable generators may face:

connection delays;

congestion;

curtailment;

increased development costs; and

difficulties entering electricity markets.

A lack of transmission capacity can therefore become an indirect barrier to competition in electricity generation.

10. Innovation and New Technologies

Competition can also encourage innovation in transmission systems. Examples include:

high-voltage direct-current technology;

dynamic line-rating systems;

advanced monitoring;

smart substations;

automated fault detection;

grid-enhancing technologies; and

advanced power-flow control.

Procurement rules should avoid unnecessarily favouring one technology or incumbent supplier. Technical standards should be based on legitimate reliability and safety requirements.

11. Merger and Ownership Concerns

Transmission infrastructure can also become relevant in merger control. A merger involving transmission assets and electricity-generation or trading businesses may create vertical concerns.

Authorities may examine whether the transaction could provide the integrated firm with an incentive to restrict competitors' access or obtain commercially sensitive information.

However, vertical integration may also produce legitimate efficiencies, such as improved investment coordination and reduced transaction costs.

12. Conclusion

Competition in transmission infrastructure development is mainly about creating competitive conditions around a natural monopoly. Direct duplication of transmission networks is usually inefficient, but competition can occur through procurement, construction, technology, financing and innovative grid solutions.

The Senwes and Telkom cases provide useful comparative principles concerning control over important infrastructure and exclusionary conduct, while the Waco Africa proceedings demonstrate the importance of competition rules in electricity-related procurement.

A sound framework should therefore combine transparent procurement, non-discriminatory network access, competition-law enforcement, independent regulation and technology-neutral infrastructure planning. This can encourage efficient transmission investment while protecting competition in the wider electricity market.