Big changes for electricity prices in South Africa

South Africa’s Revised Electricity Pricing Policy (EPP) has been published for public comment and is set to usher in major changes for the local electricity sector.

South Africa’s Revised EPP was published by Electricity Minister Kgosientsho Ramokgopa in the Government Gazette on Friday, 28 August 2026.

The revised policy comes as South Africa’s electricity supply industry is undergoing a fundamental structural transformation.

South Africa is transitioning from a vertically integrated, monopoly-based system, with Eskom dominating generation and transmission, to an unbundled and increasingly competitive electricity market. 

Given the significance and scale of this transition, the government decided that the country’s previous EPP, developed in 2008, required revision.

At the centre of the reforms proposed in the new EPP is the unbundling of Eskom into three separate functions: Generation, Transmission, and Distribution.

An unbundled Eskom will break the state-owned energy giant’s monopoly over the local electricity supply market and fully open up the sector to competitors.

Prices in this new market will be guided by the EPP, which seeks to establish a coherent, transparent, and forward-looking pricing framework.

It provides the basis for cost-reflective tariffs, promotes efficient investment and operation, and incorporates mechanisms to address affordability and ensure equitable access to electricity.

The 2008 EPP envisioned Eskom acting as the sole buyer, purchasing energy from Independent Power Producers (IPPs) through long-term Power Purchase Agreements (PPAs).

However, the revised policy seeks to establish a Central Purchasing Agency (CPA) that will hold, manage and administer legacy PPAs to preserve contractual certainty.

At the same time, this CPA will allow the rest of the market to transition toward dynamic, market-driven trading.

In other words, electricity prices in South Africa will become more dependent on supply and demand, with consumers having the option of who they buy electricity from.

However, Nersa will still be involved in some aspect of electricity pricing, with the energy market regulator tasked by the Revised EPP to establish a new pricing framework.

Changes from 2008 to now

Under the 2008 EPP, Nersa regulated individual licensee revenues using historical asset values.

This created major under-funding risks during capital investment cycles and structural and financial distortions for licensees.

Given that South Africa’s electricity prices have risen by 600% since 2009, it has also led to consumers paying exorbitant fees, though this was also influenced by other factors.

The Revised EPP shifts away from regulating individual licensee revenues toward regulating required revenues for licensed activities.

This regulation will be based on a standardised set of Regulatory Accounts and activity-based costing.

Within 12 months of the new EPP’s adoption, Nersa must establish an updated asset valuation methodology and investment prudency framework.

If well implemented, this decreased, but cost-reflective, pricing regulation should lead to more efficient prices for both producers and consumers.

“Given the electricity supply industry’s size and its commercial and industrial customer base, the industry has the potential to generate strong cash flows to sustain a financially viable industry,” the EPP states.

This should also place South Africa in a favourable competitive position internationally regarding access to and the price of electricity. 

“At electricity prices that reflect prudent and efficient costs, the need for direct state support and subsidies should, apart from funding social objectives, be minimal,” the EPP states.

Standard economic theory suggests that a perfectly competitive market would produce efficient prices. 

The Revised EPP points out that South Africa’s electricity industry is currently not structured to deliver perfect competition.

However, it said this does not diminish the importance of efficient electricity prices. 

“In the absence of a perfectly competitive market, the usual approach is to institute economic regulation,” it explained.

This regulation is aimed at mimicking the competitive conditions to steer prices towards efficient levels. 

“Therefore, if well implemented, economic regulation should lead to efficient prices,” the EPP states.