South Africa hits Eskom-sized roadblock

South Africa’s electricity revolution has hit a roadblock – Eskom’s delayed unbundling, which has prevented the creation of an independent market operator. 

Without such an operator, there will not be fair access to the grid for private energy producers, as Eskom will remain both a player and the referee. 

This is a conflict of interest as the utility will have the power to give its generation facilities preferential access to the grid when it is in short supply. 

Investec’s head of renewable energy trading, Mpho Modise, warned that if this situation persists, investment confidence will evaporate. 

This will result in the country failing to add the required capacity to meet elevated demand in future and fill the shortfall left when Eskom decommissions its coal-fired power plants. 

Eskom has pushed back against a quicker unbundling, which first began in 2019. The utility warned that if it loses its transmission assets, its financial sustainability will be at risk. 

The transmission division contributes R35 billion to Eskom’s earnings, and its effective separation could see the utility’s financial position significantly worsen.

It has been said that the separation may result in it breaching debt covenants with creditors, and Moody’s has said it could result in Eskom’s credit rating being downgraded. 

Modise said that South Africa’s energy market is now at a structural inflection point, with the country needing to rapidly add generation capacity. 

The country’s renewable energy sector and private companies are ready to deliver this critical capacity and are the only viable solution. 

However, they are constrained by their ability to access the national grid, pushing South Africa into a precarious position regarding its future energy security. 

“As the government and private sector look to provide the energy resources needed to build an industrialised future, the gap between ambition and execution is becoming more pronounced,” Modise said. 

“At its core, the market is currently defined by unmitigated success on one side and uncertainty on the other.”

It is estimated that 53,000 MW of renewable generation is awaiting grid connection, and 283,000 MW of total capacity interest is stuck in the development pipeline. 

Modise said this shows that the renewable energy industry has the capacity to drive reindustrialisation, plug any future shortfall, and ultimately drive costs down. 

However, much of this capacity is currently on the sidelines as it is unable to connect to the grid and supply electrons to households and businesses. 

Costing South Africa dearly

Modise said the reason why the capacity is sitting on the sidelines is the delay to Eskom’s unbundling and the uncertainty it is creating for investors. 

“The regulator has found itself tracking behind eager industry stakeholders, including IPPs, customers and financiers,” Modise said. 

This has resulted in it not developing, approving, and implementing trading rules, market and grid codes, or a framework for private companies to operate in. 

“Consequently, industry stakeholders are required to exercise patience due to the market moving faster than the development and implementation of the necessary regulatory framework,” she said. 

“These delays are not just an inconvenience, but directly impact investment confidence, slow the development of trading mechanisms, and limit the ability of both generators and consumers to plan with conviction.” 

The South African energy market will remain fragmented and constrained without the unbundling process being completed.

This will prevent the private renewable capacity from being added to the grid, giving South Africa energy security and enabling prices to fall from cheaper generation technologies. 

Modise said the creation of an independent system and market operator in the form of the National Transmission Company of South Africa is a foundational requirement. 

“Without it, the market lacks a central platform that will allow public and private generation to trade transparently and efficiently,” Modise said. 

“The current structure, where the state remains both participant and overseer, creates an inherent conflict that distorts pricing signals and access.”