Eskom monopoly coming to an end

South Africa is taking significant steps towards a more open electricity market, which could see lower electricity prices, increased reliability of supply, more choice for consumers, and increased investment in the electricity sector.

This is according to Baker McKenzie’s Angelo Tzarevski and Clara Hansen, who said that, if passed, the Electricity Regulation Amendment Bill will introduce an open-market platform that allows for competitive electricity trading.

On 16 May 2024, the National Council of Provinces passed the Electricity Regulation Amendment Bill, which aims to provide for increased electricity generation capacity and additional infrastructure.

It will also establish the duties, powers, and functions of the Transmission System Operator (TSO).

They explained that this Bill is a response to the ongoing electricity supply constraints and the prevalence of load-shedding in South Africa.

Therefore, the Bill aims to move away from a predominantly single-buyer electricity market dominated by Eskom and towards a more competitive market with multiple electricity producers able to compete within an open market platform. 

“The intention is to ease the ability of alternative suppliers to generate, transmit and distribute electricity,” they explained.

 “Ultimately, the Bill’s intention is to create an electricity industry with a multi-market structure that will enable competition, a secured energy supply and a modernised energy sector.” 

“This new energy market will be managed by the TSO, with the intention of creating a fair and transparent platform for the purchase of electricity.”

The obligations of the TSO will include –

• Operating the national transmission grid and ensuring fair access to the national electricity grid
• Performing the role of system operator, managing supply and demand to balance the grid
• Creating an open market platform to enable competitive trading of electricity, which includes establishing a market code and rules, setting out qualifying criteria for power market participants and ensuring that the market functions smoothly
• Managing the transition to a competitive market and providing mechanisms to ensure a reliable supply of electricity during the development phase of the market.

Under the multiple-market structure, consumers will be able to buy electricity from their chosen supplier, utilising the various trading opportunities through the market to purchase the quantities of electricity needed to meet the requirements of electricity users. 

However, the National Energy Regulator of South Africa (NERSA) will remain the regulator for the energy sector.

The proposed amendments to the Electricity Regulation Act would allow NERSA, in setting and approving tariffs, to provide for licence conditions that allow licensees to recover their costs, including generating a reasonable return. 

However, this regulation is surrounded by some uncertainty, as it remains to be seen whether the prices would be determined by market forces only or whether they would be subject to regulation through NERSA’s tariff setting.

“The electricity sector in South Africa has been dominated by Eskom for almost a century,” they said. 

“The Bill will enable multiple electricity producers to compete on a level playing field, which has the potential to lead to lower electricity prices, increased reliability of supply, more choice for consumers, increased investment in the electricity sector and increased innovation and efficiency.”

Parliament is aiming to process the Bill before the national election on 29 May 2024.