Eskom unbundling concerns

Eskom recently took a significant step towards its unbundling by creating the National Transmission Company of South Africa (NTCSA). However, there are questions about whether this subsidiary will be truly independent.

This is according to Roy Havemann, an economist at the Bureau for Economic Research’s Impumelelo Economic Growth Lab.

The NTCSA held its official launch on Monday, 7 October 2024, but it officially commenced trading in July this year.

“The NTCSA will own and operate the country’s national transmission system, the world-class System Operator, the grid strengthening function, energy market services and the International Trader,” Eskom said when the company commenced trading.

The NTCSA will act as a transmission system operator (TSO) and buyer and assume further roles empowered by the Electricity Regulation Amendment (ERA) Act.

“The NTCSA will trade with Eskom Generation and Independent Power Producers (IPPs) using the current industry framework,” said Eskom.

It will develop a platform for power generators, consumers, traders, and retailers to trade with one another, aligning South Africa’s electricity market with leading countries around the globe.

When the National Assembly passed the ERA Bill, which empowers the NTSCA, earlier this year, energy analyst Chris Yelland said it is “an extremely important step on the way to a restructured electricity supply industry”.

“This really sets the framework for separating the transmission business of Eskom out of the rest of Eskom, creating a separate and nominally independent company which is a subsidiary of Eskom Holdings,” he said.

The state-owned TSO established under the Bill will –

• Operate the national transmission grid
• Manage supply and demand
• Create an open-market platform that will allow for the competitive trading of electricity

Yelland explained that the importance of this legislation lies in the fact that it will create a level playing field.

This will result in all generators – not only Eskom – having equal access to the grid. 

This includes independent power producers, municipal electricity generators, and “prosumers” – customers of electricity who also generate electricity.

He said this removes some of the stumbling blocks to investment in South Africa’s energy sector because, in the past, preference has been given to Eskom generation. 

“The ERA Bill really lays the framework necessary to establish a diversified and competitive generation sector,” he said.

“And it’s important that the transmission sector should be independent of the generator that exists – Eskom – if you want to encourage new entrance into this sector.”

However, Havemann said the market remains sceptical that the NTCSA will be allowed to operate truly independently of Eskom.

“This is a critical part of the reform process – the intention of a separate NTCSA is to operate as an independent system market operator so that it manages the liberalisation of the electricity market,” he said. 

“Even the branding remains clearly ‘Eskom – NTCSA’ with NTCSA in a substantially smaller font.” 

Optics aside, Havemann said Eskom’s corporate structure remains unbundled – the NTSCA is a wholly-owned subsidiary and does not (yet) issue debt in its own name. 

“The focus will be on how quickly substantive independence comes about,” he said.

Regardless of these concerns, the NTSCA has now officially launched and could completely change South Africa’s electricity market.

In an NTCSA statement announcing its official launch, the entity said it must accelerate the construction of new transmission development infrastructure to execute the TDP at the required scale and pace.

“It is anticipated that in the next five years, there will be 30GW of utility-scale renewables connected to the grid by the end of 2029,” it said.

“A step change will be required to ensure that this new generation can connect to the electricity transmission grid and to get it to the point of demand.”

The NTCSA hopes to have brought 11,000MW of new capacity online by the 2027 financial year.

In a presentation to Parliament this week, the NTCSA also provided substantial information on the state of renewable capacity, including: 

• Rooftop PV (behind the meter) has increased by 3,800 MW in 24 months.
• The highest output from the grid-connected renewable plants was 5,130 MW on 15 September 2023. This is equivalent to five stages of load-shedding avoided (each stage of load-shedding is 1 GW).  
• On 20 February 2023, renewables supplied 21.8% of the country’s grid demand. 

“Despite being a newly formed entity, the NTCSA has already made substantial progress in implementing its strategy,” said NTSCA chair Priscillah Mabelane.