Eskom kissing monopoly goodbye

South Africa is making strides towards cross-border electricity trade, which will slice into Eskom’s energy-generation monopoly.

This is feedback from energy expert Ruse Moleshe, who discussed this shift on Kaya Biz. 

Her comments come after the National Energy Regulator of South Africa (NERSA) approved four new electricity trading licenses, including one for Africa GreenCo.

Africa GreenCo, a private player in the Southern African Power Pool (SAPP), is set to operate across borders within SAPP, which includes 12 member countries under the Southern African Development Community. 

This regional integration aims to improve power accessibility and efficiency across Southern Africa. 

According to Moleshe, Africa GreenCo will act as an intermediary, purchasing electricity from independent power producers (IPPs) and selling it to South African industrial users through bilateral contracts or potentially to Eskom itself, using Eskom’s transmission infrastructure.

As one of the few private entities in SAPP, Africa GreenCo brings financial strength and experience to regional power trading. It offers an alternative to national utilities while working within the existing grid.

“So, it is introducing additional competition in the market,” Moleshe said. 

At the moment, Eskom is the majority generator of electricity, producing over 95% of the country’s electricity, with the rest coming from other sources like IPPs. 

Introducing new players means that we are opening up to other users, and potentially, Eskom might see it as losing market share to a certain extent. 

Though Eskom has raised concerns over disruptions to its exclusive distribution areas, Moleshe clarified that these changes won’t interfere with Eskom’s distribution lines, as the company will still transmit and distribute power through its network.

The primary concern may stem from the potential revenue loss as competition grows and other players eat more into Eskom’s market share.  

“Already, Eskom has lost some of their sales,” Moleshe explained.

With more businesses installing rooftop solar and industrial users sourcing power from other traders to help meet their large power supply needs, Eskom’s sales are already seeing slight declines. 

“That has an impact potentially on their revenues as you introduce competition in the market. So that’s what they are worried about.” 

Africa GreenCo has the resources and expertise to handle cross-border electricity trading, yet Southern Africa’s infrastructure challenges – such as grid congestion and transmission limit – may constrain its immediate expansion, Moleshe said.

Substantial upgrades will be needed to the region’s infrastructure to accommodate significant cross-border power flow in the near to medium term.

Efforts to address these barriers are already in progress. The SAPP has focused on grid-strengthening initiatives, like the ZiZaBoNa project, which connects Zimbabwe, Zambia, Botswana, and Namibia.

These projects aim to attract private investment by improving commercial viability, though progress has been gradual due to challenges like droughts impacting hydropower in Zambia and economic strains in Zimbabwe.

Despite these hurdles, there are positive developments in the region’s energy sector.

Regional energy exchanges are already underway, and the diversity of resources – coal in South Africa and Botswana, gas in Mozambique, and hydropower in the north – offers long-term potential for a stable, interconnected grid.

South Africa is driving to introduce more competition in generation and introduce new players into the market – which includes boosting cross-border generation – to reduce Eskom’s monopoly. Infrastructure developments are a key part of this transition.

Eskom has started presenting a transmission development plan to support this shift by creating infrastructure to facilitate the flow of energy from new generators to consumers.

“So you’re going to see a lot of infrastructure development,” Moleshe said.

“That’s the start of a market that is now liberalised compared to a monopoly market with more players in line with what is happening internationally. So that’s what you can look forward to in the future.”