To foster competition, ERA introduces an independent transmission system operator (TSO) that will act as a transmitter, system operator, market operator and as central purchasing agency (CPA). The independent TSO will be established within five years and will oversee electricity transmission. In the interim, National Transmission Company of South Africa (NTCSA), a distinct but wholly-owned subsidiary of Eskom, will act as TSO. In a significant milestone for the ESI, that followed a prolonged unbundling exercise, NTCSA started trading on 1 July 2024. The National Energy Regulator of South Africa (Nersa) has licensed NTCSA to operate and manage the transmission grid, buy energy from Eskom generators and independent power producers (IPPs), and import and export energy. However, the transmission network will continue to be owned by the state, with many private companies competing to provide services. Plans are afoot to establish other Eskom subsidiaries, including a National Energy Distribution Company South Africa (NEDCSA) and a new Eskom holding company. Nersa’s role is sharpened Nersa will remain the ESI regulator, and is being endowed with additional powers to facilitate a smooth market transition. These extend to Nersa acting as an arbitrator between stakeholders. Nersa will set and approve tariffs based on supply agreements, ensuring licensees recover their costs. …in reforms that will aid the transition to clean energy The ERA reforms are expected to enhance South Africa’s capacity to transition towards a cleaner and more modern energy system by reducing reliance on coal-fired power. Eskom operates 15 coal-fired power stations with an installed capacity of 45.3GW. These facilities supply about 90% of South Africa’s electric power. According to current schedules for winding down this coal dependency and modernising the generation mix, approximately 12GW of Eskom’s coal plant capacity will have collectively been decommissioned by 2035. The new system is expected to create new opportunities, notably for the private sector, which
the reforms intend to place at the forefront of the energy transition. This will boost the growth of renewable energy (RE) technologies such as solar, wind and battery power, and increase RE’s share of the energy mix. At present, an estimated 6.4GW of on-grid renewable capacity is in operation. The removal of a ‘single buyer model’ dominated by Eskom will allow IPPs to sell power directly to multiple private offtakers, traders, and potential regional and cross-border markets at market-driven rates. A significant increase in the regional market is already envisaged by Africa’s most dynamic cross- border electricity trade, the Southern African Power Pool (SAPP) – whose 12 government members are being joined by an increasing number of private companies. The change will help reduce IPPs’ reliance on Eskom and create opportunities for private investors to diversify their revenue streams through dynamic contracting structures such as merchant power purchase agreements (MPPAs). The introduction of merchant markets is further expected to attract investment into RE projects, encouraging faster development of the ESI and promoting security of supply. Another notable highlight of ERA is the introduction of electricity traders and aggregators as a new and important group of market participants, promoting competition. Electricity traders, who are able to buy power from IPPs for sale to multiple offtakers, have already become an important element of the energy transition, wheeling power to customers, providing cheaper, reliable energy – in the process adding vital new capacity to the national grid. Nersa has to date issued nine electricity trading licenses and will continue to process new applications. This is despite objections from Eskom, which has threatened to approach the courts to stop Nersa from granting licences to private traders in areas where its distribution entity already holds a licence; the utility argues that Nersa’s current rules prohibit two or more licensees supplying the same area. The newly liberalised ESI is also expected to largely encourage more investment in transmission infrastructure, through partnerships with the private sector. Grid constraints in resource-rich areas of Northern Cape, Eastern Cape and Western Cape are limiting the connection of vital RE to the grid.
South Africa’s Energy Prospects
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