Big change for electricity market in South Africa — but one big issue remains

President Cyril Ramaphosa proclaimed the official implementation date of the Electricity Regulation Amendment (ERA) Act this past week but has delayed a part of the new legislation that has not gone down well with municipalities.

The ERA Act lays the foundation for a revamped electricity industry, with a competitive market comprising numerous electricity production and distribution companies.

The Act will dismantle the monopolistic structure in which Eskom has controlled nearly all aspects of the electricity supply chain in South Africa for nearly a century.

Among its provisions, the Act provides for the establishment of an independent system and market operator (TSO) — the transmission system operator — to wheel and deal electricity with equal treatment of Eskom and private generators.

The National Transmission Company of South Africa, spun off from Eskom this year, is acting as an interim TSO while the fully independent operator is established.

Ramaphosa signed the ERA bill into law in August 2024 after it was passed by Parliament in March 2024, and approved by the National Council of Provinces in May 2024.

On Wednesday, he proclaimed the implementation date of the ERA as 1 January 2025.

However, according to Sunday newspaper Rapport, the implementation of the first clause of the bill has been delayed by three months pending further consultations.

The problematic clause concerns the role of municipalities in the distribution of electricity.

The South African Local Government Association (Salga) and several metropolitan municipalities submitted a petition to the president asking that the first clause definition of “reticulation” in the clause be changed.

According to Salga, the Constitution determines that municipalities have the exclusive right to “reticulate” electricity.

Salga maintains the clause redefined the term in a way that would limit municipalities’ authority to trade and distribute electricity.

Salga’s operations chief Lance Joel previously told Newzroom Afrika that the definition was unconstitutional.

“That definition, in its nature, will limit the future scope of municipalities in providing electricity and limit it to the extent that it will negatively impact the sustainability of municipalities from a financial point of view,” said Joel.

“We are very concerned about that bill, and we have communicated our intention to challenge it.”

Municipalities rely heavily on revenue from electricity sales, which they use to fund other key functions and services.

Enabling more non-municipal entities to distribute electricity could drain their coffers and make it impossible to operate effectively without more financial support from the national government.

Energy Council CEO James McKay previously told Business Day that the bill needed to be enacted despite Salga’s concerns.

“We have to make a leap of faith,” McKay said. The bill is just a guide showing the direction we must go in, in determining the rules of how the market will function.”

“As we structure the market, there will be opportunities to challenge the new structure if it does not work.”

Aside from the reticulation issue, the bill has been widely welcomed by energy experts and business commentators.

Among the major advantages it will bring is in reducing the risk of future energy problems with a single point of failure — Eskom — by having a diverse mix of producers.

Professor Anton Eberhard, who advised on the bill, explained that the TSO would also enable greater competition and investment in power generation.

The bill strengthens the National Energy Regulator of South Africa’s (Nersa’s) role by giving it the power to licence entities to implement the competitive market.

Nersa will no longer be required to regulate pricing but will set and approve tariffs based on cost recoveries and reasonable returns.

Licenced energy producers will be able to compete with each other on consumer pricing, which Nersa will not set or approve.