South African electricity price war looming

Electricity minister Kgosientsho Ramokgopa described the passing of the Electricity Regulation Amendment (ERA) Bill as revolutionary, adding that it will hopefully kick off an electricity price war in South Africa.

Speaking to SABC News, the minister said it could mark the end of “extraordinary” tariff price increases in the country.

Ramokgopa said the move will result in more investment in South Africa’s energy generation sector and greater technology adoption in the space.

“Greater levels of investment because now there’s regulatory and policy certainty once the president signs,” he said.

“Secondly, there’s going to be greater technology adoption because people competing in the space want to come in at the best price to attract off-takers.”

“So, there’s going to be investment in technologies leading to better efficiencies,” the minister added.

However, he noted that electricity consumers in South Africa will likely be the biggest winners. “Hopefully, we’ll get to a situation where there’s a semi-price war,” said Ramokgopa.

Kgosientsho Ramokgopa, Minister of Electricity

He explained that a price war could result from multiple players competing in the generation space. “This benefits the consumers. You will not see extraordinary increases in electricity prices,” he said.

The National Council of Provinces (NCOP) passed the ERA bill on Thursday, 16 May 2024, marking the end of Eskom’s 100-year electricity monopoly.

Eskom, formerly known as the Electricity Supply Commission (ESCOM), held a monopoly over electricity generation in the country since its creation in 1923.

The bill sets out guidelines for creating an open market platform for competitive electricity trading in South Africa, making Eskom just another generation market player.

It also supports establishing a Transmission System Operator (TSO), which will, among other things, take over the responsibility of Eskom’s System Operator.

The system operator is responsible for maintaining the power grid’s stability and determining which stage of load-shedding to implement if required.

Once established, the TSO will take control of the transmission grid, manage supply and demand to balance the grid, and create an open market platform for electricity trading.

Proposed multi-market model for South Africa

The amendments bolster the role of the National Energy Regulator of South Africa (Nersa) by giving it power over licencing the entities that will implement the competitive market.

This gives Nersa regulatory oversight of the transition to a competitive generation market. However, it will no longer be required to regulate pricing.

Instead, it will set and approve tariffs to allow licensees to recover costs and earn a fair return.

Professor Anton Eberhard, an energy policy investment specialist who participated in amending the bill, welcomed its passing.

He described its passing as a momentous day for South Africa’s power sector.

“The bill will help unbundle transmission from Eskom and create a market operator that will enable greater competition and investment in power generation,” said Eberhard.

He added that the bill would create a more viable electricity company, invest in protecting the heart of the system, and facilitate more electricity generators.