Nersa explained that the transitional arrangements known as vesting contracts were necessary as the sudden introduction of a free and open wholesale electricity market could trigger chaotic price swings.<\/p>\n\n\n\n
Vesting contracts are agreements between the National Transmission Company of South Africa and generators for the sale of a specified amount of energy at Nersa-determined prices. <\/p>\n\n\n\n
“Vesting contracts will be used to manage the transition to full competition in electricity and manage the financial risk of market participants and shall be valid during the transition period,” NERSA said.<\/p>\n\n\n\n
“The transition period is the period before a fully competitive market, during which certain participants will be allowed by NERSA to hedge against the market price through vesting contracts.”<\/p>\n\n\n\n
NERSA said a Central Purchasing Agency (CPA) would operate as an intermediary between the market and key participants, including electricity generators and buyers.<\/p>\n\n\n\n
“The magnitude of any shortfall or surplus experienced by the CPA on a monthly or annual basis is largely driven by the prevailing prices in the day-ahead energy market,” it said.<\/p>\n\n\n\n
“When the market price exceeds the agreed-upon contract or vesting price, CPA’s financial position improves, resulting in a reduced shortfall or the creation of a surplus.” <\/p>\n\n\n\n
The CPA would also serve as the financial counterpart for electricity generated by Eskom Generation under generation vesting contracts at each power station.<\/p>\n\n\n\n
The regulator said the vesting contracts and the tariffs payable to Eskom under these contracts would be subject to its approval and oversight.<\/p>\n\n\n\n
“The wholesale price structure does not address the underlying revenue or tariff structure or approved strike price in the vesting contracts,” NERSA said. <\/p>\n\n\n\n
“It is the mechanism to build up the relevant components from various tariffs and use-of-system charges to achieve a universal wholesale price.”<\/p>\n\n\n\n
Transition planned to take five to 10 years<\/h2>\n\n\n\n![\"\"](\"https:\/\/mybroadband.co.za\/news\/wp-content\/uploads\/2026\/05\/Eskom-generation-truck-with-power-station.jpg\")
<\/figure>\n\n\n\nNERSA said these vesting contracts would be valid during the transition period, which is anticipated to last between five and 10 years.<\/p>\n\n\n\n
“However, they will be subject to NERSA approval in terms of contract prices, duration, and subsequent oversight,” it said.<\/p>\n\n\n\n
“Eskom Distribution and any licensed distributor applying for market participation shall conclude a vesting contract with the CPA during the transition period.”<\/p>\n\n\n\n
NERSA said the vesting contracts shall include energy-hedge payments to manage price risks for distributors during the transition.<\/p>\n\n\n\n
They should also include elements of wholesale pricing, including, but not limited to, generation capacity charges, legacy charges, and subsidy charges.<\/p>\n\n\n\n
“Any licensed distributor’s wholesale or retail trading arm or division that applies for market participation during the transition period shall conclude a vesting contract with the CPA before participation,” it said.<\/p>\n\n\n\n
“The wholesale tariff for energy shall inform the price against which the hedge will be based. The hedge will protect participants against market price volatility.”<\/p>\n\n\n\n
NERSA provided illustrative vesting design options demonstrating trade-offs between market stability, revenue certainty, market power mitigation, liquidity development, and competitive market exposure.<\/p>\n\n\n\n
The regulator said these were purely intended for consultation processes and did not represent predetermined regulatory outcomes.<\/p>\n\n\n\n
The first example would be for 100% of Eskom’s sent-out electricity to be subject to vesting contracts, which it said would result in minimal exposure to the wholesale market.<\/p>\n\n\n\n
“This option provides maximum revenue stability and the strongest mitigation of structural market power during early market development,” NERSA said.<\/p>\n\n\n\n
However, it added that this approach would significantly delay market liquidity and the discovery of competitive pricing.<\/p>\n\n\n\n
The second option would be for 80% of Eskom’s sent-out electricity to be subject to vesting contracts. It said this option would provide substantial revenue stabilisation and strong mitigation of market power.<\/p>\n\n\n\n
The option would also allow limited exposure to competitive market pricing and gradual liquidity development.<\/p>\n\n\n\n
NERSA included two other options under which 70% and 60% of Eskom’s sent-out energy would be subject to vesting contracts.<\/p>\n\n\n\n
“This option seeks to balance revenue stabilisation and market power mitigation with gradual exposure to competitive price formation and liquidity development,” it said about the 70% scenario.<\/p>\n\n\n\n
“This approach accelerates exposure to competitive market pricing and liquidity development but increases exposure to short-term market volatility during transition.”<\/p>\n\n\n\n
Stakeholders have until 16:00 on 6 July 2026 to submit their comments on the Transitional Generation Pricing and Vesting Contract Framework<\/em> to NERSA.<\/p>\n\n\n\nThe principal characteristics, advantages, and potential risks associated with each illustrative vesting approach, as per NERSA, are summarised in the table below.<\/p>\n\n\n\nIllustrative vesting approach<\/th> Initial vesting<\/th> Market exposure<\/th> Price discovery<\/th> Revenue stability<\/th><\/tr><\/thead> 1<\/strong><\/td>100%<\/td> None<\/td> None<\/td> Very High<\/td><\/tr> 2<\/strong><\/td>80%<\/td> Low<\/td> Slow<\/td> High<\/td><\/tr> 3<\/strong><\/td>70%<\/td> Moderate<\/td> Balanced<\/td> Moderate<\/td><\/tr> 4<\/strong><\/td>60%<\/td> High<\/td> Faster<\/td> Lower<\/td><\/tr><\/tbody><\/table><\/div><\/figure>\n","protected":false},"excerpt":{"rendered":"South Africa’s energy regulator has published a proposed framework for the country’s transition to a wholesale electricity market.<\/p>\n","protected":false},"author":341076,"featured_media":650585,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27995],"tags":[105475,59903,181,24740,78980,70165,105482,105473,105474],"class_list":["post-649707","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-energy","tag-central-purchasing-agency-cpa","tag-electricity-tariffs","tag-eskom","tag-national-energy-regulator-of-south-africa-nersa","tag-national-transmission-company-of-south-africa-ntcsa","tag-private-power","tag-transitional-generation-pricing-and-vesting-contract-framework","tag-vesting-contracts","tag-wholesale-electricity-market"],"_links":{"self":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/649707"}],"collection":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/users\/341076"}],"replies":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/comments?post=649707"}],"version-history":[{"count":10,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/649707\/revisions"}],"predecessor-version":[{"id":650400,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/649707\/revisions\/650400"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media\/650585"}],"wp:attachment":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media?parent=649707"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/categories?post=649707"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/tags?post=649707"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
<\/figure>\n\n\n\nNERSA said these vesting contracts would be valid during the transition period, which is anticipated to last between five and 10 years.<\/p>\n\n\n\n
“However, they will be subject to NERSA approval in terms of contract prices, duration, and subsequent oversight,” it said.<\/p>\n\n\n\n
“Eskom Distribution and any licensed distributor applying for market participation shall conclude a vesting contract with the CPA during the transition period.”<\/p>\n\n\n\n
NERSA said the vesting contracts shall include energy-hedge payments to manage price risks for distributors during the transition.<\/p>\n\n\n\n
They should also include elements of wholesale pricing, including, but not limited to, generation capacity charges, legacy charges, and subsidy charges.<\/p>\n\n\n\n
“Any licensed distributor’s wholesale or retail trading arm or division that applies for market participation during the transition period shall conclude a vesting contract with the CPA before participation,” it said.<\/p>\n\n\n\n
“The wholesale tariff for energy shall inform the price against which the hedge will be based. The hedge will protect participants against market price volatility.”<\/p>\n\n\n\n
NERSA provided illustrative vesting design options demonstrating trade-offs between market stability, revenue certainty, market power mitigation, liquidity development, and competitive market exposure.<\/p>\n\n\n\n
The regulator said these were purely intended for consultation processes and did not represent predetermined regulatory outcomes.<\/p>\n\n\n\n
The first example would be for 100% of Eskom’s sent-out electricity to be subject to vesting contracts, which it said would result in minimal exposure to the wholesale market.<\/p>\n\n\n\n
“This option provides maximum revenue stability and the strongest mitigation of structural market power during early market development,” NERSA said.<\/p>\n\n\n\n
However, it added that this approach would significantly delay market liquidity and the discovery of competitive pricing.<\/p>\n\n\n\n
The second option would be for 80% of Eskom’s sent-out electricity to be subject to vesting contracts. It said this option would provide substantial revenue stabilisation and strong mitigation of market power.<\/p>\n\n\n\n
The option would also allow limited exposure to competitive market pricing and gradual liquidity development.<\/p>\n\n\n\n
NERSA included two other options under which 70% and 60% of Eskom’s sent-out energy would be subject to vesting contracts.<\/p>\n\n\n\n
“This option seeks to balance revenue stabilisation and market power mitigation with gradual exposure to competitive price formation and liquidity development,” it said about the 70% scenario.<\/p>\n\n\n\n
“This approach accelerates exposure to competitive market pricing and liquidity development but increases exposure to short-term market volatility during transition.”<\/p>\n\n\n\n
Stakeholders have until 16:00 on 6 July 2026 to submit their comments on the Transitional Generation Pricing and Vesting Contract Framework<\/em> to NERSA.<\/p>\n\n\n\n The principal characteristics, advantages, and potential risks associated with each illustrative vesting approach, as per NERSA, are summarised in the table below.<\/p>\n\n\n\n South Africa’s energy regulator has published a proposed framework for the country’s transition to a wholesale electricity market.<\/p>\n","protected":false},"author":341076,"featured_media":650585,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[27995],"tags":[105475,59903,181,24740,78980,70165,105482,105473,105474],"class_list":["post-649707","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-energy","tag-central-purchasing-agency-cpa","tag-electricity-tariffs","tag-eskom","tag-national-energy-regulator-of-south-africa-nersa","tag-national-transmission-company-of-south-africa-ntcsa","tag-private-power","tag-transitional-generation-pricing-and-vesting-contract-framework","tag-vesting-contracts","tag-wholesale-electricity-market"],"_links":{"self":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/649707"}],"collection":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/users\/341076"}],"replies":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/comments?post=649707"}],"version-history":[{"count":10,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/649707\/revisions"}],"predecessor-version":[{"id":650400,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/posts\/649707\/revisions\/650400"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media\/650585"}],"wp:attachment":[{"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/media?parent=649707"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/categories?post=649707"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mybroadband.co.za\/news\/wp-json\/wp\/v2\/tags?post=649707"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Illustrative vesting approach<\/th> Initial vesting<\/th> Market exposure<\/th> Price discovery<\/th> Revenue stability<\/th><\/tr><\/thead> 1<\/strong><\/td> 100%<\/td> None<\/td> None<\/td> Very High<\/td><\/tr> 2<\/strong><\/td> 80%<\/td> Low<\/td> Slow<\/td> High<\/td><\/tr> 3<\/strong><\/td> 70%<\/td> Moderate<\/td> Balanced<\/td> Moderate<\/td><\/tr> 4<\/strong><\/td> 60%<\/td> High<\/td> Faster<\/td> Lower<\/td><\/tr><\/tbody><\/table><\/div><\/figure>\n","protected":false},"excerpt":{"rendered":"