End of a 103-year monopoly in South Africa
South Africa’s government has gazetted its electricity market transformation position paper for public comment, in line with its plans to create a competitive energy market.
The move to create a competitive electricity market and end Eskom’s 103-year-old monopoly over the national grid has created tension between the company and the government.
Eskom initially welcomed the move but has expressed concerns over the unbundling of its transmission systems into an independent Transmission Systems Operator (TSO).
Transmission systems account for a large share of Eskom’s earnings, and the company believes the planned unbundling could weaken its finances and worry investors.
Along with Eskom, organisations such as the National Union of Mineworkers (NUM) opposed the move, saying it would increase private-sector control.
President Cyril Ramaphosa then introduced the Eskom Restructuring Task Team (ERRT) to establish the feasibility of Eskom unbundling.
In its phase one report, the team said that the Eskom unbundling was possible, and that the country’s transmission systems would be handed over to an independent TSO.
The Electricity Market Transformation Position Paper was subsequently presented to parliament and has now been published for public comment.
The aim of the position paper is to promote economic growth and development through a secure and reliable electricity supply.
The paper said that the introduction of a wholesale energy market will “enable ongoing competition amongst generators within the market.”
“This will lead to more accurate and transparent price signals and better incentives that will encourage improved short-term performance.”
The document is intended to serve as a guide for the ongoing changes to the energy sector and its frameworks.
In the new energy market, generation will become competitive, with private producers able to compete against Eskom.
The transmission systems and market operations will remain regulated but will be handled by a company separate from Eskom.
The retail and trading market will face both competition and regulation, as the government works to ensure the market is fair for buyers.
Electricity supply from municipalities and directly from Eskom will be subject to price regulations in the retail market, while private suppliers will not be.
Revised Electricity Pricing Policy
In addition to the Energy Market Transformation Position Paper, the Department of Electricity and Energy is expected to introduce a Revised Electricity Pricing Policy.
This policy will govern how electricity tariffs are implemented in the future and provide consumers with transparency about price changes.
In a recent media briefing, the Minister of Electricity and Energy, Kgosientsho Ramokgopa, said the policy would give certainty on future energy prices.
“We want everyone to have some degree of certainty on what will be the cost of electricity, not just today or tomorrow,” he said. “We want to create a ten-year horizon.”
The policy would introduce a ten-year price forecast, which NERSA would have to publish, outlining future electricity tariff increases.
Electricity tariffs have increased exponentially in recent years, with energy prices roughly doubling in the last decade.
This has placed pressure on households and has impacted businesses which are heavily energy dependent, such as mining operations.
“For heavy industries, when people want to make significant investments in the South African economy, they want to compute their return on investment,” Ramokgopa said.
A tariff forecast will help potential investors understand a business’s future costs, reducing investment risk.
The Electricity Market Transformation Position Paper can be read below:
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