MASIBULELE MABANGA: Electricity regulation act is a light bulb moment

Load-shedding has had a devastating effect on businesses in SA, with an estimated cost to the economy of almost R225bn between the first quarter of 2020 and second quarter of 2023.

This interruption in electricity supply has translated to a loss in economic productivity, damage to commercial equipment, increased job-shedding and an overall stifling of much-needed economic growth.

It is against this dim background that stakeholders, including organised business, embraced the signing of the Electricity Regulation Amendment (ERA) Act by President Cyril Ramaphosa on August 16.  

The ERA is intended to shift away from a vertically integrated energy market in favour of a liberalised energy market. This is achieved by facilitating Eskom’s unbundling to promote private investment in the national electricity supply market through the creation of a Transmission System Operator (TSO), which will, among other functions, establish an open market trading platform to promote competitive electricity trading.

The TSO will act as the custodian of the national grid and, among other functions, is tasked with fulfilling the following: 

• Market operation, which involves the facilitation of an open market trading platform where buyers and sellers take part in the sale of electricity. This entails the creation of a market code to govern this anticipated multimarket model. A draft SA Wholesale Electricity Market Code is already out for public comment and will give meaningful direction to the nation’s future purchase and sale of electricity by consumers from licensees;
• System operation, which involves ensuring non-discriminatory access for competing power generators to the transmission and distribution system. Importantly, under the Energy Action Plan the system operator is also tasked with expanding national grid capacity to ensure that the enhanced electricity supply emanating from these energy reforms can enter the national grid and ultimately be distributed to end users to meet national demand; and
• Managing the central purchasing agency, which will house active and pending power supply agreements. These include the power supply agreements concluded under the Renewable Energy Independent Power Procurement Programme and other power supply agreements involving  government.  

The public enterprises minister is required to establish the TSO to fulfill the above functions within five years, but interim provisions are made through the National Transmission Company of SA to assume these roles in the meantime. This is a clear indication of an expedited attempt to materialise the purpose and objectives of the ERA to address the national electricity plight.  

To ensure an economical balance between reasonable electricity prices and the promotion of energy investment is maintained, the National Energy Regulator of SA (Nersa) will regulate electricity prices by setting and approving tariffs that should allow licensees to recover their production costs with a reasonable return.

However, an exception is where a licensee charges a tariff as a result of a competitive market or a power supply agreement. The competitive market exception supports the view from experts that Nersa’s tariff regulation is not a long-term solution, and instead a stable energy market will eventually dictate the direction of electricity prices in the open market trading platform. 

The diversity in electricity supply and promotion of renewable energy will contribute to our national commitment to become carbon neutral and embraces the country’s decarbonisation efforts. In turn, this stimulates a demand for new job skills and technology that will ultimately translate to new employment opportunities.  

Furthermore, a competitive market structure favours consumers in that more participants in the country’s electricity supply chain will give the consumer an opportunity to choose their electricity supplier and in turn reduce energy prices.

However, this diversity in electricity supply will not achieve this benefit and end load-shedding overnight. Eskom still maintains a monopoly over the national baseload capacity, and a diversified public-private power supply network cannot guarantee immediate cost relief for consumers and a permanent end to load-shedding.   

Despite this, the introduction of a liberalised energy market will have profound effects on the sustainability of the national power system. The implementation of the ERA therefore requires constructive co-operation from, and involvement of, all stakeholders to ensure  a “brighter” future for all South Africans. 

• Mabanga is an admitted attorney who is actively involved in the energy space.