South Africa endured an electrical energy disaster from 2008 characterised by intermittent rolling blackouts and a rising tradition of non-payment. Eskom got here to be thought to be the only largest threat to South Africa’s economic system. On the finish of March 2020, the state-owned utility’s debt stood at R488-billion.
Authorities has tried a number of measures to beat the nation’s vitality issues. These have included new Eskom boards, new CEOs, bailouts for Eskom and a Nationwide Power Disaster Committee that features the personal sector. Now it’s attempting legislative reform.
In mid-August 2024 President Cyril Ramaphosa accepted a brand new regulation that marks essentially the most important change thus far within the electrical energy provide trade. The Electrical energy Regulation Modification Act is the start of the tip of Eskom, the close to state monopoly that has dominated South Africa’s electrical energy sector for the reason that Fifties.
The regulation paves the way in which for Eskom to finish its transmission enterprise over the following 5 years. It appears prone to be a generator for a very long time, nevertheless: its new coal-fired stations are designed to function for 50 years. The brand new act envisages a hybrid market mannequin, designed to accommodate varied sorts of transactions.
Competitors and market costs are anticipated to emerge over time. New varieties of companies are rising, equivalent to merchants in electrical energy, “prosumers” (shoppers that additionally produce electrical energy on the market into the grid), electrical energy market operators and system operators.
Ramaphosa promised that: “The act will result in long-term vitality safety, a extra aggressive vitality system, extra speedy uptake of renewable vitality sources, and in the end decrease vitality costs for all South Africans.”
Not a vacation spot
The brand new regulation is certainly ground-breaking, and an vital step alongside South Africa’s zig-zag, stop-start path to electrical energy market reform. However electrical energy market reform is a course of that evolves over years as applied sciences and markets change. It’s not a vacation spot.
Based mostly on my 40-odd years within the vitality sector, together with six on the Eskom board, I imagine that on steadiness, the brand new regulation is nice information for electrical energy market reform. Nevertheless, there are some issues to be involved about.
Change is difficult in South Africa. It has taken 26 bumpy years for the reason that 1998 white paper to get to this entry level to market reform. It will be naive to count on a clean journey from right here on. Vested pursuits in and round Eskom and the municipalities will wish to cling to their powers. New applied sciences are disrupting the outdated approach of doing issues. There isn’t a nationwide champion driving electrical energy reform and with weak authorities there may be the danger of reform being diverted elsewhere.
Electrical energy market reform in South Africa has its origins in a white paper on vitality coverage revealed in 1998. The primary spherical of efforts to implement this coverage and to start the unwinding of Eskom’s monopoly led to:
• Eskom being separated into divisions in 2000
• The institution of Electrical energy Distribution Holdings to personal the brand new regional electrical energy distributors in 2003
• The institution of the Nationwide Power Regulator of South Africa in 2005
• The institution of the Unbiased Energy Producer Procurement Programme Workplace in 2006
• An Unbiased System Operator Invoice in 2012
However this primary try at reform petered out by 2015. After a lull of some years, a second spherical of makes an attempt at market reform was initiated by the Eskom Roadmap revealed in 2019. This, together with public stress from growing energy cuts, led to the Electrical energy Regulation Modification Invoice being launched for public remark in March 2021. After 42 months, the president signed the act on 16 August 2024.
What adjustments are envisaged?
Throughout the subsequent 5 years, a brand new juristic individual, the Transmission System Operator SOC, is to be created. The foundations of this exist within the type of the Nationwide Transmission Firm of South Africa, which Eskom has already arrange as a completely owned subsidiary.
The position of the brand new entity might be as follows:
- “As a system operator, it’ll have the duty of holding demand and provide in steadiness each second of the day and deciding the place energy is drawn from first.” That is the place it runs into “participant and referee” challenges because it should guarantee truthful competitors between a number of electrical energy mills: Eskom and privately owned ones.
- It will likely be a market operator. It will contain offering a platform for aggressive, wholesale or retail shopping for and promoting of electrical energy. It must set up guidelines to control the market (very similar to inventory markets have guidelines for getting and promoting shares). It should be certain that monetary settlements between patrons and sellers are settled in a good, impartial and clear method.
- It will likely be a central buying company that can present market help features.
Eskom has been a close to monopoly for a very long time and is unlikely to surrender its market dominance with no battle. There are some provisions within the new act that are supposed to guard the market from Eskom dominance.
As standard, the satan might be within the detailed rules and codes. On 19 April 2024, Eskom launched a draft market code for public remark by 30 September 2024. On the similar time, the Nationwide Power Disaster Committee launched its description of the market mannequin.
Doable brakes on progress
Entry to transmission and distribution infrastructure might be essential for a market to function. Unbiased mills might want to transport their electrical energy to their clients. Initially, clients will stay with their present suppliers however because the electrical energy markets evolve, retail clients will be capable of select their suppliers.
The brand new act grants “third-party entry” to such infrastructure. However that entry isn’t outlined. Normally, the primary social gathering is the proprietor of the infrastructure and the second social gathering is its clients. The third social gathering is anybody else.
Third-party entry often signifies that the proprietor of a pure monopoly can serve its clients first and that any capability left over can be utilized by others. The act makes this clear – entry will be refused “the place it lacks the mandatory capability”. This provision protects incumbents like Eskom and municipalities and will decelerate the evolution of market competitors.
Issues
The brand new act raises a number of issues.
A 20-year cap is launched throughout era, transmission or system operation licences (or a lesser interval determined by the nationwide vitality regulator).
Massive energy infrastructure equivalent to transmission traces, coal and nuclear mills usually have helpful lives of greater than 20 years. Traders will wish to recuperate their investments throughout the 20-year licence interval by means of increased tariffs. After 20 years, clients may have one thing of a “free journey” because the asset may have been paid for.
In distinction, the licence interval for long-life distribution belongings is left to the regulator to resolve.
Learn: Non-public energy producers search truthful deal over Eskom curbs
One other main concern is that the act provides the accountable minister new and wide-ranging powers.
The minister can resolve, for instance:
- To deviate from an built-in useful resource plan or a transmission improvement plan whether it is within the nationwide curiosity and when it’s “affordable and justifiable”, with out public session. (Beforehand the nationwide curiosity was solely invoked in land expropriation.)
- To determine an “vitality infrastructure mission”, which isn’t outlined, however can embody “fuel infrastructure”. This curious new sort of mission seems to ponder cross-border commerce in fuel (sort unspecified) for gas-to-power however may also be used for brand spanking new nuclear capability.
As South Africa’s energy system more and more strikes to non-public possession, investor confidence turns into extra vital. Huge-ranging ministerial discretion contributes to investor uncertainty.
There’s a threat that the brand new act or components of it could be stillborn because the South African Native Authorities Affiliation has objected to sure provisions and threatened authorized motion. Media studies counsel that President Ramaphosa has left the door open to excluding sure provisions.
- The creator, Rod Crompton, is visiting adjunct professor, African Power Management Centre, Wits Enterprise Faculty
- This text is republished from The Dialog beneath a Artistic Commons licence
