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In brief

The National Council of Provinces in South Africa has passed the Electricity Regulation Amendment Bill, which aims to provide for increased electricity generation capacity and additional infrastructure in South Africa. It also establishes the duties, powers and functions of the Transmission System Operator and introduces an open-market platform for the competitive trading of electricity. The Bill will hopefully be processed by Parliament before the end of May 2024.


In more detail 

On 16 May 2024, the National Council of Provinces passed the Electricity Regulation Amendment Bill (“Bill“), with the aim of providing for increased electricity generation capacity and additional infrastructure, establishing the duties, powers and functions of the Transmission System Operator SOC Ltd (TSO), and introducing an open-market platform that allows for competitive electricity trading.

In an attempt to address the ongoing electricity supply constraints and prevalence of loadshedding in South Africa, the purpose of the Bill is to move away from a predominantly single-buyer electricity market dominated by Eskom, towards a more competitive electricity market, with multiple electricity producers able to compete within an open market platform. The intention is to ease the ability of alternative suppliers to generate, transmit and distribute electricity.

Ultimately, the Bill’s intention is to create an electricity industry with a multi-market structure that will enable competition, a secured energy supply and a modernised energy sector. This new energy market will be managed by the TSO, with the intention of creating a fair and transparent platform for the purchase of electricity.

The obligations of the TSO will include:

  • Operating the national transmission grid and ensuring fair access to the national electricity grid.
  • Performing the role of system operator, managing supply and demand to balance the grid.
  • Creating an open market platform to enable competitive trading of electricity, which includes establishing a market code and rules, setting out qualifying criteria for power market participants and ensuring that the market functions smoothly.
  • As the central purchasing agency, managing the transition to a competitive market and providing mechanisms to ensure a reliable supply of electricity during the development phase of the market.

Under the multiple-market structure, consumers (i.e., electricity traders, brokers and/or resellers) will be able to buy electricity from their chosen supplier, utilising the various trading opportunities through the market to purchase the quantities of electricity needed to meet the requirements of electricity users. The National Energy Regulator of South Africa (NERSA) will remain the regulator for the energy sector.

The proposed amendments to section 15(1) of the Electricity Regulation Act (Act) seek to allow NERSA, in setting and approving tariffs, to provide for licence conditions that allow licensees to recover their costs, including generating a reasonable return. With regards to the proposed transition to a competitive market, it remains to be seen whether the prices would be determined by market forces only or whether they would be subject to regulation through tariff setting by NERSA.

The proposed addition of section 15(4) to the Act seeks to provide clarity on the charging of prices emanating from a competitive market or from bilateral arrangements. The proposed addition provides an exception, permitting a licensee to charge a customer a tariff that has not been set or approved by NERSA, where such tariff is charged pursuant to a direct supply agreement between a willing buyer and a willing seller (e.g., a municipality and an independent power producer) or arises as an outcome of a competitive market.

The electricity sector in South Africa has been dominated by Eskom for almost a century. The Bill will enable multiple electricity producers to compete on a level playing field, which has the potential to lead to lower electricity prices, increased reliability of supply, more choice for consumers, increased investment in the electricity sector and increased innovation and efficiency.

Parliament is aiming to process the Bill before the national election on 29 May 2024. 

Author

Clara Hansen is an Associate in Baker McKenzie, Johannesburg office.

Author

Angelo Tzarevski is an associate director in Baker McKenzie’s Antitrust & Competition Practice Group in Johannesburg.

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