It’s a pivotal moment for South Africa’s energy sector. President Cyril Ramaphosa has signed the Electricity Regulation Amendment (ERA) Act into law.

The Act legislates sweeping reforms that have long been under consideration in South Africa but will now accelerate modernisation of the country’s infrastructure, stimulate competition and secure long-term energy stability.

Amending the Electricity Regulation Act of 2006, among ERA’s key provisions is the establishment of a competitive electricity market, which is expected to drive down energy costs, increase investment in new generation capacity and establish an independent transmission company, the National Transmission Company South Africa (NTCSA).

Under the new legislation, the NTCSA is mandated to become an independent entity within five years. In the interim, it will act as the independent system operator.

The Act allows for competitive wholesale and retail buying and selling of electricity, paving the way for licensing of market operators by the National Energy Regulator of South Africa (NERSA), and calls for the development of a market code to regulate the competitive market.

A significant aspect of the Act is ensuring fair competition among electricity generators. The system operator is legally required to maintain objectivity, transparency and non-discrimination in dispatching and balancing the system. This measure aims to prevent undue favouritism and ensure that all players in the market, whether large-scale power producers or small renewable energy generators, have equal access to the grid.

The Act also provides a framework for NERSA to set and approve prices, charges and tariffs. This framework ensures efficient licensees can recover the total cost of licensed activities and receive a reasonable return proportionate to risk as well as incentives to improve technical and economic efficiency continually. It is anticipated that diversity of supply and promotion of renewables will stimulate demand for new skills, innovation and technology in the energy sector, thereby driving industrial activity and contributing to job creation.

“We are now legally committed to moving towards an open, wholesale market that creates competition in investment in new generation. This will largely be driven by the private sector responding to market signals for new investment that will, in the longer term, support a least-cost system with greater efficiency and transparency,” said James Mackay, CEO of the Energy Council of South Africa.

He noted that the new legislation is crucial for shifting the financial risk from government to the private sector, which will be essential as the country expands its renewable energy capacity.

“Nearly 30% of South Africa’s balance sheet contingent liabilities are government guarantees linked to independent power producers. Government cannot afford to provide guarantees for all the wind, solar, gas, batteries and transmission projects – it is simply unsustainable for the country’s balance sheet. Therefore, we must establish frameworks that shift the financing risks to the private sector through an independent market.”

A market characterised by robust rules, regulations, oversight, transparency, independence and liquidity would empower private entities to compete and assume risks without relying on government guarantees, added Mackay.

“As South Africa embarks on this ambitious reform journey, ERA represents a significant opportunity and a substantial challenge. Its success will depend on the effective coordination of policy, regulation and market dynamics as well as significant capacitation and preparation to achieve the goals of energy security and affordability, which, if successful, will help us on the path of sustainability.”