Power sector reforms are taking shape in South Africa as it prepares to end the severe power shortages it has faced for several years, caused by the inefficient energy system and inadequate investment by the state-owned utility Eskom. Restructuring the utility has been on the cards for over two decades, but this has finally been legalised through the Electricity Regulation Amendment Act (ERAA) in August 2024. On October 7, 2024, the National Transmission Company of South Africa SOC Limited (NTCSA) was officially launched, three months after it became an independent, wholly owned subsidiary of Eskom Holdings Limited on July 1, 2024. The company is focusing on realising the benefits of the ERAA.

The ERAA provides for establishing an independent transmission system operator (TSO) five years after it takes effect. In the interim, NTCSA will operate as an independent TSO company and take steps to facilitate the unbundling of ownership. This includes establishing a new operating model and determining the appropriate internal processes, systems, and governance structures. NTCSA will eventually, after consultation with Eskom Holdings and the Department of Electricity and Energy (DoEE), provide a high-level roadmap with timelines to enact all the requirements of the ERAA and develop transitional arrangements to be ready to give effect to the legislation. The National Energy Regulator of South Africa (NERSA) will oversee this transition.

The creation of NTCSA is expected to provide open, fair, and transparent access to the national grid for both public and private participants and improve power sector efficiency. As facilitated by the ERAA, NTCSA will perform the roles and responsibilities of a system operator (SO) (ensuring balanced and stable network operations); market operator (MO) (establishing a transparent and non-discriminatory platform for competitive electricity trading); transmitter (implementing the infrastructure plans); and central purchasing agency (CPA) (handling electricity procurement and ensuring capacity and supply adequacy).

ERAA – Key provisions

The ERAA amends the Electricity Regulation Act of 2006 to address the challenges in the sector by enhancing energy security and creating a more competitive electricity market. Broadly, the legislation strengthens the NERSA and provides for the establishment of an independent TSO and an open market platform for power trading. It seeks to reduce energy costs and open new avenues for investment in generation capacity. Notably, the Act includes:

  • Establishing an independent company, Transmission System Operator SOC Limited, as the custodian of the national grid within five years. Until then, NTCSA will serve as the TSO.
  • Creating an open market platform and enabling competitive wholesale and retail electricity trading.
  • Tasking NERSA with licensing market operations and developing a market code to govern the future competitive market, with principles to ensure transparent and fair access to transmission and distribution (T&D) systems based on published tariffs.
  • Imposing severe penalties for damaging and stealing infrastructure, including fines of up to ZAR1 million or five years in prison. Penalties for unlawfully receiving damaged cables or infrastructure can reach ZAR5 million or ten years in prison.
  • Clarifying the principles for setting prices, charges, and tariffs, ensuring that licensed entities can recover costs and achieve reasonable returns while promoting renewable energy and maintaining supply security.
  • Ensuring fair competition between multiple electricity generators by eliminating bias by the SO between different generators or customers with respect to dispatching or balancing the system.

Under the ERAA, NTCSA will act as the CPA to facilitate independent power producer (IPP) power purchase agreements (PPAs). In March 2024, the NERSA approved Eskom’s application to transfer its PPAs with IPPs to NTCSA.

NTCSA – Interim SO and MO

After South Africa’s Department of Public Enterprises (DPE) published the Eskom Roadmap in 2019, NTCSA SOC Limited was formed as Eskom’s wholly owned subsidiary in 2021. In December 2021, Eskom legally transferred its transmission division to NTCSA. In January 2023, NTCSA applied for transmission, trading, and import/export licences from NEPRA. It obtained the transmission licence in July 2023 and the trading and import/export licences in September 2023. Subsequently, in July 2024, NTCSA began trading with Eskom and IPPs.

Currently, NTCSA has four strategic objectives – delivering reliable and sustainable access to affordable power; creating an inclusive and competitive electricity market; ensuring a financially sustainable business; and achieving operational and digital transformation for efficiency and effectiveness. As the SO, NTCSA would schedule the generation capacity owned by Eskom and IPPs to ensure a balanced, reliable network and maximum benefit for consumers.

Over the next three to six months, the company will focus on implementing an accelerated Transmission Development Plan (TDP), setting the operational unbundling activities in line with legislative requirements, and establishing a fair and competitive market for electricity.

NTCSA is actively investigating solutions to fast-track the execution of transmission infrastructure projects planned under the TDP to support the 30 GW of utility-scale renewables expected to be connected to the grid by 2029. To refine its capital project delivery model, NTCSA will consider a project delivery portfolio that includes in-house engineering, procurement and construction (EPC), procurement and construction (PC), and independent transmission projects (ITP). To promote local economic development, it will develop local supply chains and upskill the workforce to ensure the required infrastructure roll-out. In line with this, NTCSA signed agreements with more than 60 suppliers over the last few months (up to November 2024), enabling them to respond to tenders and supply services (across EPC, PC, and construction) in the areas of transformers, engineering services, overhead lines, and substations. This marks a pivotal moment in the country’s commitment to improving its transmission grid capacity.

NTCSA’s MO needs to provide a transparent, non-discriminatory trading platform for market participants in order to facilitate a competitive power market. It must develop the market code to provide the foundation of day-ahead energy and reserve markets, intra-day auctions, and a balancing mechanism to facilitate physical energy trading. NTCSA will focus on the key activities to operationalise the MO with the NERSA. These include the approval of the market code , the definition of the licence conditions  as well as the approval of the Eskom generation and distribution vesting contracts, which includes wholesale tariffs. Notably, Eskom’s vesting contracts with CPPA for electricity sale at a specified price will serve as a mechanism to facilitate the transition to a competitive market.

The recent reform and restructuring initiatives in South Africa’s power sector are expected to boost investor confidence, attract private investments, and help resolve the country’s power crisis.