South Africa's president signs Electricity Regulation Amendment Act into law

South African President Cyril Ramaphosa has signed the Electricity Regulation Amendment (ERA) Act into law. The new legislation sets out far-reaching reforms in the country’s electricity sector, including the creation of a competitive electricity market, the Presidency said in a press statement published by government news agency SA News on August 16.

The new bill, which amends the Electricity Regulation Act of 2006, aims to reduce energy costs, provide national energy security, and improve energy infrastructure. It includes provisions for opening the existing electricity market dominated by South Africa’s state-owned power utility Eskom.

The ERA bill specifies that an independent Transmission System Operator (TSO) must be formed within five years to manage the national grid, with the established National Transmission Company of South Africa (NTCSA) serving as the interim TSO.

According to the Presidency, the Act provides for market operation as a new activity that may be licensed by the National Energy Regulator of South Africa (NERSA). Additionally, it stipulates the development of a market code, which will establish rules to govern the future competitive market, and outlines the process through which the code will be approved.

Furthermore, the Act clarifies the principles that apply to the setting or approval of prices, charges and tariffs. “NERSA must enable an efficient licensee to recover the full cost of the licensed activity, must allow for a reasonable return proportionate to the risk of the licensed activity, and may provide for incentives for continued improvement of technical and economic efficiency,” it says.

To achieve this, NERSA may consider factors like supply security, the diversity of supply, and the promotion of renewable energy. The Act differentiates between the tariffs that must be set or approved by the regulator, such as network charges, and those determined by direct supply agreements or competitive market outcomes.

“These changes are in line with the broader reforms guided by the Energy Action Plan and the Eskom Roadmap, which aim to modernise and transform South Africa’s electricity system to end load shedding and ensure long-term energy security,” the Presidency said, referring to rotating power outages to relieve pressure on the grid.

To reinforce the protection of public infrastructure, the new law imposes penalties of up to ZAR1mn ($56,000) or five years in prison, or both, for persons involved in illegal removal or damage to any transmission or distribution equipment and infrastructure. The fine is ZAR5mn, or ten years in prison, for those who unlawfully receive stolen cables or equipment.

It is expected that the Act will lead to a more competitive energy system, more rapid uptake of renewable energy sources, and ultimately lower energy prices for all South Africans.

However, energy analyst Hugo Kruger is not convinced that liberalised markets lead to lower prices. “If Eskom has to truly compete in a true market, then theoretically, it risks bankruptcy. It means that the IPPs can also go bankrupt,” Kruger said, as quoted by Cape Times. “In a true market, you have competition. If solar is cheaper 100% of the time, then you only end up with solar.”

According to Kruger, competition theoretically should attract investment, but it remains to be seen how the market will work in practice. “There are a lot of ‘what ifs’ and hypotheticals at the moment,” he added.