The Electricity Regulation Amendment Act, signed by President Cyril Ramaphosa in August 2024 as Act 38 of 2024, came into force on 1 January 2025, apart from amendments to the definitions of reticulation and distribution power systems. It is the most important change to the structure of South Africa's power sector since Eskom was corporatised. The Act provides for a Transmission System Operator, which must be established as an independent state-owned entity within five years, with the National Transmission Company South Africa acting as operator in the interim. It creates an open market platform for competitive wholesale and retail trading, makes market operation a new activity licensable by the National Energy Regulator of South Africa, and requires a Market Code to set the rules for that market.
The government presented the law as a pathway to competition, investment and lower costs. Our view is that the Act is necessary and well designed in principle, but that it is a frame rather than a market. Whether South Africa gets the benefits depends on three things the Act does not settle by itself: the content of the Market Code, the speed of transmission build, and the financial position of the municipalities and of Eskom's distribution business, which still sit between generators and most customers.
What the Act changes
The central idea is to separate the parts of the power system that are natural monopolies from the parts that can be competitive. Transmission and system operation remain regulated and public. Generation and trading are opened to multiple participants. The system operator is required not to discriminate between generators or customers in dispatch and balancing except for objectively justifiable reasons approved by the regulator, and access to the transmission and distribution networks must be objective, transparent and non-discriminatory.
This builds on reforms already under way. The licensing threshold for embedded generation was removed in 2022, which led to a wave of private projects selling power to mines, smelters and commercial customers through wheeling arrangements. Eskom's transmission business had already been moved into the National Transmission Company. The Act gives those changes a legal foundation and adds the missing piece: a central market where electricity can be traded rather than contracted only bilaterally or bought from Eskom.
Why the Market Code matters most
Laws that create electricity markets usually leave the detail to codes and rules, and that is where outcomes are decided. The South African code will have to answer a series of difficult questions. Will the market begin as a simple day-ahead platform, or include balancing and ancillary services from the start? How will legacy contracts, including Eskom's coal fleet and the independent power producer agreements signed under the REIPPPP rounds, be treated? Will there be a capacity mechanism to keep firm plant available, or will scarcity pricing be relied on to pay for reliability? Who carries the credit risk when buyers fail to pay?
That last question is critical. The weakest link in South Africa's electricity chain is not generation but payment. Many municipalities owe Eskom very large sums, and some do not pass through to Eskom the revenue they collect from customers. A competitive wholesale market requires buyers whose payments clear reliably. If the code does not include strong credit requirements and clear consequences for non-payment, private generators will either stay out of the central market or demand prices that reflect the risk, and the promised savings will not materialise.
Transmission is the binding constraint
The Act opens the market, but the grid decides who can sell into it. The best wind and solar resources are in the Northern, Western and Eastern Cape, and connection capacity in those provinces has largely been allocated. Developers in recent procurement rounds have been unable to connect projects in the areas with the strongest resource, and some private projects have been pushed to less favourable sites.
The government has recognised this and has signalled private participation in transmission, through independent transmission projects in which private parties build and finance lines under long-term arrangements. Our view is that this is the most important complementary reform to the Act. A competitive market with a congested grid will produce sharp regional price differences, curtailment and investor frustration. The new Transmission System Operator needs both the authority and the funding to plan and build at a pace that matches new generation.
The interim operator problem
The Act allows up to five years for an independent operator to be established. In the meantime the National Transmission Company, still within the Eskom group, will act as operator. That is a practical arrangement, but it carries an obvious tension. Eskom remains the largest generator in the country and will be a major market participant. Investors will want assurance that dispatch, connection queues and market data are handled without favouring Eskom's own plants. The regulator should require clear separation of systems, staff and information, and should publish data on dispatch and connection decisions so that independent parties can test whether the rules are applied fairly.
What we expect to see
In the near term, the market will matter most for large industrial buyers and private generators, who already contract bilaterally and will use a central platform to manage imbalances and trade surpluses. Households will see little direct change, because they buy from Eskom or municipalities on regulated tariffs. Over time, if the code is good and the grid expands, competition should put downward pressure on wholesale prices, particularly in the middle of the day when solar output is highest.
Our assessment
The Electricity Regulation Amendment Act is the right legal foundation for a sector that has suffered from a single-buyer model and a struggling incumbent. It removes formal barriers to competition and sets a deadline for an independent system operator. But it does not by itself create liquidity, solve municipal non-payment or build transmission. The government and NERSA should treat the Market Code and the transmission programme as the real reform, and move quickly on both. Without them, the market will exist in law long before it exists in practice.