On 1 January 2025, the Electricity Regulation Amendment Act 38 of 2024 (ERAA) came into effect. This followed extensive stakeholder engagement and multiple draft iterations.
The ERAA aims to bring change to South Africa’s electricity sector. It continues the shift from Eskom’s vertically integrated monopoly to the Transmission System Operator SOC Limited (TSO). The law also introduces an open-market platform for competitive electricity trading.
The government legislative team responded promptly to industry feedback. As a result, stakeholders largely welcomed the new law. There are three key changes that everyone should know and we highlight some provisions of the ERAA that contradict the intended open and competitive market.
Electricity market transformation through TSO
The most significant shift in the electricity market transformation is the TSO’s establishment. This follows Eskom’s unbundling, which began in 2019.
The TSO will act as a system operator, market operator, transmitter and central purchasing agency. It will ensure the creation of an open-market platform for competitive electricity trading.
In 2024, Eskom hosted public consultations on a draft market code. During these, new rules for South Africa’s open and competitive electricity market were discussed.
Some provisions of the ERAA contradict the TSO’s purpose. For example, the National Energy Regulator (NERSA) has the power to “set and approve prices and tariffs” under the ERAA. However, this does not apply to “direct supply agreements”. Power purchase agreements between generators and traders do not qualify as “direct supply agreements”.
Section 15(4) of the ERAA states that a licensee can charge customers tariffs outside NERSA’s approval. This applies when the tariff results from a direct supply agreement or a competitive market outcome. This creates a situation where the buyer-seller relationship could stall. This occurs if NERSA does not set or approve the tariff due to the restrictive definition of direct supply agreements. Such language undermines the open and competitive market the ERAA aims to establish.
Reticulation and municipalities
The South African Local Government Association (SALGA) has opposed the ERAA. SALGA believes it puts municipalities’ electricity functions in crisis. As a result, the definitions of “reticulation” and “distribution power systems” are delayed. The President will announce when these definitions take effect.
SALGA’s main concern is that the ERAA undermines municipalities’ right to reticulate electricity. Schedule 4B of the Constitution grants municipalities this right. However, it is unclear whether this right is exclusive. The courts will determine the nature of municipalities’ right to reticulate. Municipalities own and operate half of South Africa’s distribution grid, making their role crucial.
Municipal debt to Eskom exceeds ZAR 95 billion and continues to grow. This debt could frustrate the necessary transformation at Eskom. SALGA has threatened litigation over the ERAA. Clarity on this issue will benefit all stakeholders.
The role of the minister
The Minister of Mineral Resources and Energy, soon to be the Minister of Electricity and Energy, has broad powers under the ERAA.
According to section 34, the Minister can make determinations for new capacity. This applies if there is a “market failure”, “an emergency”, or to ensure energy security. The provision also allows the Minister to deviate from the Integrated Resource Plan (IRP).
The IRP serves as South Africa’s national energy roadmap. While deviations from the IRP should be rare, the ERAA gives the Minister broad, undefined discretion. Judicial intervention may be needed to clarify these trigger events. The ERAA removes a requirement present in the previous Act.
Under the old law, new generation capacity had to be established through a competitive, transparent tender process. The ERAA no longer requires such a process. It allows the Minister to make determinations on new electricity generation and transmission infrastructure after consulting NERSA and the Minister of Finance.
“After consultation” means prior consultation is required, but no agreement is necessary before making decisions. However, “in consultation” would require consensus. These changes give the Minister more freedom. They also seem to contradict the competitive market the ERAA aims to promote.
The Minister can grant deviations for activities requiring a license. License applications must go through NERSA, including evidence of IRP compliance or reasons for any deviation. Section 10(2)(g) of the ERAA retains this provision. However, concerns about the practicality of obtaining Ministerial deviations remain. Projects exempt from requiring a generation license do not need a Ministerial deviation. This avoids a potential obstacle for such projects.
For licensed activities, the process could lead to a bureaucratic deadlock. This contradicts the goal of creating an “open market platform for competitive electricity trading”. The ERAA marks a bold new era for South Africa’s electricity market. Stakeholders may need to rely on the judicial system to limit government power. This will provide clarity on some issues raised by the ERAA.
The challenges mentioned above are not exhaustive. Additional issues are likely to emerge as stakeholders navigate the new legislative landscape.
| Jason van der Poel | Partner | mail me | |  |
| Emma Bleeker | Partner | mail me | |  |
| Kiera Bracher | Associates | mail me | |  |
| | Webber Wentzel | | |
