South Africa will take another important step in its transition to a competitive electricity ecosystem in April next year when it launches the South African Wholesale Electricity Market (SAWEM).

The market was meant to have been operationalised in April 2026, but there were too many lingering regulatory and institutional uncertainties for that launch date to be met.

Therefore, the National Transmission Company South Africa (NTCSA), which is the licensed Market Operator, proceeded with a soft launch of the platform, involving Eskom Generation’s power stations as traders and Eskom Distribution as an offtaker.

In addition, the Central Purchasing Authority (CPA), which is the counterparty for some 120 independent power producers procured through government’s various public procurement rounds, has also been integrated onto the platform.

As with the other participants, the CPA is a so-called balance responsible party and needs to submit day-ahead forecasts for the generators, and is subject to penalties for inaccurate forecasting.

At launch, SAWEM will be opened to include independent generators, licensed traders, distributors and other eligible buyers and sellers, with market participants required to undertake training through the SAWEM School, which has been set up by the NTCSA to prepare the sector for the market.

Regulatory Building Blocks

In parallel, the National Energy Regulator of South Africa (Nersa) has been undertaking public consultations in relation to the key regulatory building blocks required to launch SAWEM.

Some of these components are the market code, the wholesale tariff methodology, the vesting-contract framework, trading rules, and the market-surveillance framework.

Nersa has published a dashboard to provide visibility of the various consultations under way, along with the anticipated timelines for final determinations, with most scheduled for completion before the end of 2026.

In addition, the Department of Electricity and Energy has released a new draft Electricity Pricing Policy for public comment, which will have a bearing on the approach to be taken with regard to unbundled tariffs.

During a recent Creamer Media webinar, NTCSA energy market services and the international trader GM Andrew Etzinger reported that the entity was at an advanced stage of setting up the Market Operator in line with the licence conditions set for it by Nersa.

These conditions focus primarily on ensuring the Market Operator’s independence, particularly given that the NTCSA will still be an Eskom Holdings subsidiary when SAWEM is launched in 2027.

A policy decision has been taken to unbundle the entity to form a standalone State-owned company, however, and a process is under way to appoint a transaction adviser to assist government with that restructuring.

As part of the process of establishing the Market Operator, the NTCSA is working to establish a ring-fenced market surveillance unit as a safeguard against any abuse of dominance by Eskom Generation, which will be by far the largest market participant at SAWEM’s launch.

The creation of market-surveillance capacity is also a licence condition for the Market Operator, but Etzinger indicated that such capacity was also likely to be developed outside of the NTCSA as an additional safeguard.

The regulator is expected to establish its own market surveillance facility, and there is also potential for the Competition Commission to play a role.

Proactive Safeguards?

Given that market surveillance is a reactive mechanism, proactive safeguarding against any abuse of market power will depend largely on decisions made in respect of the wholesale tariff methodology and the vesting-contract framework.

The wholesale tariff methodology is intended to establish how regulated wholesale electricity costs will be determined and recovered during the transition to SAWEM, while the vesting contracts are transitional instruments for limiting market power and managing price and revenue risks in the transition.

These two components are still being finalised, and it is already clear that they will play a big role in determining whether or not SAWEM meets its objectives of ensuring that the market provides price signals that are supportive of competition and investment.

The debates surrounding this architecture are complex and ongoing, with all those involved warning that the stakes are high and that ongoing revisions will probably be required as the market matures.

NOA legal adviser Robyn Reinhardt told webinar participants that the regulatory environment had become a key area of focus, with potential SAWEM participants paying particular attention to how South Africa intended moving from the market of today to the future market.

Careful sequencing would be required to balance the twin objectives of limiting disruption during the transition while unlocking the full benefits that a competitive market can deliver, particularly in relation to tariff affordability and investment.

The market is designed to be phased in over a number of years and will, thus, exist alongside bilateral power purchase agreements (PPAs) for some time, as these would remain important for unlocking investment.

“I expect bilateral PPAs to remain incredibly important. What changes quite significantly, though, is the ecosystem surrounding those contracts,” Reinhardt explained.

Energy Council of South Africa’s Cornel Claassen underlined this point, indicating that, at its launch, SAWEM would be an energy spot market, with an hourly market based on matching supply and demand.

There would be material price volatility, which would mean that it would be impractical to seek to pursue a bankable project aligned to SAWEM alone.

“We won’t immediately see deliberate investment for merchant trade. I think we’ll rather see people look at SAWEM and how it plays out,” Claassen said.

Initial private participation, he added, would be thin, with traders likely to be the first movers, including through balancing groups to assist market participants in meeting balance responsible party obligations.

Price Visibility

Nevertheless, South African Photovoltaic Industry Association CEO Dr Rethabile Melamu was optimistic that SAWEM would introduce greater price visibility, as well as a new dynamism, whereby there would be multiple generators and more choice for those seeking to procure electricity, especially green electricity.

Melamu also expected the outlet provided by the market to assist with the management of curtailment, which had surged following the stabilisation of the Eskom coal fleet, resulting in a halt to loadshedding as Eskom moved into a surplus position.

SAWEM, she argued, would send price signals linked to highly visible supply and demand that could highlight opportunities for new loads in certain areas, such as data centres, or strengthen the business case for deploying battery energy storage systems to shift load.

Partners in Performance’s Alastair Muller added that the market would, in time, also lead to a shift in mindset from large electricity users, which were currently “tariff takers”.

He argued that, in future, such companies would need to become active energy portfolio managers.

“These portfolios will increasingly combine several elements: there will be bilateral PPAs; there will be the wholesale market exposure; grid supply; self-generation; and battery energy storage systems.

“With more choice, obviously it creates opportunity, but it also creates quite a bit of price volatility, so forecasting and balancing of risk becomes more important,” he said, adding that larger power consumers would become increasingly active in how they managed their portfolios.