South Africa is transitioning to a competitive electricity market through the South African Wholesale Electricity Market (SAWEM), ending Eskom's monopoly. A recent report by Professor Anton Eberhard outlines the implications for businesses and municipalities. The shift aims to introduce transparent pricing and shared responsibilities among participants.
The Electricity Regulation Amendment Act of 2024, effective from January 2025, lays the legal groundwork for this change. It enables an independent transmission system operator within the National Transmission Company South Africa and a market operator to manage day-ahead, intraday, and balancing markets. SAWEM operates as a hybrid net pool market, where participants can contract bilaterally but all energy flows are centrally scheduled and settled transparently.
Key elements include a day-ahead market that clears bids to set a national system marginal price, an intraday market for adjustments every six hours, and a balancing mechanism for real-time corrections. Participants must adhere to full balance responsibility, forecasting and settling deviations at market prices. This design draws from practices in Europe, the UK, and parts of the US, promoting co-optimisation of energy and reserves to value flexibility from renewables and battery storage.
For businesses, electricity evolves into a tradable commodity with hourly price variations and financial settlement cycles. Renewable developers can mix fixed-price agreements with merchant exposure, while storage operators gain from time-shifting and balancing services. Eskom's generation will use vesting contracts, and legacy independent power producer agreements will transfer to a central purchasing agency to trade into the market, recovering shortfalls via a regulated charge.
Municipalities, handling 40% of electricity sales but facing over R100-billion in arrears to Eskom, pose challenges. Many lack the financial discipline for direct participation and will initially buy from Eskom under hedged contracts. Over time, tariffs will reflect market prices, pushing municipalities to reform revenue models amid declining energy volumes from self-supply.
The report highlights risks like price volatility and liquidity issues in early stages, with a shadow market phase planned for late 2025 to early 2026 for testing. Overall, SAWEM fosters competition and investment but requires preparation from all parties.