Electricity generators, traders and eligible wholesale customers would become financially responsible for deviations between their scheduled and actual electricity production or consumption under South Africa’s proposed wholesale electricity market.
The Department of Electricity and Energy’s Electricity Market Transformation Position Paper, gazetted for public comment on August 21, outlines the proposed structure of the South African Wholesale Electricity Market (SAWEM) and the respective roles of its participants.
The paper proposes short-term markets beginning with day-ahead trading and continuing through intraday and real-time electricity delivery. A central electronic platform administered by the National Transmission Company South Africa (NTCSA) Market Operator would allow generators, traders and eligible customers to submit bids and offers for electricity and associated services such as operating reserves.
Participation on the central platform would be voluntary with participants retaining the option of trading through bilateral contracts. However, generators and loads trading outside the platform would still have to submit day-ahead production and consumption schedules to the Market Operator.
“All generators and loads – for example, traders and eligible wholesale customers – involved in the SAWEM are subject to balance responsibility, meaning they are financially liable for any imbalances they create,” the paper states.
These imbalances would arise where actual production or consumption differs from the amount scheduled or contracted. According to the paper, the mechanism is intended to incentivise accurate scheduling and allocate the cost of balancing deviations to the market participants responsible for them.
The methodology for calculating hourly imbalance prices and recovering the associated costs has not yet been determined. This will be provided in the market code, which is being developed by the NTCSA and will require approval from the National Energy Regulator of South Africa.
The proposed short-term market would produce generation schedules and hourly wholesale electricity prices. The Market Operator would use these prices to settle transactions conducted through the central platform while prices under bilateral contracts would continue to be settled privately.
The platform would schedule lower-cost generation first, subject to transmission constraints, the paper states.
Market roles separated
Under the proposed structure, the NTCSA would perform several distinct functions. It would act as the transmission network service provider, System Operator responsible for balancing supply and demand, Market Operator administering the wholesale market and Central Purchasing Agency managing certain existing contracts.
The Central Purchasing Agency is expected to submit day-ahead bids on behalf of independent power producers with existing contracts awarded under Section 34 of the Electricity Regulation Act, including projects procured through the Renewable Energy Independent Power Producer Procurement Programme.
Eskom Generation would participate in the wholesale market under the same market rules and obligations as other generators.
However, the paper notes that Eskom’s dominant position could allow it to exercise market power and additional regulation may be needed. Market governance structures would include a committee responsible for changes to the market rules and a surveillance unit tasked with detecting improper conduct and possible market abuse, the paper says.
“To participate in the centralised wholesale market, it will be necessary to satisfy certain prudential requirements as per the requirements of the market code, grid code and relevant licences. If a prospective participant is unable to meet such requirements, then they will be barred from procuring (or selling) electricity in this market,” the paper states.
The paper acknowledges that some municipal distributors may not initially qualify. It states that a mechanism would be developed through which non-qualifying distributors could procure electricity while reforms are undertaken to place them on a more stable financial footing.
Criteria determining which customers may purchase directly from the wholesale market have also not been finalised. This will be set out in a forthcoming market design document and updated regulatory framework.
At retail level, residential households and smaller businesses would generally remain customers of their incumbent municipal or Eskom distribution retailer. Government is considering a possible size threshold, such as 1 MW, for customers permitted to choose a different retailer although the paper stresses that the threshold has not yet been determined.
Phased opening from 2027
Government aims to soft launch market operations during 2026, followed by a phased opening to participants beyond Eskom from 2027.
Transitional vesting contracts are proposed to set wholesale prices for generators and loads during the market’s initial stages. These contracts would cover plant fixed, operating and maintenance costs and establish an energy price that gradually transitions towards the market price.
The paper identifies several outstanding steps to support the introduction of the competitive wholesale market. These include finalising the market design and market codes, defining customer eligibility, revising the transmission and distribution codes, developing trading licence criteria, implementing market software and confirming how stranded costs will be treated.
Written comments must be submitted to the department by 12h00 on September 20.
