The transition to a competitive wholesale electricity market is being shaped not only by market design, but by how legacy financial structures are carried into the new system, with municipal tariffs and vesting contracts (VCs) identified as critical pressure points.
Speaking during an Enlit Africa webinar on March 25, Eskom and industry stakeholders highlighted the challenge of aligning these mechanisms with existing revenue and tariff frameworks.
Kay Walsh, Managing Director and founder of Nova Economics, said the interaction between municipal finances and Eskom’s revenue recovery model remains largely unresolved.
Mutenda Tshipala, Senior Manager: Strategy Development at Eskom, described VCs as a necessary stabilisation tool in the early years of the market. He said the contracts are intended to shield participants from price volatility while enabling exposure to market signals.
However, he noted that their design introduces both volume and price risk.
“The key is to ensure that risk is allocated in a balanced way,” Tshipala said. “Symmetry in fixed cost recovery will be essential to avoid distortions between buyers and sellers.”
He added that structured engagement platforms and clearer transition mechanisms will be required to support implementation.
“Without this, implementation risks could undermine confidence in the new system,” Tshipala said.
Walsh said municipal financial constraints may present a more immediate risk. She identified municipal debt as a systemic issue that could weaken the effectiveness of market reform if left unaddressed.
“There needs to be a clear pathway to prevent further accumulation of debt,” Walsh said.
She added that proposed tariff restructuring could place additional strain on already constrained municipalities, warning that without a defined transition strategy, reforms could unintentionally worsen non-payment and revenue instability.
