South Africa’s proposed power pricing plan to end Eskom monopoly

The plan is a direct result of South Africa’s crippling electricity crisis, which peaked between 2023 and 2023 when record-breaking rolling blackouts threatened economic collapse. President Cyril Ramaphosa then scrapped licensing requirements for private power generation. That regulatory dam-break triggered a gold rush of private clean energy projects, permanently shattering Eskom’s absolute control over supply and forcing regulators to design a modern market place to govern competition.

This shift would directly impact a massive pool of private capital. Over the past decade, South Africa’s renewable procurement has grown over 250 billion rand ($14 billion) in committed private investment from local banks and global energy heavyweights. International giants — ranging from France’s Neoen to Saudi Arabia’s ACAW Power — have built more than 120 utility scale projects across the country.

To prevent sudden price swings as the market opens, NERSA wants to use temporary “vesting contracts.” These contracts set a baseline price based on running costs. If market prices fall below that baseline, the state will top up the producers’ revenue. If prices rise above it, producers pay back the difference to the central fund.

VIEW FROM ENERGY COUNCIL OF SOUTH AFRICA

South Africa’s biggest corporate and industrial group has launched a counter offensive against the mechanics of the plan. The Energy Council of South Africa — representing the country’s top corporate CEOs and financial institutions — warn that the plan could distort the market before it even starts.

Vasanie Pather, a project delivery manager at Energy Council, said the current design gives Eskom too much protection, suppresses real competition and risks trapping South Africa in years of distorted prices.

Energy analyst at Blue Horizon Energy Consulting Services Chris Ahlfeldt warned that locking up 70% to 100% of Eskom’s output in these state-backed contracts could limit liquidity in the wholesale market and reduce opportunities for competitive price formation.

“If the rules go too far to protect the incumbent utility’s revenue rather than incentivizing them to compete, South Africa will see limited private investment in new infrastructure and consumers will ultimately be charged for a more expensive and less reliable electricity system,” he said.

South Africa’s bid to reclaim its industrial edge now comes down to how to price electricity. The timing could not be worse. Morocco has just leapfrogged South Africa in the African Development Bank industrial ranking, sharpening the urgency to cut costs that hollow out factories.

The danger is heavy-handed protections for Eskom will suppress wholesale prices, dulling market signals investors need for further investment in the sector, and effectively rebranding the old monopoly. South Africa can lure capital back with transparent and market friendly tariff rules. Alternatively, it can confirm the AfDB report.

NERSA said the price controls are temporary training wheels for the economy because the framework includes a hard exit strategy linked directly to the growth of private companies. Once independent power producers build or secure a 50% share of the country’s total installed capacity, a mandatory sunset clause will be triggered, completely dissolving the state price protections in favor of a fully liberalized free market.