In brief
South Africa has published a Revised Electricity Pricing Policy (EPP) to modernise the country's electricity pricing framework and align it with ongoing sector reforms, including the Electricity Regulation Amendment Act, 2024. The existing policy, developed in 2008 for a vertically integrated Eskom-dominated market, no longer reflects the realities of a liberalising electricity sector characterised by separate generation, transmission and distribution entities, growing participation by independent power producers and a more diverse energy mix. Key reforms include tariff unbundling across the electricity value chain, enhanced regulatory oversight of pricing interfaces, and a transition towards cost-reflective tariffs. While promoting transparency, competition and investment, the policy also seeks to balance affordability concerns and protect vulnerable consumers and strategic economic sectors. Released alongside a draft Electricity Sector Market Transformation Position Paper, the reforms signal continued momentum towards a competitive electricity market. Stakeholders should closely monitor developments and participate in the consultation process, particularly on tariff structures, regulatory arrangements and the implementation of cost-reflective pricing.
In more detail
The 2008 Electricity Pricing Policy was conceived for a vertically integrated industry in which Eskom served as the dominant generator, transmitter and distributor of electricity. Nearly two decades later, that landscape has been fundamentally reshaped. The unbundling of Eskom into separate generation, transmission and distribution entities, the entry of independent power producers, an increasingly diversified energy mix and the coming into operation of the Electricity Regulation Amendment Act, 2024 (ERAA) on 1 January 2025 have collectively rendered the existing pricing framework outdated.
The revision also responds to mounting affordability concerns. South African electricity tariffs have risen at well above inflation for a sustained period, with household prices more than doubling over the past five years as a result of successive Eskom increases. Against this backdrop, the Revised Electricity Pricing Policy (EPP) is intended to provide a modern, transparent and predictable pricing architecture suited to a multi-market electricity sector.
Key features of the Revised EPP
Based on the Cabinet statement, the Revised EPP is directed at the following objectives:
Strengthening the regulatory framework. The policy consolidates and reinforces the framework governing electricity prices, tariffs and charges, providing greater regulatory certainty for participants across the value chain.
Tariff transparency through unbundling. Tariffs will be unbundled across the generation, transmission, distribution and retail activities, so that the cost attributable to each function is clearly identifiable rather than absorbed within a single blended tariff.
Consolidating the pricing interfaces. The policy consolidates the regulatory arrangements for electricity pricing across the various pricing interfaces – including those between generators, traders, the National Transmission Company South Africa (NTCSA) and distributors – and establishes the framework through which the National Energy Regulator of South Africa (NERSA) will regulate those interfaces.
Cost-reflective tariffs. The policy supports the migration towards cost-reflective tariffs that more accurately signal the true cost of supply, an essential prerequisite for a functioning competitive market and for attracting investment into new generation and infrastructure.
Protecting vulnerable users and strategic sectors. The move towards cost-reflectivity is expressly balanced against the need to protect vulnerable and low-income users, as well as strategic economic sectors, although the Cabinet statement does not yet identify the sectors concerned.
The draft Electricity Sector Market Transformation Position Paper
Published alongside the Revised EPP, the draft Electricity Sector Market Transformation Position Paper articulates how South Africa intends to move away from its current, largely state-controlled electricity system towards a competitive market, in alignment with the ERAA and the Energy Action Plan. Government has indicated that the reforms are intended to improve energy security and reliability by reducing reliance on a single supplier, to enable broader participation in electricity generation and trading, to attract investment across the generation, transmission and distribution value chain, and to reduce electricity costs over the longer term. Read together with the pricing reforms, the position paper reinforces the trajectory towards the multi-market structure contemplated by the ERAA.
Key takeaways
The Revised EPP is a policy instrument, not yet binding law. It has been released for public comment, and stakeholders across the electricity value chain should take the opportunity to make representations, particularly on the mechanics of tariff unbundling, the regulation of pricing interfaces and the protections afforded to vulnerable users and strategic sectors.
Tariff unbundling will increase transparency but also complexity. Market participants will need to understand how the generation, transmission, distribution and retail components of their tariffs are constituted, and how the NTCSA and NERSA will regulate the interfaces between them.
Cost-reflective pricing is central to the competitive market. The credibility of the emerging South African wholesale electricity market depends on tariffs that accurately signal cost. Generators, traders and large users should assess the implications of a cost-reflective regime for their commercial arrangements, including power purchase agreements and trading structures.
Reform momentum is building. Coming on the heels of the ERAA and NERSA's parallel pricing consultations, the Revised EPP and the market transformation position paper confirm the pace at which the sector is being liberalised. Businesses positioning themselves in the market should engage early and monitor the consultation process closely.