Electricity Pricing Learning Cohort

The electricity supply industry in South Africa is undergoing a fundamental transition.
This transition is taking place globally but is accelerated in South Africa due to Eskom challenges and capacity shortages. Wholesale electricity market development is underway and there will be multiple electricity generators in future.

Learning cohort material

The first research brief introduces the electricity supply industry reform and ‘market basics’; it pulls out prerequisites for market success, issues to be addressed and highlights the affordability – sustainability challenge at the heart of matters.
Eskom is unbundling into generation, transmission and distribution. Tariff restructuring is required to align with these unbundled services; meaning more costs will be recovered using fixed charges.
The second paper examines the status of electricity networks and funding of network infrastructure. The transmission network is well maintained, but requires serious expansion to enable growing renewable generation investment. Distribution networks are in a crisis. This requires new costing approaches for expansion, refurbishment and maintenance, as well as addressing revenue management. The paper provides a set of clear recommendations and sector blueprints for turnaround.
The distribution sector must manage variable renewable energy and engage in procurement from diverse / new sources.
The third paper will outlines skills and capacity requirements for a future-ready distribution sector.
Pricing reform lies at the heart of the energy transition.
Units of electricity sold through the public electricity networks are decreasing. But the cost of grid- and system-related services must still be funded. These costs are currently bundled into unit charges.
Paper 4 will unpack the social transfers taking place across our public grids that may be at risk.
Those engaging in energy markets must pay the full cost of their use of the grid and any system imbalances they cause. Pricing must shift from a focus on unit charges to one that prices all services.
Paper 5 explores the impact of sector and market reform on electricity price trajectories, based on revenue impacts and  costs required for a sustainable ESI/EDI, and highlights where the key uncertainties lie. This stacks the composition of costs across the electricity value chain: energy, capacity, ancillary services, transmission network, market platforms and support, distribution network and retail and tests how the cost might change in the future.
Like all changes, this transition presents opportunities and threats that must be addressed.
The outcome is highly context specific.
Threats: Benefits accrue to the capital-rich; renewable investment falls away as profit margins decline; networks are not fully funded or maintained; critical social transfers are not protected.
Opportunities: Investment in energy drives economic growth; renewable energy uptake accelerates decarbonisation and improves human health; competition-driven efficiency in generation reduces energy costs and improves system reliability.
Paper 6 develops a transition ‘decision tree’ / pathways and actions scenarios detailing impacts of different pathways and critical steps that need to be taken and by whom. 

Workshop 1 resources (20 June 2024):

Useful resources

Financing the transmission grid
This video is a recording of a roundtable discussion exploring alternative ownership and regulatory models to support the required expansion of South Africa’s transmission grid.
Short explainer video on electricity tariffs
This video explains electricity tariffs by comparing the costs of electricity to the costs of a car.
Training webinar on power systems basics
This video introduces power systems basics to non-technical audiences.
South Africa’s market code workshops
The National Transmission Company of South Africa is hosting a series of workshops throughout the process of developing the market code.
Webinar on South Africa’s electricity reform
This webinar discusses the country’s reform needs drawing lessons from India and Mexico’s reform experiences.

Get in touch!

If you would like more information about this work or if you would like to join the electricity pricing learning cohort, please contact Nick Sims of Sustainable Energy Africa at [email protected] 

This project aims to build capacity and thought leadership to steer the development of South Africa’s electricity sector. Through discussion, this project will unpack key issues facing South Africa’s energy transition and industry reform. The project is led by Sustainable Energy Africa NPC, funded by the UK PACT (Partnering for Accelerated Climate Transitions), and the key government partner is the Presidential Climate Commission. Industry experts have been drawn in to lead specific pieces of research.