Is ERAA a solution for cheaper electricity? Contradictions identified

Many South African households’ wallets have felt the pressure from high electricity prices, which led some to consider getting renewable energy products to save money.

However, the Electricity Regulation Amendment Act 38 of 2024 (ERAA), which came into effect on 1 January, might be the answer to cheaper electricity for many South Africans.

ERAA aims to continue the shift from Eskom’s historically vertically integrated monopoly to the establishment of the Transmission System Operator SOC Limited (TSO) and the introduction of an open-market platform that enables the competitive trading of electricity.

Affordable electricity

Kiera Bracher, an associate at Webber Wentzel, told The Citizen that if ERAA achieves what it is established for, the price of electricity will decrease.

“The Act was set out to develop and foster an open and competitive electricity trading market, if this is achieved, then the price of electricity will decrease, electricity will become cheaper for consumers, and there will be greater energy certainty.”

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Greater efficiency of the electricity system

Jason van der Poel, Partner at Webber Wentzel added that one of the benefits of the act is consumers will be able to move away from a monopoly to an open and competitive market.

“There will be greater efficiency of the electricity system through competing generators working better to provide lower prices to consumers, greater levels of transparency and accountability (i.e. lower risk of state capture as happened with Eskom), and more independent oversight of the transmission grid infrastructure – all leading to greater energy certainty and economic stability and growth.”

Three key changes in electricity Act

Emma Bleeker, an associate at Webber Wentzel, said everyone looking to participate in and capitalise on the South African electricity sector should be aware of three key changes, the introduction of TSO, reticulation and municipalities, and the role of the minister.

The associates also flagged some provisions of the ERAA that seem to contradict the open and competitive market it intends to create.

Transmission System Operator

“Arguably the most significant shift expected in the reformed electricity market introduced by the ERAA is the establishment of the TSO, which follows on from the unbundling of Eskom, which began in 2019.”

The TSO is intended to act as a system operator, market operator, transmitter, and central purchasing agency, ensuring the establishment of an open-market platform that facilitates competitive electricity trading.

The associates added that in 2024, Eskom hosted a series of public consultations on a draft market code, during which the new rules for operating South Africa’s new open and competitive electricity market were thoroughly discussed.

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Contradiction

They also highlighted some provisions of the Act that contradict the legislatively mandated purpose of the TSO.

“For example, the National Energy Regulator of South Africa (Nersa) has the power to ‘set and approve prices and tariffs’ under the ERAA, except in relation to ‘direct supply agreements.

“Power purchase agreements between generators and traders (as customers) do not fall within the ambit of “direct supply agreements.”

Section 15(4) of the ERAA states that “a licensee may charge customers tariffs which have not been set or approved by Nersa when the applicable tariff is charged pursuant to a direct supply agreement or arises as an outcome of a competitive market.”

 The associates believe this will create a situation where a willing buyer-willing seller relationship between a generator and a trader (as a customer) could be stalled without Nersa setting or approving the applicable tariff due to the restrictive definition of direct supply agreements.

“This language undermines the open and competitive market that the ERAA aims to establish.”

Reticulation and municipalities

“The South African Local Government Association (Salga) has been among the most vocal opponents of the ERAA, due to what it regards as putting the function of municipalities within the electricity sector into crisis.

“As a result of the criticisms levied by Salga, the definitions of “reticulation” (effectively distribution) and ‘distribution power systems’ have not come into effect along with the rest of the ERAA. These definitions will come into effect at a date determined by the President through proclamation in the Gazette.”

They said Salga’s primary concern revolves around the claim that the ERAA undermines municipalities’ right to reticulate electricity within their areas. 

While Schedule 4B of the Constitution grants municipalities the right to reticulate, it is not explicitly clear whether this right is exclusive.

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The role of the minister

The minister of Electricity and Energy is afforded broad discretionary powers under the ERAA.

According to section 34 of the ERAA, the minister is entitled to determine whether new or additional capacity is needed in the event of a market failure, an emergency, or to ensure the security of energy supply in the national interest.

“The provision includes the minister’s power to deviate from the Integrated Resource Plan (IRP), which serves as the national roadmap for meeting South Africa’s energy needs.

“Reasons for deviating from the IRP should be few and far between, but instead, the trigger events for a ministerial deviation in the ERAA are undefined and broad in scope.

“Judicial intervention may eventually be needed to give greater certainty as to what the trigger events entail and to limit the far-reaching discretion afforded to the minister.”  

“These changes not only afford the minister more freedom under the new legislation but seem contrary, in principle, to the competitive market the ERAA aims to facilitate and encourage.”

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