10 steps to cheaper power in South Africa

A new report outlines the 10 steps necessary to achieving cheaper power as South Africa’s electricity supply landscape undergoes a major revision.

South African Energy Traders Association

A new report commissioned by the South African Energy Traders Association (SAETA) specifies the 10 steps needed to get to cheaper power by replacing Eskom’s monopoly with a variety of power producers.

Traders using their wheeling expertise can then put together power purchase agreements from multiple producers to provide power to multiple customers.

Ten Steps

• Publish a Cabinet-endorsed electricity reform roadmap
• Finalise an Electricity Pricing Policy
• Strengthen Department of Electricity and Energy (DEE) and the National Energy Regulator of South Africa (NERSA)
• Define a credible end state for Eskom Holdings
• Deliver the transmission development plan
• Implement reform of the electricity distribution industry
• Finalise trading rules
• Improve wheeling systems and grid access
• Launch the South African Wholesale Electricity Market (SAWEM) with Market Code in place
• Enable cross-border electricity transactions

This trading would take place in the South African Wholesale Electricity Market (SAWEM). Traders would trade electricity in hourly packages.

This would help smooth supply and demand as the supply of solar electricity results in the so-called “duck curve”, when demand is high in the early morning and early evening, when solar power is minimal, while demand dips in mid-morning when rooftop solar provides power to residences and office blocks.

First step

The first step needed is for a Cabinet-endorsed electricity reform roadmap that spells out what needs to happen to create a regulated power market.

Electricity pricing

This would then be followed by stating under which policy electricity would be priced. In order to ensure a smooth functioning of the market, the Department of Electricity and Energy and the National Energy Regulator of South Africa would need more capacity.

To provide policy certainty, an end-state for Eskom and its components should be stated.

Transmission grid

A necessary condition for trading would be the expansion of the national transmission grid. The 2024 Transmission Development Plan said 14,500km of new lines and 210 transformers would be needed by 2034. Cheaper power is useless if it cannot be delivered to customers, so municipal distribution systems need to be upgraded.

Trading rules

In the same way that trading in bonds and equities are regulated, so trading rules are needed for power trading so participants know the rules of the game.

In the same way that equity trading moved from open outcry to realtime digital trading, so the SAWEM should have a similar automated, technology-enabled settlement across municipal networks. The SAWEM is due to be launched shortly and should have a market code in place.

Southern African Power Pool

Finally, cross-border electricity trading in the Southern African Power Pool (SAPP) would improve liquidity as non-South African traders could participate. It would also strengthen regional security of supply. In times of drought, when hydropower is constrained, it can help to export surplus wind and solar power from South Africa to the neighbouring countries.

Conversely, when dams are full it can then export cheap 24-hour hydropower to South Africa from dams such as Mozambique’s Cahora Bassa.