How Eskom's unbundling supports South Africa's renewable energy sector

Discovery Green

The unbundling of Eskom, especially the power trading capabilities of its transmission arm, is set to reshape access to renewable energy. This development will be crucial to reducing the country's carbon footprint and helping businesses manage the financial risk of carbon taxes.

Eskom unbundling

During the 2019 State of the Nation Address, President Cyril Ramaphosa initiated the unbundling of state power utility Eskom into separate generation, transmission, and distribution entities. The aim is to maximise efficiency by partnering with a broad range of stakeholders, including independent technology sources, expertise and capital.

In April 2024, the National Energy Regulator of South Africa (NERSA) gave the green light for Eskom to transfer its control over independent power producers (IPPs) to the newly established National Transmission Company of South Africa (NTCSA), which duly began trading both Eskom and privately generated electricity in July 2024. The NTCSA also assumed the role of South Africa's energy market operator, providing a platform for energy generators, consumers, traders, and retailers to trade energy in accordance with global best practice energy transmission management.

The NTCSA - a new era in transmission

Operating under three licences issued by NERSA, the NTCSA is also responsible for:

• Operating transmission facilities through the national power grid
• Trading energy by purchasing power from Eskom and IPPs
• Importing and exporting energy while continuing to operate as the trading arm to and from the Southern African Power Pool.

Unbundling Eskom into separate businesses improves operational transparency while addressing Eskom's historic power generation, supply and distribution challenges. For example, as a stand-alone entity, the NTCSA is better placed to improve transmission as executives prioritise grid performance.

A stand-alone transmission business will also increase lender appetite due to the focused impact of initiatives as well as transparent and measurable investment and return models. The NTCSA has set a target of building nearly 14,000 km of new transmission lines over the next 10 years and is actively exploring opportunities for public-private partnerships to raise the necessary funds for these new infrastructure projects. Finally, a separate transmission company will also provide IPPs confidence through transparent and independently-managed contracts in a competitive, regulated, energy market catering for private sector participants.

Power wheeling makes energy more accessible

Wheeling of energy is a process where renewable energy is generated at the most efficient locations in the country and "wheeled" to your business through the national grid. Importantly, wheeling allows privately generated power to be transmitted across the national grid to customers who need it, in a willing buyer/willing seller model.

For example, when an IPP solar farm based in the Northern Cape sells its energy to a business in Johannesburg, the electricity is delivered using Eskom's and various local municipal distribution networks. While the electrons produced in the Northern Cape are not the same as those delivered to the business in Johannesburg, the purchase has allowed for solar energy to be generated and fed into the national grid and the business is credited for the renewable power.

Wheeling is essential because it allows multiple energy producers to add energy to the national grid, relieving Eskom of the pressure and risk of being the sole producer of South Africa's energy supply. A range of other electricity producers adding to the national grid has already contributed significantly to curbing 15 years of load shedding in South Africa. As more IPPs contribute to the national grid, including households with rooftop solar, South Africa's energy availability will likely improve dramatically. Eventually, South Africa is expected to increase its capacity for exporting energy to other regional markets and eventually across Africa.

Carbon risk

As governments around the world encourage and enforce carbon reduction in their economies in a collective effort to reduce the negative impacts of global warming and climate change, the kind of energy that individuals and businesses use is becoming increasingly important.

South African businesses using electricity produced from coal have an outsized carbon footprint. One of the most significant risks facing South African businesses is carbon taxes,which are set to escalate at home and abroad as much more stringent and broadly measured carbon tax policies kick in within the next two years.

Wheeling your business off carbon

By supporting the transition to a competitive electricity market in South Africa and prioritising grid infrastructure projects to improve national grid capacity, the NTCSA fosters an environment that allows South African businesses to mitigate their carbon risk. For South African businesses facing an existential threat from carbon tax policies, wheeling provides the ability to purchase green energy from renewable energy companies anywhere in South Africa.

Transmitting renewable energy from sites with good wind, hydro or solar resources to corporate, industrial and residential customers who previously purchased coal-generated power, secures South African businesses access to tomorrow's green economy on a sustainable and competitive basis.

The future of energy is green

At a national level, the NTCSA's wheeling framework allowing third-party access to the grid is expected to drive competition, reduce electricity costs, and encourage investment in renewable energy while aiding South Africa's Just Transition. For individual businesses, however, the NTCSA is set to provide critical support to enable businesses to avoid current and future carbon taxes, penalties and exclusions.

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