Trading in focus

Few would disagree that aggregators and traders will have an important and increasing role in South Africa’s future electricity market.

Even in the current environment, where the industry is still at the early stages of transitioning from its vertically integrated past structure to one where there will be greater competition, traders already feature.

The first trader was licensed by the National Energy Regulator of South Africa (Nersa) in 2014 and, until recently, South Africa had six licensed traders, namely PowerX, EnPower Trading, Neura Trading, Energy Exchange of Southern Africa, Envusa Trading and Eskom Holdings’ National Transmission Company South Africa (NTCSA).

Following a protracted approval process, Nersa then awarded four more licences on October 29 to CBI Electric Apollo, Discovery Green, Green Electron Market and GreenCo Power Services.

It did so amid objections by Eskom’s distribution division, which first made known its opposition during public hearings into the four applications in July.

Its objection shocked the market for several reasons.

Firstly, because trading licences had been issued in the past without any hint of Eskom opposition.

Secondly, it came as President Cyril Ramaphosa was about to provide his assent to the Electricity Regulation Amendment Act, which lays the legislative ground for greater competition and for the emergence of markets that presuppose a role for traders.

Thirdly, Eskom pointed to rules prohibiting two or more licensees in a single distribution supply area, which would appear to confuse physical system operation with nonphysical trading activities.

Fourthly, the objection seemed to come directly from the monopolist playbook in a context where South Africa is taking strenous legislative, regulatory and policy steps aimed specifically at undoing the monopoly structure that has emerged as a key cause of the country’s electricity crisis.

At both Nersa’s electricity subcommittee meeting that considered the licence applications and at the meeting of the Energy Regulator held to approve them, officials gave reasons why Eskom’s objections were insufficient grounds for preventing the issuances.

Nevertheless, the State-owned enterprise has doubled down in announcing that it is approaching the High Court for a review of the decision.

This sent a second shockwave, particularly given that Eskom has mounted several successful legal challenges of previous Nersa decisions, raising questions about whether the regulator may have erred yet once again.

However, it is equally fair to ask why Eskom has failed time and again to raise the matter during previous trading-licence application processes.

Why are these trading licences different from the ones Eskom chose to ignore previously?

Why, too, did the NTCSA not lodge a similar objection to the issuance of an import/export licence issued on the same day to GreenCo Power Services?

And why is Eskom seeking to defend its turf now when all the legislative and regulatory trends are accommodative of new activities such as trading?

For the sake of the industry, it is crucial that these questions are addressed decisively by the courts, and hopefully swiftly too.