Worth the ink?

The National Council of Provinces’ (NCOP’s) recent approval of the Electricity Regulation Amendment (ERA) Bill has far- reaching implications for the future structure and operation of an industry that has been dominated by Eskom for more than a century.

Unlike the controversial National Health Insurance Bill, which President Cyril Ramaphosa signed on May 15, the ERA has the backing of business, which called for its urgent passage as part of reforms that it viewed to be necessary to end loadshedding and place the sector on a more sustainable footing.

Energy Council of South Africa CEO James Mackay explained this support after the NCOP vote, describing the ERA as a priority reform for restoring investor confidence and unlocking investment to support the country’s transition to a low-carbon energy system.

He said the legislation consolidated moves towards an independent State-owned and run transmission network and system operator, whose role would be crucial to rapidly expanding much-needed grid capacity. In addition, the independent market operator envisaged in the legislation could ensure “a bankable energy market that unlocks large-scale private sector investment through energy traders and aggregators”.

Besides the unbundling of Eskom, the creation of the Transmission System Operator (TSO) is indeed regarded as the key feature of the amendment. The TSO will be located within the National Transmission Company South Africa (NTCSA), which is expected to begin trade by July.

The ERA provides a five-year period for the integration of the roles and functions of the TSO, including those of a market operator, which will implement the market code required for the transition from a monopoly structure to a competitive framework. Here the roles and responsibilities of participants will be defined and platforms created for day-ahead, intraday, reserve and ancillary service markets.

A draft market code is currently circulating for public comment before its submission to the National Energy Regulator of South Africa for further deliberation and consultation ahead of approval.

Given the far-reaching changes envisaged and the relative speed at which the ERA was progressed, there are bound to be shortcomings, some of which were highlighted by the Democratic Alliance when it reluctantly offered its support for the Bill’s passage during the earlier vote in the National Assembly.

Likewise, Business Day has warned of other suboptimal elements, particularly ones aimed at centralising control and extending unwarranted discretion to the Minister of Mineral Resources and Energy. These late adjustments should have been blocked by lawmakers, but they were not.

That said, the ERA legislation represents progress in starting to align the legal framework with the technological and market developments that have already decoupled from the current market structure. These developments will no doubt continue and there is little question that new legal and regulatory contradictions will arise again in future.

Therefore, while it is disappointing that some really problematic clauses have been allowed to contaminate the ERA, it is still worth signing – but doing so with the full knowledge that more amendments will be required as the transition advances.