º¬Ðß²ÝÉçÇø

The Electricity Regulation Amendment Act 38 of 2024 (Amendment Act) came into force on 1 January 2025. This legislation aims to address South Africa¡¯s longstanding electricity supply challenges while promoting renewable energy development and power market reform, representing a significant milestone in the government¡¯s efforts to overhaul the electricity sector.

The Amendment Act presents unprecedented opportunities for Chinese investors, particularly in renewable energy development, grid modernisation and market-oriented power trading. As South Africa¡¯s electricity market progressively opens up, Chinese enterprises are well-positioned to take a strong role in renewable energy projects, energy storage technologies and power infrastructure investments.

Key amendments

Introducing an open and diversified market system. The Amendment Act establishes an open, diversified market system by introducing competitive market mechanisms. It permits private enterprises to participate directly and freely in electricity market transactions for the first time, potentially breaking the monopoly held by South Africa¡¯s state-owned power utility Eskom Holdings SOC Limited (Eskom), which was previously the sole electricity supplier.

Under the reformed framework, residential, commercial and industrial consumers will gain autonomy to select electricity providers by reviewing their price, service quality and reliability. Power generators will be able to compete equally with Eskom in the market and further negotiate power purchase agreements (PPAs) directly with end users based on their commercial considerations.

This dual-choice mechanism substantially expands options for power generation project investors and is expected to unlock significant potential in South Africa¡¯s electricity market.

Setting up an independent TSO. The Amendment Act mandates the establishment of an independent transmission system operator (TSO) within five years. Once licensed by the National Energy Regulator of South Africa (NERSA), the TSO will assume the integrated role of the transmission system operator, the market operator and the centralised electricity purchaser.

Under the amended framework, the TSO will replace Eskom as the primary electricity offtaker in South Africa¡¯s power market. This regulatory shift requires all existing generation projects operating under the Eskom framework (including Eskom-owned power stations and renewable energy projects developed under government procurement programmes), along with new projects planned under the Eskom framework, to enter into PPAs exclusively with the TSO.

Pricing and approving tariffs. The Amendment Act redefines the NERSA¡¯s role in regulating the electricity pricing. Under the new framework, while the NERSA no longer monitors real-time pricing, it remains responsible for establishing and approving electricity tariffs. In discharging its responsibilities, the NERSA is required to ensure that utilities recover their operational costs with reasonable profit margins. It should also advance key policy objectives, including renewable energy promotion, power supply security and the diversification of energy sources.

This legislative reform creates a distinct policy orientation favouring renewable energy projects, enhancing their commercial viability within South Africa¡¯s electricity market. By institutionalising clear cost-recovery mechanisms, the Amendment Act substantially strengthens investment return assurances for power generators.

Removing mandatory bidding requirements. A pivotal reform under the Amendment Act is the removal of mandatory competitive bidding requirements for new generation projects, while expanding the discretionary authority of the minister of electricity and energy over project approvals. This legislative change enables financially robust power investors to bypass protracted compulsory tendering processes, such as South Africa¡¯s Renewable Energy Independent Power Producer Procurement Programme, and instead submit project proposals directly to the minister, thereby improving project implementation certainty.

Suggestions

Vigilant oversight of market and policy trends. The enactment of the Amendment Act marks a transformative phase in South Africa¡¯s electricity sector, though critical reforms such as the TSO and the revised tariff approval mechanisms remain in transition. Investors are advised to closely monitor the TSO¡¯s establishment process, with particular attention to its functional transition arrangements with the National Transmission Company of South Africa. A comprehensive analysis should also be undertaken on the NERSA¡¯s new tariff approval framework, its renewable energy support policies and related implementation guidelines. A robust, institutionalised policy monitoring mechanism is strongly recommended to ensure timely adaptation to evolving market regulations.

High-level engagement. The Amendment Act grants discretionary decision-making authority to the minister of electricity and energy regarding approvals for new generation projects, creating an alternative development pathway for well-resourced investors. This provision enables investors to engage in high-level consultations directly with the Ministry of Electricity and Energy, allowing them to prepare tailored project proposals for priority development zones and potentially expedite implementation through ministerial approval.

Optimised project development models. Under the new framework where the TSO serves as the primary electricity offtaker, investors should adopt diversified power procurement strategies. This requires preparation for long-term PPAs with the TSO while simultaneously exploring corporate PPAs with major commercial and industrial consumers. Partnering with established local enterprises for joint project development will also enhance risk management throughout both the implementation and operational phases.

Wang Jihong is senior counsel and Liu Ying is an equity partner at Zhong Lun Law Firm.