Article written by Chris Ahlfeldt and Carter Medved.
South Africa’s electricity market reform is entering a critical phase to address systemic challenges that led to the load shedding crisis in recent years. With the launch of the South African Wholesale Electricity Market (SAWEM) in 2026 and the implementation of the Electricity Regulation Amendment Act (ERAA) of 2024, the country is transitioning from Eskom’s vertically integrated monopoly to a competitive, multi-market structure. For institutional investors, renewable energy developers, infrastructure funds, and climate finance leaders, this reform reshapes grid access, revenue models, curtailment risk, and transmission investment opportunities. As with most market reforms globally, credibility in governance and transparency in rule-making will be as important as the technical design of the market itself.
Why Transmission Independence Matters for Investors
The National Transmission Company of South Africa (NTCSA) is of critical importance in the near-term for large-scale developers. It’s intended to become an independent Transmission System Operator (TSO), providing non-discriminatory “open access” to the grid. This ensures that private Independent Power Producers (IPPs) can compete on level ground with each other and Eskom’s own generation assets. IPPs with an export capacity of ≥10 MW will be required to register as Balance Responsible Parties (or designate another willing BRP) and will need to accurately predict how much electricity it will export to the wholesale market and comply with new responsibilities. Accuracy of forecasting, operational responsiveness, and assuming financial responsibility for imbalance will therefore become a competitive advantage for some IPPs to manage in the new market.
The NTCSA will also house the Central Purchasing Agency (CPA), which manages legacy Power Purchase Agreements (PPAs) to maintain market stability. Under transitional vesting contracts, Eskom generation revenue will be hedged through the CPA to mitigate market power and provide price stability.
For developers, the move to a “registration” regime for projects will help streamline market entry, while the National Energy Regulator of South Africa (NERSA) requirements for economic impact analysis remains secondary to the bigger constraint of grid access.
Grid Congestion & Curtailment Risk: The New Reality for Developers
For developers going forward, the primary hurdle will be physical access to the grid which is nearing capacity. The Generation Connection Capacity Assessment (GCCA) 2025 highlights a stark reality: the “Cape Corridor” (Northern, Western, and Eastern Cape Provinces), which holds the country’s best solar and wind resources, is thermally saturated with 0 MW of traditional capacity available.
Many developers have now started planning for curtailment scenarios and pivoted in recent months to other provinces like Mpumalanga and KwaZulu Natal, where the decommissioning of coal plants will free up grid space, even if the solar/wind yield is slightly lower than in other provinces. This geographic shift is likely to reshape the spatial economics of renewable development over the next five years.
SAWEM Explained: How South Africa’s Wholesale Market Changes Revenue Models
The launch of the South African Wholesale Electricity Market (SAWEM) introduces a hybrid “net pool” market combining bilateral contracts with centralized dispatch and price formation that fundamentally changes revenue models for IPPs with projects >10MW. The SAWEM launch is targeted for April 1, 2026, the specific operational rules and market code recently released at the end of February 2026. The newly appointed Electricity Market Advisory Forum (EMAF) is focused on ensuring deadlines are met, but some delays may occur this year.
Short-term markets enable demand to be met through dynamic trading (reducing reliance on long-term fixed PPAs). New short-term markets with SAWEM:
- The Day-Ahead Market (DAM): Will be a core price discovery mechanism via a blind auction where prices are set hourly based on the System Marginal Price (SMP).
- The Intraday Market (IDM): Allowing for adjustments on the trading day (6 hour-intervals 0h00, 06h00,12h00, 18h00), which is vital for variable renewable energy and balancing fluctuations in supply/demand.
Balance responsibility and balancing price will initially be estimated using an indicative price (based on day ahead market buy/sell prices) and includes a floor at the System Marginal Price, but will later become fully market-exposed after the market transition phase. Long-term term PPAs and bilateral trades outside SAWEM will also be allowed but now responsible for daily confirmation to Market Operator.
For renewable energy investors, the SMP model has the potential upside of providing additional benefits for renewable energy with its near-zero marginal costs relative to more expensive diesel-powered turbines that may set the market price during peaks. However, as renewable penetration grows price cannibalization and negative intraday spreads become real modeling considerations especially for solar-heavy portfolios.
Unlocking Private Capital for Grid Expansion
The Independent Transmission Project (ITP) program represents one of the most significant infrastructure finance opportunities in the South African power sector in recent years. Developing and building new transmission lines is one of the biggest bottlenecks for unlocking additional utility-scale generation in South Africa, because existing transmission lines are at capacity for exporting energy in some high-resource regions like the Northern Cape without expansion. The state’s inability to fund the R440 billion (US$28 Billion) required for 14,500 km of new transmission lines creates an opportunity for private capital through the ITP programme. Utilizing a Build-Own-Operate-Transfer (BOOT) model, private consortiums can now finance and build high-voltage infrastructure.
The initiative has already moved into the procurement phase; on December 15, 2025, the NTCSA announced that 7 bidders successfully met the pre-qualification criteria out of approximately 17 respondents. The programme is now progressing toward its next milestone, with the Final RFP, which is anticipated to be released by Quarter 3 of the 2026/27 calendar year. Government will use a Credit Guarantee Vehicle (GCV) to address the sub-investment grade credit rating of the state entities.
Municipal Reform, Wheeling & Distributed Energy Markets
While transmission implements expansion plans, the distribution sector will be where a large amount of the near-term opportunity remains. While some municipalities view the wholesale market and distributed generation as a threat to their revenue, others see it as an opportunity to update their business model. Participation in SAWEM for all parties including municipalities requires financial solvency and compliance with both technical and operational requirements of the market code. The current financial challenges and limited capacity of many municipalities in South Africa suggests that most municipalities will remain indirect participants under CPA-backed arrangements, and may create an incentive for many municipalities to reform.
For developers and solution providers, there is significant upside at the municipal level (especially for solar PV + batteries) in municipalities that have put in place enabling regulations for wheeling and small-scale embedded generation (SSEG) tariffs that give customers more choice and enable clean electricity. Another option for developers involves Eskom’s Virtual Wheeling programme, which bypasses the need for complex municipal billing adjustments and has become the preferred route for retail chains and industrial groups with operations across multiple jurisdictions.
Battery Energy Storage Systems (BESS), Carbon Tax & Merchant Risk
As we look toward 2030, the value of energy is shifting from volume (kWh) to timing (flexibility). SAWEM’s co-optimization of energy and reserves further strengthens the business case for storage and flexible hybrid projects. The “Duck Curve”, a midday surplus of solar power, will become a standard feature of the South African grid. This creates a massive arbitrage opportunity for Battery Energy Storage Systems (BESS), which can charge at near-zero prices at noon and discharge during the lucrative evening peak.
Furthermore, the escalating Carbon Tax post-2026 could increase the marginal cost of coal generation assuming fossil fuel lobbies that are trying to suspend the Carbon Tax don’t get their way. The ultimate impact of the Carbon Tax will depend on how carbon costs are integrated into generator bidding under vesting contracts. This will potentially push up the market clearing price in the SAWEM, providing competitive advantage for renewable developers who don’t need to pay a carbon tax but could benefit from the higher market price.
Global Lessons for SAWEM: What International Market Reform Tells Us
Over the past few decades most large electricity systems across the world have transitioned away from a vertically integrated utility monopoly. The driver of the reforms (e.g. incentivize private investment, improve efficiency, better allocate risk) and the challenges vary, so there is no one-size-fits-all design for a liberalized electricity sector. Power system characteristics also vary by country, with a trend for more private investment to unlock distributed & cleaner energy.
Table 1: Key power system components by country
(Source: RAP Report, 2025)
Wholesale markets offer a solution for trading large volumes of energy and related services from multiple generation facilities to multiple customers, such as large consumers or distribution companies who then sell to their own customers. Wholesale markets also need to provide adequate incentives to enable sufficient investment. Government’s role here is to help create an enabling environment for investment, initially through power system design, and in some cases further support. Decisions setting the rules for a wholesale market can also evolve over time such as the size of generators and customers eligible to participate in the market.
While electricity markets incentivize low system costs, additional instruments or tools may be required to ensure cost savings from efficiency gains and wholesale market competition are passed through to customers. Strong regulatory oversight and tools such as hedging and auctions can protect consumers from price volatility, while budget transfers that replace cross-subsidies can provide direct financial support to help low-income customers with affordability. (Source: RAP Report, 2025)
International experience shows that wholesale markets function most efficiently when price signals reflect the true cost of carbon, congestion, and flexibility. Zonal and/or locational pricing can further minimize overall system costs, guide investment to the right places, and ultimately reduce long-term costs for consumers. Opportunity remains to also add locational pricing to South Africa’s future iterations of its market code and rules.
Conclusion
The South African energy market will continue to evolve this year and over the next decade beyond the historical Eskom monopoly into a hybrid market that blends bilateral contracting, centralized price discovery, and increasing merchant exposure. Some questions and details still need to be resolved, such as the vesting contracts for Eskom’s legacy coal plants which will hopefully be structured in a way to phase-out expensive and high polluting coal facilities.
Market confidence will also depend on whether the National Transmission Company of South Africa (NTCSA) achieves genuine operational and financial independence as required under the ERAA framework. Investors and developers who combine engineering capability with trading, technical forecasting capability, portfolio optimization, storage integration, and financial structuring expertise will be well positioned to succeed under the evolving market.
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FAQ
What is SAWEM?
The South African Wholesale Electricity Market (SAWEM) is a hybrid net-pool electricity market launching in 2026 that combines bilateral contracts with centralized dispatch and price formation.
What is NTCSA?
The National Transmission Company of South Africa (NTCSA) is the independent transmission operator created under the Electricity Regulation Amendment Act.
Is transmission grid capacity available in the Northern Cape or Western Cape?
No. The 2025 Generation Connection Capacity Assessment indicates 0 MW of traditional capacity along the Cape Corridor (Northern, Eastern and Western Cape) without curtailment.
Co-Authors
Carter Medved co-authored this article and is currently working as an intern at Blue Horizon ECS. He is passionate about the environment and sustainability and currently a Morehead-Cain Scholar at the University of North Carolina at Chapel Hill. Carter created and launched the online platform WattSherpa.com as an information platform to an energy efficient future. To reach Carter directly, you can contact him through LinkedIn.
Chris Ahlfeldt has over 18 years of in-depth work experience in the clean energy and sustainability industries primarily in the North American, Asian, and African markets. He’s also been involved in a number of interdisciplinary sustainable infrastructure and energy projects including climate finance strategy for an international bank, just energy transition grant deployment, renewable energy & off-grid policy, investor market entry strategy, economic development impact, and legislative/regulatory reforms in various countries in Africa (e.g. South Africa, Zambia, Thailand, Mozambique, Namibia, eSwatini, Liberia, Kenya, Botswana, Madagascar). He obtained an Energy Systems Engineering B.S. degree at Stanford University and has lectured at leading business schools on Environmental Finance, Renewable Energy, ESG, and Impact Investing. You can contact him here.
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