South Africa’s energy sector is on the cusp of a significant transformation. The traditional reliance on Eskom as the sole source of electricity is giving way to a more diversified and market-driven approach, with energy aggregators emerging as key players.
Energy aggregators act as intermediaries, buying electricity from independent power producers (IPPs) and selling it to multiple consumers, or off-takers, through a process called wheeling. This creates wholesale and retail markets for electricity.
Aggregators buy power from IPPs based on contracted capacity and then distribute it to individual off-takers according to their needs. The model is independent of government procurement programmes and operates in the private energy market.
Wheeling is the backbone of the aggregator model. It allows electricity generated by private producers to be transmitted across national and municipal grids, enabling aggregators to source power and sell it to any customer anywhere. Imagine a solar farm in the Northern Cape supplying a company in Gauteng — wheeling makes this a reality.
Energy aggregation also promotes greater efficiency in energy procurement. By aggregating demand from multiple consumers, energy aggregators can negotiate favourable terms with IPPs and pass on cost savings to end users. This not only drives down the cost of electricity but incentivises the adoption of renewable energy technologies, which have become increasingly competitive in terms of cost.
One of the key advantages of the energy aggregator model is its ability to enhance energy security and resilience. By diversifying the sources of electricity generation and reducing reliance on centralised power plants, the model mitigates the risk of supply disruptions and grid instability. This is particularly relevant in the context of load-shedding, which has underscored the need for a more robust energy infrastructure.
The emergence of aggregators follows the government’s removal of the threshold on the capacity of private generation facilities in January last year. The Energy Action Plan and the draft Integrated Resource Plan 2023 also envisage a large procurement of power from the private sector. The National Energy Regulator of South Africa has responded quickly to applications for trading licences from aggregators.
All of this means that several established aggregator platforms are already operational. Some are aiming to procure large-scale renewable energy supplies specifically for the mining sector, which is expected to be the initial leader in the space, followed by large industrial companies. Property groups and farmers are also keen to buy private power.
Anglo American and EDF Renewables, one of the world’s largest IPPs, have formed the aggregator Envusa Energy to develop a renewable energy ecosystem in South Africa that is expected to generate 3GW-5GW by 2030. Other aggregators include Etana Energy, NOA, Discovery Green and Lyra Energy.
More aggregators can be expected to emerge as the South African electricity market evolves, and the objective is to transition towards a day-ahead market mechanism that aligns the supply of electrical energy with anticipated demand for each hour of the trading day. The trend of escalating Eskom tariffs means private power sold by aggregators is always likely to be cheaper.
Aggregators will not replace Eskom entirely. Instead, they will act as a complementary force, helping to address South Africa’s projected long-term electricity deficit. Eskom will continue to play a crucial role in providing baseload power (particularly during the night, when solar energy is not available) and managing the national grid. Notably, Eskom itself has recognised the importance of electricity trading by establishing its own distribution energy trader platform.
More aggregators can be expected to emerge as the South African electricity market evolves.
Aggregators contribute to South Africa’s green energy transition by facilitating the development of a diversified energy mix. They enable companies to reduce their carbon footprint by sourcing cleaner energy alternatives. This aligns perfectly with the growing number of businesses committed to achieving carbon neutrality in the coming years.
While solar and wind are expected to dominate the energy aggregator supply mix in the short term, the potential for more innovative solutions exists. Battery storage is gaining traction, offering a way to provide more reliable baseload power from renewable sources. Looking ahead, green hydrogen may also enter the equation, further expanding the clean energy options available.
As a leading energy financier, Nedbank Corporate and Investment Banking (CIB) is involved in projects that are selling electricity to aggregators, and it should be noted that the new market extends far beyond South Africa’s borders. More than 600-million people in Africa lack electricity and — with global demand for electricity projected to rise — the aggregator model offers a scalable solution for bridging the energy gap.
While the current focus of energy aggregators is on large power users, the future holds promise for households as well. Aggregators are looking to sell power to metros and municipalities at a more affordable price than Eskom, and it is expected that this saving will be passed on to end users.
In the longer term, the government has outlined its intention to move to a competitive electricity market, eventually allowing all consumers to use an electricity supplier of their choice. In the meantime, the 25% tax rebate on the cost of new solar panels installed at private homes (with a R15,000 cap) still applies, and it has been reported that rooftop solar capacity doubled from about 2,600MW at the end of 2022 to 5,200MW a year later.
Ending the tax rebate, as indicated in the 2024 budget, may lead to more consumers exploring other options for cheaper electricity, such as buying it from energy aggregators at competitive tariffs, especially during peak periods. That will give households the option of investing in battery storage solutions to counter load-shedding rather than costly self-generation installations.
The growth of the energy aggregator model is not without its challenges. Regulatory uncertainty, grid constraints and market dynamics pose significant hurdles to its widespread adoption. However, with proactive government policies, supportive regulatory frameworks and private sector investment, these challenges can be overcome, unlocking the full potential of energy aggregation in South Africa.
• Singh is the head of energy finance and Nkune is the principal of energy finance at Nedbank CIB
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