The decades-long power crisis that crippled economic growth in South Africa is the burning platform that underpinned the energy reforms playing out today. They’re not nice-to-haves, but structural shifts that respond to deep economic, energy and climate pressures facing the world.
The numbers tell the story. In 2007-24 average electricity tariffs rose 937% — more than 500 percentage points above cumulative inflation of roughly 155%. That trajectory is a direct consequence of a monopoly model that concentrated price, volume and performance risk on Eskom and, ultimately, on the fiscus. The reform agenda exists to break that pattern.
The 2026 national budget acknowledges progress made on reforms led by Operation Vulindlela, with the aim of ensuring energy security while supporting the transition to cleaner energy and driving private investment. The energy reform pathway points to a multimarket model that combines a competitive wholesale market, centred on the South African Wholesale Electricity Market (SAWEM), with bilateral trading running in parallel.
Market shifts
The effect of initial reforms can already be felt. In 2023-25 almost 4.7GW of private-contracted power projects above 5MW reached financial close. Of this, 56% ― about 2.6GW ― was contracted to electricity traders, according to a survey conducted by Krutham in February 2026.
The pipeline behind this is larger still: traders have an additional 18GW of projects that will reach financial close in coming years. These are not theoretical numbers. They represent investment decisions made by private players responding to a market that is opening.
In 2023 most projects that reached financial close were bilateral ― direct agreements between a single generator and a single off-taker. By 2025 there had been a growing trend toward trader-intermediated deals. That shift reflects the limits of one-to-one contracting as the market matures and the role traders now play in aggregating demand from multiple customers and supply from multiple generators to unlock new routes to market.
There’s also a notable impact visible on the state’s balance sheet. Apart from the National Treasury’s debt relief to Eskom, the state’s balance sheet has also provided guarantees for large-scale renewable energy generation projects through public procurement programmes.
However, competitive electricity markets reduce fiscal exposure for the state. A thriving multimarket model that encourages private investment in new generation frees up the fiscal balance sheet to provide credit support for other infrastructure needs such as transmission, water, logistics and housing.
Why the multimarket model matters
Wholesale markets are important to provide transparent prices for power, ensuring that the lowest-cost generation is scheduled first. This helps keep overall electricity costs down and improves the efficiency by which power is produced and delivered.
This should have a long-term effect of flattening tariff trajectories — a critical consideration for households, municipalities and businesses that have absorbed the consequences of the existing model for two decades.
Alongside this, electricity traders connect buyers and sellers across both market-based and bilateral arrangements. They provide liquidity in markets, manage risk and translate market price signals into transactions between companies.
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By aggregating demand and sourcing power from diversified generation portfolios, traders absorb volume, price and counterparty risks that would otherwise fall on individual customers or financiers. That risk-transfer function is central to unlocking investment in new generation.
There is an external dimension too. South African exporters face growing exposure to the EU’s Carbon Border Adjustment Mechanism. Market reform that accelerates renewable energy investment and reduces reliance on coal-fired generation is therefore not only a climate objective — it is an economic competitiveness requirement.
Together, competition at the wholesale level and active trading deliver better outcomes than single-buyer systems.
Regulatory progress
The National Energy Regulator of South Africa (Nersa) has put in place regulations to enable the fair functioning of the SAWEM. The regulator has approved the long-awaited grid capacity allocation rules needed to ensure non-discriminatory access to the grid. It has also granted a market operator licence to the National Transmission Company of South Africa and is now considering the market code, which will govern the functioning of the SAWEM.
Additionally, the regulator must consider the vesting contracts framework and wholesale tariff. Nersa is also finalising trading rules, and recent news that Eskom and five licensed traders have agreed to suspend the utility’s 2024 high court challenge to have the licences set aside removes uncertainty and restores investor confidence.
In addition, President Cyril Ramaphosa’s announcement, affirmed in the budget that a fully independent transmission system entity — able to raise funding on the strength of its balance sheet — will unlock much-needed grid expansion for new projects in this new multimarket.
The road ahead
The success of South Africa’s evolving electricity market will depend on learning by doing, adapting rules as system conditions change and maintaining alignment between market design, investment incentives and operational realities. Executed well, the SAWEM can deliver a more flexible and resilient electricity system that supports investment and reliability as well as boost economic activity and growth.
• Cowie is CEO of energy trader Energy Exchange of Southern Africa, a member of the South Africa Energy Traders Association, which commissioned Krutham to produce a report, Policy to Power — 10 actions to deliver green, accessible and secure electricity.
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