SUBESH PILLAY | From system constraint to market transformation

South Africa’s electricity sector is entering a decisive phase.

After more than a decade marked by load-shedding, constrained growth and rising system costs, the country is moving beyond short-term stabilisation into a period of structural transformation. At the centre of this transition is the South African Wholesale Electricity Market (Sawem), a fundamental reset in how electricity is produced, traded and priced, and a clear signal the sector is entering a different phase.

This shift points to a deeper issue. Over time the structure of the electricity sector has itself become a constraint on economic growth. A vertically integrated, single buyer model concentrated risk in one institution, limited competition and restricted the pace and diversity of investment entering the system.

The consequences are evident. Persistent supply shortfalls, growing reliance on higher cost generation and a pricing framework that has struggled to balance financial sustainability with affordability. For households, this has translated into steadily rising electricity costs. For industry, particularly in energy intensive sectors, it has steadily eroded competitiveness in an already demanding global environment.

Sawem is intended to respond to these structural limitations. It introduces a framework in which many generators can participate, electricity is traded through more transparent arrangements, and price signals better reflect system conditions. In practical terms it opens the system to wider participation, improves dispatch efficiency and begins to create a more credible basis for sustained investment in new capacity.

Sawem cannot be viewed in isolation. It is part of a system that is itself evolving, and it will only be as effective as the environment in which it operates. This requires a systems thinking approach. Market design, infrastructure, institutional capability and regulation need to move together. If they do not, the market will simply reflect existing constraints rather than help resolve them.

The most immediate constraint is transmission. While generation capacity has expanded, grid development has not kept pace. Without adequate transmission capacity, new generation cannot connect at scale, and the benefits of competition remain limited.

The department of electricity and energy has placed transmission at the centre of its intervention strategy. The Transmission Development Plan (TDP) provides the long-term roadmap for grid expansion. This is being complemented by the Independent Transmission Projects programme (ITP), which brings in private sector capability to accelerate delivery. Alongside this, credit guarantee vehicle mechanisms are being developed to crowd in financing and reduce the risk profile of large-scale transmission investments.

These are not peripheral measures. They are foundational. Without them, Sawem will operate within a constrained system. With them, it begins to unlock investment and competition at scale.

A second constraint lies in institutional capability and execution. While access to capital is important, the more pressing issue has been the system’s ability to translate policy into a credible pipeline of investable projects.

In response, the department has repositioned key planning instruments, including the Integrated Resource Plan (IRP) 2025 and the TDP as investment pipelines rather than narrow supply planning tools. This is an important shift. Planning is no longer only about balancing supply and demand. It is about signalling a sequenced, bankable set of opportunities to the market.

By embedding project readiness, procurement pathways and infrastructure alignment into these plans, the department is laying the groundwork for sustained investment and deeper participation. The challenge is execution, ensuring this pipeline consistently translates into delivery on the ground.

The third dimension is the role of Eskom. As the incumbent utility Eskom remains central to system stability. Transformation is not about displacing this role, but about repositioning the utility within a more modern sector framework. This requires a managed transition, one that preserves operational continuity, maintains system performance and sustains confidence across the electricity ecosystem.

These shifts must also be understood within South Africa’s political economy. Electricity is not simply an input into production. It shapes the cost of living, underpins municipal finances, and directly affects the competitiveness of key industries. Transformation therefore requires careful navigation of trade-offs between efficiency, affordability and stability.

This is most visible in the distribution segment. Municipalities remain the primary interface with communities, yet in many instances financial instability, governance challenges and operational weaknesses continue to undermine service delivery and revenue collection.

The department’s response has been to advance distribution agency agreements as a targeted stabilisation measure. These agreements are intended to strengthen revenue collection, improve operational performance, and restore financial discipline. More importantly, they provide a pathway toward a more sustainable institutional architecture for distribution, one that can support investment, improve service delivery and align with the broader transformation of the sector.

Over time, this will need to be reinforced by sustained investment in distribution infrastructure, modernisation of metering and billing systems, and clearer institutional arrangements for managing the distribution function.

At the same time, the risks associated with market development must be managed deliberately. International experience is instructive. Where markets have been introduced too quickly, or without sufficient depth, liquidity has remained constrained, limiting effective price discovery. In some cases rapid entry of low marginal cost generation, without corresponding system flexibility, has resulted in periods of negative pricing, distorting investment signals and undermining market stability.

These lessons reinforce the importance of pace and sequencing. In South Africa’s context, market development must be aligned with grid expansion, system flexibility and the evolution of tariff structures.

Government’s role is central throughout. The state sets the rules, anchors long-term planning, and ensures transformation proceeds in a way that balances investment with the public interest. The IRP and TDP remain key instruments in aligning infrastructure development with system needs.

Ultimately, the success of Sawem will not be measured by the existence of a market, but by its impact on the economy. A well-functioning electricity system should, over time, deliver more efficient pricing, reduce overall system costs, and support the competitiveness of South African industry.

This matters in practical terms. More efficient and predictable electricity pricing is central to easing cost of living pressures for households, and to restoring competitiveness in sectors that are critical for growth and employment. These outcomes will not be immediate, but they remain central to the transformation underway.

Sawem must therefore be advanced through a balanced and carefully sequenced approach. Market development cannot run ahead of transmission expansion. Pricing signals must evolve alongside social protections. Institutional reform must reinforce, not destabilise, system performance. If these elements are not aligned, the market will mirror existing weaknesses rather than resolve them.

If they are aligned, the outcome is fundamentally different. A transformed electricity market that is investable, competitive and responsive to South Africa’s unique political economy. One that supports industrialisation, lowers the cost of living and strengthens the state’s ability to plan, regulate and deliver at scale.

Ultimately, the imperative is not simply to build a market. It is to build a system that works for South Africans.

• Pillay is acting director-general of the department of electricity and energy.