New electricity era in South Africa — and Eskom is not happy

Renewable energy developer Mulilo recently reached financial close on a solar power farm that will be among the first in South Africa to sell its electricity through a private trader instead of Eskom.

The landmark 105MW solar project will be built at the Du Plessis dam near De Aar in the Northern Cape, in partnership with H1 Capital.

It is expected to produce roughly 248GWh of electricity every year and will be connected to the Kestrel Main Transmission Substation, also developed by Mulilo.

Its electricity will be sold through Etana Energy as an off-taker. The company is among several that have been granted electricity trading licences by the National Energy Regulator of South Africa (Nersa).

Mulilo CEO Jan Fourie said the solar project represented a “new era” of energy trading and innovation in South Africa.

“By leveraging an aggregator model, we are pioneering a more dynamic and efficient energy market that will ultimately benefit businesses and consumers alike.”

As it stands, independent power producers primarily sell their electricity to Eskom or a single large customer.

The latter is most likely a mine, factory, or other heavy energy user, which has the financial means to pay for all of the plant’s power over a contracted period, justifying its financial feasibility for a developer.

Speaking to RSG Geldsake, Fourie explained that the private trading will enable smaller businesses to benefit from lower electricity tariffs established through greater economies of scale.

At scale, solar power is much cheaper to produce and can be sold at a much lower tariff than fossil fuel-based electricity.

However, achieving those tariffs would currently require a 100MW or larger facility, which is too big for the demand of the vast majority of businesses in South Africa.

With the electricity now being traded via a private company free of some of Eskom’s grossly-inflated operating costs, many more companies will be able to benefit from lower tariffs.

Fourie said the model would do for the energy sector what unit trusts did for shareholding portfolios.

He explained there were various types of customers who could benefit from this model — including real estate developers, manufacturers, and smaller mining companies.

Fourie acknowledged that customers would still need to buy some electricity through Eskom, but the mix with privately-traded electricity would enable them to lower costs and improve their carbon footprint.

Over time, traders could combine wind energy and battery storage into the mix to give customers’ the opportunity to further reduce their Eskom reliance and increase greener power consumption.

This fundamental shift is one of the early steps in de-monopolising the South African electricity industry, as envisioned by amendments to the Electricity Regulation Act that came into effect in 2024.

Another is the establishment of an independent transmission grid operator — currently called the National Transmission Company of South Africa — which will facilitate the wheeling of electricity from power plants to customers over long distances.

Eskom resisting the change

Etana Energy received its licence in May 2022. It enables the company to buy and sell electricity over both Eskom and municipal networks, where wheeling tariffs have been established, for 25 years.

It is one of several companies for which Nersa has approved electricity trading licences in recent years.

Eskom is unhappy about Nersa’s decision to grant trading licences to multiple applicants who wish to trade electricity within the same areas as the power utility’s distribution business.

Eskom has argued that this is in violation of existing area of supply agreements and breached regulatory guidelines, escalating its dispute to the High Court.

Nersa has argued that there needs to a distinction between traders and distributors and that only the latter can be restricted to ensure the safe operation of the physical distribution network.

EE Business Intelligence head and energy advisor for Outa, Chris Yelland, has accused the power utility of trying to preserve its monopoly.

He likened the utility’s actions to previous cases of resistance to renewable energy developments and said Eskom’s court challenge was “destructive” and anti-competitive” in nature.

Energy policy expert Professor Anton Eberhard described Eskom’s approach as “malicious compliance” because it attempts to maintain control while appearing to cooperate in the transition of the electricity supply industry in South Africa.