South Africa’s energy landscape is undergoing a significant transformation. For decades, Eskom Holdings SOC Limited (“Eskom”) has maintained a monopoly – controlling both the generation of electricity and the transmission and distribution networks. However, urgent supply deficits and the growing role of Independent Power Producers (IPPs) are driving regulatory reforms that open the market to third-party wheeling. This article explores the development of South Africa’s third-party wheeling framework, its regulatory underpinnings, and the contractual considerations critical to its success.
Market Liberalisation
Eskom’s vertically integrated model, coal-based generation coupled with ownership of the national grid, has long dominated South Africa’s energy sector. While this structure ensured scale and consistency, it has also limited market innovation and slowed the integration of renewable and smaller-scale generators. In response to persistent load-shedding and the need for diversified energy sources, policymakers and industry stakeholders have called for a more open market that allows energy generated by IPPs or municipal plants to be transported, or “wheeled”, to customers beyond their points of origin.
Understanding Wheeling
Wheeling refers to the transportation of electricity from a generation source (Eskom or an IPP) to a remote end-user via existing transmission and distribution networks. Key characteristics include:
- Multi-operator networks: Energy can traverse grids owned by Eskom, municipalities, or licensed Network Service Providers (NSPs).
- Third-party transactions: An IPP sells power under a Power Purchase Agreement (PPA) and contracts with an NSP through a Connection and Use-of-System Agreement to wheel electricity to a Buyer.
By separating generation from network services, wheeling promotes competition, incentivises new capacity investments, and provides end-users with alternative energy sources.
NERSA’s Role
The National Energy Regulator of South Africa (“NERSA”)1 published Regulatory Rules on Network Charges for Third-Party Transportation of Energy during March 2012 (“2012 Third-Party Network Charges Rules”) to regulate the pricing of network access and transportation of energy across the network. These rules included the methodologies for developing transmission and distribution use-of-system charges2, but did not, inter alia, provide a wheeling framework to base wheeling tariff approvals, provisions for other parties accessing the network, and the type of contracts which ought to be in place.
The deficiencies in the 2012 Third-Party Network Charges Rules culminated in delays in wheeling tariff approvals by NERSA. After calls for a National Wheeling Framework, NERSA published the Regulatory Rules on Network Charges for Third-Party Wheeling of Energy on 3 March 2025 (“2024 Third-Party Network Charges Rules”).
The 2024 Third-Party Network Charges Rules seek to achieve, inter alia, non-discriminatory access to and use of the networks; balancing the needs of customers and NSPs on a fair and equitable basis; transparency and unbundling of tariff structures; securing the network; standardising the approaches across NSPs; and providing regulatory certainty.
In addition, the 2024 Third-Party Network Charges Rules identify two methodologies to account for wheeled energy which, according to NERSA, ought to give the same results.
One method is where a credit or refund is applied on the account at a wheeling credit rate tariff based on the NSP’s avoided cost. The other method is where wheeled energy is charged separately.
Contractual and Commercial Considerations
Regardless of the methodology utilised, robust agreements will have to be in place between, at least: IPPs and Buyers; IPPs and NSPs; and between NSPs (if applicable). These agreements would have to be comprehensive to ensure compliance with applicable legislation and NERSA’s rules in an attempt to avoid pitfalls and disputes at a later stage between IPPs, Buyers and NSPs.
Navigating the New Wheeling Landscape
Market participants must adopt a proactive, informed approach to leverage South Africa’s evolving wheeling framework. Key steps include:
- Regulatory alignment: Engage with NSPs and NERSA early to understand tariff applications and approval timelines.
- Technical readiness: Ensure grid connection studies and metering solutions comply with network requirements.
- Commercial diligence: Draft clear, compliant contracts that address commercial, regulatory, and technical risks.
By doing so, investors and generators can capitalise on a more open and competitive energy market, driving innovation and improving energy security across South Africa.
Conclusion
The development of South Africa’s third-party wheeling framework marks a pivotal shift away from Eskom’s traditional monopoly. With the 2024 Third-Party Network Charges Rules, approved on 3 March 2025, providing clarity and consistency, IPPs, NSPs, and Buyers have the regulatory foundation needed to expand generation capacity and enhance market efficiency. Through carefully structured agreements and strategic planning, stakeholders can navigate this new landscape and contribute to a more resilient, diversified energy future.
NERSA is a regulatory authority and juristic person established in terms of section 3 of the National Energy Regulator Act 40 of 2004 that regulates the electricity, piped-gas and petroleum pipeline industries in terms of the Electricity Regulation Act 4 of 2006, Gas Act 48 of 2001, and Petroleum Pipelines Act 60 of 2003.
Use-of-system charges are charges meant to recover the costs associated with the use of, and making capacity available on, a network such as fixed, capital, operation and maintenance costs, distribution and transmission losses and costs for ancillary services procured by the NPS. These charges are unbundled regulated tariffs.