Towards SAWEM Day 1: Assessment of the readiness of the NTCSA, Eskom Distribution and the enabling policy and regulatory environment

Background and context

South Africa is undergoing a fundamental transformation of its electricity sector, transitioning from a vertically integrated, state-owned monopoly to a competitive market structure. Central to this transformation is the establishment of the South African Wholesale Electricity Market (SAWEM), which will enable competitive trading of electricity and lay the foundation for the phased introduction of retail competition.

The market launch is planned to occur in phases, starting with a “soft launch” internal to Eskom. This phase will focus on testing market IT systems and procedures within Eskom entities (Generation, NTCSA, and Distribution), ensuring that systems and operational processes are validated before the broader market opens. The ultimate goal is the formal SAWEM Day 1 launch when actual trading commences with full external participant involvement, such as independent power producers, traders, and other licensed distributors.

The success of this market launch relies not only on technical readiness but also on the establishment of the necessary policy framework, regulatory instruments, and institutional capabilities. Without these in place, the market risks operational failures, legal challenges, and investor uncertainty. International examples, such as the UK’s New Electricity Trading Arrangements (NETA) and Australia’s National Electricity Market (NEM), show that comprehensive policy frameworks, clear governance, and robust testing are key to a successful market launch. Markets that have launched without this foundation have experienced operational failures, legal challenges, and costly post-launch remediation that could have been avoided.

Purpose of the study

The objective of the study was to provide a high-level assessment of the readiness of Eskom Distribution (Dx) and the National Transmission Company of South Africa (NTCSA) for SAWEM. The study focused on institutional and operational preparedness, while also considering the broader policy framework, legal and regulatory instruments, and coordination mechanisms necessary to support market operations. The study also identified key capacity constraints, dependencies and risks that could affect market readiness.

The assessment specifically targeted readiness for SAWEM Day 1, when trading commences with full external participant involvement, and focused on the following key questions:

• Current Status: What are the existing regulatory instruments, infrastructure, systems, and capabilities?
• Requirements: What is required for the successful operation of SAWEM Day 1 and the phased introduction of retail competition?
• Gap Analysis: What is missing or inadequate in the current setup, and what is being done to address these gaps?
• Timing and Priorities: What is needed for SAWEM Day 1 versus what can be developed post-launch? What differentiates the requirements for the internal soft launch from those needed for a full Day 1 launch?
• Risks and Dependencies: What critical risks and dependencies could impede market readiness?

Our approach

Our approach to the SAWEM market readiness review was structured as follows:

• Documentation Review: Key documents, including the Market Code (V2.1+), Trading Rules, Vesting Contract Position Paper, and system-design documents, were reviewed to understand the scope and infrastructure required for the market’s operation.
• Diagnostic Framework: A diagnostic framework was created, focusing on institutional, regulatory, systems, human-capacity, and market-process dimensions. The framework was designed to assess the readiness of Eskom Dx, NTCSA, and NERSA, with particular attention to foundational regulatory instruments.
• Stakeholder Interviews: Targeted interviews were conducted with representatives from Eskom Dx, NTCSA, and other key stakeholders. These interviews provided insights into current processes, identified dependencies, and validated the readiness levels.
• Diagnostic Templates: Detailed templates listing current statuses, gaps, and requirements were circulated to interviewees for self-completion and validation. While written feedback was limited, interviews were essential for gathering evidence and insights.
• Analysis and Recommendations: The team analysed the findings, identified critical gaps, and recommended actions to address these gaps to ensure a successful market launch.
• Constraints: The primary constraint was limited access to NERSA representatives, meaning that much of the data collection was dependent on interviews rather than written feedback.

To complement the report, we created a Power BI dashboard to visually represent the key findings and readiness gaps across the various readiness pillars. This interactive dashboard provides real-time tracking of progress, highlighting critical areas requiring immediate attention, and offers stakeholders a clear and accessible way to engage with the readiness assessment outcomes.

Outcomes

The study provided Eskom Distribution and the NTCSA with a structured view of its market readiness and highlighted priority issues to address ahead of SAWEM Day 1. Eskom Distribution used the report to prepare and present its position to the board. The findings were also presented to NERSA to provide insight into the regulatory requirements for market launch.