Recent developments in South Africa’s electricity market point to there being growing, albeit still nascent, momentum behind the country’s energy transition. They also suggest that the transition is unlikely to be dislodged by unfolding energy geopolitics, underpinned by the regressive steps being taken by the White House.

The dominant development was undoubtedly the National Energy Regulator of South Africa’s (Nersa’s) decision to grant Eskom a 12.7% tariff hike for 2025/26, as well as increases of 5.36% and 6.19% for Eskom’s outer two financial years. The increases are above inflation, which averaged 4.4% last year, but fell significantly short of Eskom’s request, including one for a 36.15% hike from April 1.

While the increases were set using South Africa’s well-worn, yet increasingly outdated, methodology for determining Eskom’s allowable revenue, the determination still partly reflected the transition under way.

It was the first time that Nersa explicitly separated Eskom’s allowable revenue into dedicated buckets for generation, transmission and distribution, signalling an institutionalisation of the unbundling direction that is also underlined in the Electricity Regulation Amendment Act. The Act, which came into force on January 1, is broadly aligned to a shift towards a more competitive market structure and lays the basis for the separation of the National Transmission Company South Africa (NTCSA) into a fully independent Transmission System Operator.

In announcing the increases, the regulator made an explicit demand that Eskom refrain from its past practice whereby the revenue was regarded as fungible and was, thus, redirected across divisions with scant regard to the reason for it being granted in the first place. As a result, parts of the business, notably the wires units, were starved of the capital needed to expand and modernise the grid.

The increase itself confirms a price path that both presupposes and potentially accelerates private sector participation. By disallowing significant portions of the revenue sought by Eskom, there will be gaps across generation, transmission and distribution that will have to be filled by private capital, capacity and skills.

In the same week as Eskom’s increase was announced, a slew of private-to-private power purchase agreements were concluded, indicating that large electricity users are seeking to diversify away from Eskom not only to improve security of supply but also to improve price certainty and their green credentials. The trick will be to ensure that the correct price signals are sent through the tariff structure; no small challenge and one that will require serious political leadership and cover.

The lower-than-requested allowable revenue for NTCSA, meanwhile, will surely add impetus to the proposed independent transmission project procurement programme, the pilot phase of which is expected to be launched this year.

This ongoing opening of the market to other participants at a time where the cheapest new electricity will be produced by solar PV and wind – even after the addition of new grid and the flexibility needed to sustain system balance – means that the transition to renewable energy is likely to continue despite geopolitical disruptions.