Eskom’s municipal power grab risks undermining South Africa’s energy market reform

Opinion

• Eskom’s growing control over municipal electricity billing and infrastructure risks consolidating state dominance just as South Africa prepares to open its wholesale electricity market.
• Delays in transmission expansion and restrictions on market participation suggest energy reform is being carefully managed to protect Eskom’s revenues rather than accelerate competition and decentralisation.

South Africa’s electricity reform is increasingly beginning to look less like a transition towards a competitive market and more like a carefully managed process designed to preserve Eskom’s dominance for as long as possible.

The latest developments around municipal debt recovery has added to growing concerns that the country’s long promised liberalisation of the power sector may ultimately deliver only limited competition under tightly controlled conditions. While Eskom argues that its interventions are necessary to stabilise municipal finances and secure electricity revenue collection, the broader implications for independent power producers, energy traders and decentralised generation cannot be ignored.

Eskom recently confirmed that nine municipalities have adopted council resolutions to enter into Distribution Agency Agreements with the utility following consultations initiated under the Promotion of Administrative Justice Act. The municipalities include Nketoana, Mpofana, Masilonyana, Nala, Ngwathe, Renosternberg, Thembelihle, Govan Mbeki and Kgetlengrivier.

Under these agreements Eskom will effectively partner with municipalities to strengthen electricity billing systems, infrastructure maintenance and debt collection. On the surface, the move is framed as a practical intervention to address South Africa’s worsening municipal debt crisis, with arrears now standing at R111.6 billion. Yet the timing and structure of these agreements raise uncomfortable questions about the future shape of South Africa’s electricity market.

As Eskom deepens its operational role inside municipalities, it simultaneously expands its influence over the very distribution networks that would eventually need to accommodate competition from independent traders and private electricity suppliers under the South African Wholesale Electricity Market. Municipal distribution systems are expected to play a central role in enabling future electricity trading and wheeling arrangements, particularly for commercial and industrial customers seeking alternatives to Eskom supply.

If Eskom becomes the dominant operator of municipal billing systems and infrastructure management, the risk is that future market access for independent suppliers could become significantly constrained in practice, even if permitted in theory through regulation.

This concern becomes more pronounced when viewed alongside the broader trajectory of electricity reform.

South Africa’s electricity demand profile has fundamentally changed over the past five years. Eskom supplied electricity sales have steadily declined from approximately 191 TWh in 2021 to around 179 to 180 TWh by 2026. This is not simply the result of weak economic growth. It reflects a structural shift as households, businesses and industry increasingly invest in rooftop solar, battery storage and embedded generation.

Every megawatt generated behind the meter represents declining demand for Eskom’s ageing coal fleet and a corresponding erosion of the utility’s primary revenue source. In this context, the slow pace of market reform begins to appear less accidental.

While NERSA’s draft trading rules for the South African Wholesale Electricity Market have been presented as progress towards liberalisation, the proposed framework remains heavily restrictive. Participation will initially be limited largely to major customers, while procurement from third party suppliers will reportedly be capped at 20% during the early phases of implementation.

Rather than opening the market, the framework appears designed to ration competition over an extended period. Independent power producers, aggregators and energy traders face significant limitations, while smaller scale distributed generation remains largely excluded from meaningful market participation beyond self-consumption. This effectively sidelines a rapidly growing segment of the energy market that could otherwise strengthen grid resilience and accelerate decarbonisation.

At the same time, transmission expansion continues to lag despite urgent capacity constraints. More than 14000 km of new transmission lines are estimated to be required to unlock planned renewable energy projects, yet progress remains slow. Private sector participation in transmission infrastructure, which could materially accelerate delivery, continues to face policy uncertainty and procurement delays.

The result is a system where technically viable renewable projects remain stalled, not because of a lack of investment appetite or technology readiness, but because access to the grid remains constrained.

Compounding matters is Eskom’s long-standing culture of limited disclosure and weak transparency in commercially sensitive arrangements that challenge fair competition and carry major public consequences. The utility has repeatedly resisted releasing information on agreements that directly affect taxpayers, municipalities, and electricity consumers. One of the clearest examples emerged through the long running battle over Eskom’s confidential negotiated pricing agreement with South32’s Hillside aluminium smelter in Richards Bay.

The unredacted agreement, eventually obtained after legal pressure, revealed that the Hillside smelter potentially benefited from electricity pricing concessions worth as much as R92 billion over a decade. Eskom initially refused to release the agreement despite a Promotion of Access to Information request, arguing that disclosure could undermine future pricing negotiations. This position stood in stark contrast to an earlier Supreme Court of Appeal ruling which found there was undeniable public interest in the disclosure of such agreements. Read more

For many investors, the pattern is becoming increasingly difficult to ignore. Market reform is proceeding slowly, transmission access remains limited, and municipal distribution networks are gradually moving closer to Eskom’s operational control.

The municipal debt crisis itself is unquestionably real and severe. Eskom cannot continue absorbing unpaid electricity bills indefinitely without consequences for its own financial sustainability. The utility has already issued final notices to several municipalities over unpaid debt, with supply interruptions to Mamusa Local Municipality proceeding from 08 May 2026 after legal processes delayed similar action against Dr Beyers Naude and Kai !Garib municipalities.

However, debt recovery and infrastructure stabilisation do not exist in isolation from the wider energy transition. The concern increasingly emerging within the sector is that South Africa may be using the debt crisis as both justification and opportunity to recentralise elements of electricity distribution at precisely the moment when policy rhetoric continues to emphasise decentralisation and market competition.

At the same time, additional measures such as mandatory registration of rooftop solar systems and tariff structures like Homeflex further reinforce the perception that the state’s primary focus remains preserving revenue visibility and network cost recovery as decentralised generation accelerates.

None of this suggests that grid management or financial sustainability are unimportant. Eskom’s operational and financial challenges are substantial, and unmanaged decentralisation could create legitimate risks for network stability and municipal revenue collection.

But there is an equally serious risk in moving too cautiously. South Africa’s energy crisis created the political momentum for reform in the first place. Private sector investment in solar, wind and battery storage accelerated because centralised generation repeatedly failed to meet national demand. Delaying meaningful competition now risks slowing the very investment needed to modernise the electricity sector, reduce emissions, and improve long term energy security.

The danger is not necessarily that reform collapses outright. The greater risk is that it evolves into a controlled transition where competition exists only within boundaries carefully designed to protect Eskom’s best interests for as long as possible. If that happens, South Africa may ultimately achieve market reform in name while preserving many of the structural limitations that contributed to the crisis in the first place.

Author: Bryan Groenendaal

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