It’s an exciting and dynamic time for the South African energy sector. Virtual wheeling, the BESS boom and the rise of energy traders are upon us. Amidst it all, Keith Bowen and the dedicated team at the National Transmission Company South Africa (NTCSA) have drafted the Market Code for the South African Wholesale Electricity Market (SAWEM). The onset of SAWEM is set to transform the South African electricity landscape, which for the past 100 years has remained much the same.
The Goal of SAWEM
SAWEM is a competitive electricity trading market with the goal of creating a reliable energy landscape that is cost-efficient, price-transparent and increases private sector participation. With launch aimed for April 2026, SAWEM will replace Eskom’s single-buyer model with a multi-buyer, multi-seller model.
SAWEM is expected to adopt system-marginal pricing (SMP). Solar and wind, with near-zero marginal costs, will be dispatched ahead of coal and gas. In South Africa, where coal still supplies more than 70 % of electricity, coal units will likely set the market-clearing price. Renewables will therefore earn that price while incurring minimal operating costs, boosting profits and strengthening the case for further clean-energy investment.
The Market Code
Following the release of the first draft of the Market Code in April 2024, the NTCSA hosted a series of 10 hybrid workshops, drawing participation from over 300 stakeholders across the public and private sectors. The workshops reviewed the Market Code, which defines, amongst other details:
- the structure of SAWEM’s energy markets, including the Day-Ahead Market, Intra-Day Market and Balancing Market;
- capacity remuneration mechanisms that ensure adequate generation availability;
- how ancillary services will be deployed to maintain grid stability;
- the responsibilities of key market actors including the Market Operator (MO), Central Purchasing Agency (CPA) and System Operator (SO); and
- how SAWEM will integrate with the Southern African Power Pool (SAPP).
The Market Code, Market Specifications Document and recordings of the Market Code workshops can be found on the NTCSA website. Revision 2 of the Market Code is expected to be reviewed by NERSA within Q3 of 2025. The Market Code is a complex technical document that can be unpacked into the following key financial, physical and governance components.
Understanding SAWEM’s Markets
After SAWEM’s launch, South Africa’s electricity sector will systematically shift towards a competitive wholesale market. The key components of the market are:
- Day Ahead Market (DAM) – where participants submit bids and offers for electricity delivery for each hour of the following day;
- Intra Day Market (IDM) – allowing for adjustments of DAM bids/offer closer to real-time, accommodating forecast changes and unforeseen system conditions;
- Balancing Market (BM) – correcting deviations between scheduled and actual supply or demand.
These energy markets are supported by additional financial and operational mechanisms:
- Capacity payments – issued by the CPA through competitive auctions, these provide availability-based compensation to generators, storage systems and demand-response resources;
- Ancillary services – requested by the SO to maintain frequency, voltage and system stability.
Both of the above are remunerated both for availability (being ready to respond) and for actual delivery when called upon.
The Market Code clearly delineates responsibilities among key institutions:
- The Market Operator manages trading platforms and market settlements;
- The System Operator ensures real-time grid reliability and balance;
- The Central Purchasing Agency tempers Eskom Generation’s market dominance via vesting contracts and maintains continuity of REIPPPP offtake agreements.
Know your role within SAWEM
It’s important to understand that any generator with a Maximum Export Capacity of 1 MW or more must be balance-responsible. It will thus need to register as a Balance Responsible Party (BRP) or appoint a third-party BRP. The BRP must lodge hour-by-hour forecasts in the day-ahead market and may refine them in the intraday market. Any deviations are settled, and penalised, in the balancing market.
Market participation itself is optional. Private IPPs may choose to register as Market Participants (MP) to trade volumes not locked into bilateral contracts, but doing so requires meeting all BRP obligations as well as the credit cover and technical rules laid out in the Market Code.
While the 1 MW threshold is expressed with respect to generators, large offtakers assume identical responsibilities, opportunities and risks within SAWEM.
Implications of SAWEM
The implications of SAWEM vary depending on whether the participant is an offtaker (large energy user) or a generator, with each facing distinct responsibilities, opportunities, and risks.
Implications for Large Energy Users:
- Improved access to competitive short- and long-term contracting options.
- Accurate demand forecasting is essential to avoid exposure to imbalance charges.
Implications for Generators:
- Complementing long-term bilateral PPAs with short-term SAWEM energy market access enhances offtake flexibility and can improve project bankability.
- Beyond energy markets, SAWEM is set to introduce additional remuneration opportunities through capacity remuneration and ancillary services – including frequency regulation, voltage control and black-start capabilities.
- Accurate generation forecasting is essential to avoid exposure to imbalance charges.
- Increased competition and price cannibalisation as SAWEM promotes broader private sector participation.
For both large energy users and generators, the introduction of SAWEM should signal a stronger incentive to deploy BESS – enabling participants to manage price volatility, reduce imbalance risk and capture value across energy, capacity and ancillary service markets.
Next Steps
For those engaging at scale, whether as a generator or offtaker, the changes ahead are significant. Now is the time to assess how your operations align with the coming market framework, from balancing responsibilities to participation options.
The NTCSA will be hosting SAWEM School – offering a chance to better understand the Market Code and its implications before the final version is approved by NERSA.
The electricity sector will not look the same on 1 April 2031 when the transition completes. The winners will be those who started early – make sure you’re one of them. If you’d like to discuss it further, feel free to reach out.
Nik Martin
