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South Africa's electricity sector is undergoing its most significant structural transformation in over a century. The South African Wholesale Electricity Market (SAWEM) will dismantle Eskom's monopoly as the country's sole buyer and seller of wholesale electricity, replacing it with an open, competitive trading platform where multiple generators, traders, and buyers transact electricity at transparent, system-determined prices. This change should not be ignored by large industrial and manufacturing facilities as it could present the opening of more options for the buyer to choose from that could be of benefit in reaching their energy procurement objectives.
Background: how did we get here?
For nearly 100 years, South Africa's electricity system operated under a single-buyer model. Eskom dominated the sector as the primary generator, transmitter, and seller of electricity. The grid and commercial framework were built entirely around this monopoly. Industrial consumers had no meaningful choice but to accept regulated tariffs. Those tariffs rose by 937% between 2007 and 2024, far outpacing inflation, and for companies operating in South Africa this was simply the cost of doing business: an input price with no lever to pull, no alternative supplier to approach, and no market mechanism to push back against.
Source: Energy Council of South Africa | LinkedIn
Loadshedding and Eskom's financial crisis forced reform. The 2022 Energy Action Plan, licensing liberalization, NTCSA1 unbundling, and the ERAA2 (effective January 2025) laid SAWEM's foundation. The result: a multi-buyer, SMP3-driven market where industrials move from price-takers to active participants.
What to Expect: Lessons from Other Markets
The trajectory of electricity market liberalization across the globe offers useful calibration for South African industrial buyers, both as encouragement and as caution.
Liberalization mostly moves price risk onto the buyer, and whether that pays off for a large user tends to depend on three things: how much spare generation capacity the market has when it opens, whether the incumbent utility's generation was broken up, and whether the buyer can manage price risk. These three questions are worth keeping in mind through the examples that follow, and when assessing SAWEM itself.
The United Kingdom's liberalization in the 1990s produced genuine efficiency gains and a significant wave of new generation investment. However, early market power concentration among a small number of dominant generators kept wholesale prices elevated for several years after the formal opening of the market. The lesson for South Africa is that market design and regulatory oversight matter as much as liberalization itself. A competitive market on paper is not the same as a competitive market in practice, and the first years will test the robustness of the SAWEM institutional architecture.
EU-wide liberalization brought convergence benefits and greater long-term investment in generation, but it also created winners and losers at the consumer level. Industrial customers who previously benefited from below-cost subsidized administered tariffs faced upward price pressure as market pricing displaced political pricing. South African companies currently on administered Eskom tariffs that are below full cost-reflectivity may encounter a similar dynamic as SMP3 becomes the prevailing market reference.
France and Spain show the encouraging side of this. Large industrial consumers that engaged early in liberalizing markets were better placed to understand emerging risks, identify opportunities and refine their procurement strategies as those markets matured. Moving early does not guarantee a better outcome, though. In other liberalized markets, such as Japan and Singapore, the buyers that came out ahead were those that locked in multi-year fixed prices while the market was still calm or bought from suppliers with their own generation. Buyers that took index-linked products, or fixed prices from retailers with no generation of their own, were left exposed when prices spiked, because those retailers' contracts tend to disappear just when they are needed most. For South African buyers, preparing now is worthwhile as long as it leads to the right counterparty and the right contract structure.
Take a look at our blog on How to assess the counterparty risk of your energy supplier(s)
During 2027 and 2028, the market is likely to see a growing pool of licensed traders competing for industrial supply contracts, greater transparency as published SMP3 data establishes a pricing record, and the first SAWEM-compatible bilateral agreements. Businesses that enter this phase with a clear understanding of the new market and a disciplined risk-management approach will be better positioned to capture opportunities while limiting the potential downside.
Under a regulated tariff, cost shocks are socialized across all consumers, and a buyer's only tool for influencing future costs is lobbying. In an open market, the buyer gains contracting and hedging tools, but also carries the exposure. Prices are set at the marginal generator's cost rather than at average cost, so in a supply crunch or when fuel prices spike, market prices can run well above a regulated tariff.
Since E&C’s founding in 2005, we have observed the liberalization of European energy markets and supported clients in managing its risks and opportunities. The companies that navigated these transitions most effectively shared a common approach: they did not put all their eggs in one basket. Rather than moving every site to the open market at once, they moved some sites and left the rest on the regulated tariff, or bought part of their power through a PPA and kept the remainder on standard supply. Where flexible contracts were not yet on offer, they split their sites between fixed and indexed prices and fixed at different moments, so that no single decision determined the whole result.
What is SAWEM? How will it work?
SAWEM will operate as a hybrid market with three main layers:
- The first covers regulated legacy contracts (Eskom generation and Section 34 IPPs4) managed by the Central Purchasing Agency on the Day-Ahead Market, ensuring existing obligations are honoured.
- The second consists of private bilateral PPAs5 and ESAs6 between LPUs7 and IPPs8 or traders, giving flexibility on price, volume and duration outside the spot market.
- The third is the DAM9 itself, where generators and traders submit hourly bids and the Market Operator sets a transparent System Marginal Price (SMP).
Source: NBI SAWEM Report 2026
The original go-live date of 1 April 2026 was not met. The NTCSA1 then targeted the third quarter of 2026, but as of 30 September 2026 the formal launch was still awaiting final regulatory approvals.
Phase 1: Market Launch (2026)
What does this mean for LPUs?
LPUs (medium and high-voltage industrial consumers) are SAWEM's primary target from launch. An option once the new market launches is the possibility to source electricity competitively without daily DAM trading. The practical route is a bilateral ESA6 or PPA5 with a NERSA10-licensed trader, who manages BRP11 obligations and forecasts on the LPU's7 behalf.
In the future, two contract structures could be open for LPUs.
- A fixed-price ESA7, in which the trader absorbs SMP3 volatility and passes through a stable unit rate, could be suited to buyers focused on budget predictability.
- An SMP-indexed contract links the price to the market clearing price, giving market-rate exposure without the operational burden of direct participation, which can be attractive when renewable growth keeps marginal costs low.
For LPUs7 on regulated Eskom tariffs, SAWEM participation is voluntary, but once SMP data is published, the gap between market and regulated rates becomes visible, reshaping negotiations. Existing PPAs5 need not be unwound, yet key clauses should be reviewed. Procuring certified green power via bilateral PPAs with RECs12 attached could become a possibility under SAWEM.
What can LPUs do now?
Preparation ahead of SAWEM's launch does not require a specialist trading team or a large internal investment. Some practical actions that can be taken now are:
Contract audit. Review PPAs, ESAs, and wheeling agreements for take-or-pay clauses, first-right-of-refusal provisions, and auto-renewal terms that could restrict future switching.
Metering audit. Ensure all exchange points have NTCSA1-registered, Grid Code-compliant metering. Gaps create financial exposure under market settlement.
SAWEM School. Certification is compulsory for anyone who wants to participate in the market. The programme has been running since July 2025.
Engage traders. Currently, ten traders are NERSA10-licensed. Engaging with them early allows you to gain familiarity with contract structures and positions you for a competitive RFP at go-live.
Build internal capability. Procurement leads need working knowledge of SMP mechanics and BRP11 obligation. Not a trading team, but enough to evaluate proposals confidently.
The bottom line
SAWEM will not turn industrial consumers into electricity traders, but it will require them to become more informed and more strategic buyers.
For medium- and high-voltage consumers, the commercial stakes are significant after years of steep tariff increases, and the companies best prepared for the upcoming changes tend to be those that engage early, not late.
Within E&C we have helped companies navigate successfully through the liberalization processes in markets around the world. Would you like help assessing how SAWEM could affect your supply arrangement and procurement strategy?
Glossary
[1] National Transmission Company South Africa: The transmission company, currently a subsidiary of Eskom, that holds the Market Operator licence and runs SAWEM.
[2] Electricity Regulation Amendment Act: Act 38 of 2024, in force since 1 January 2025. It amended the Electricity Regulation Act to create the transmission system operator and an open platform for competitive electricity trading.
[3] System Marginal Price: The market-clearing price the Market Operator sets for each hourly period in the Day-Ahead Market.
[4] Section 34 IPPs: Independent power producers procured under ministerial determinations made under section 34 of the Electricity Regulation Act, such as the renewable energy IPP procurement programme. Their power is bought under long-term contracts.
[5] Power Purchase Agreement: A long-term contract between a generator and a buyer for electricity, usually from a specific project.
[6] Electricity Supply Agreement: A bilateral contract under which a trader or generator supplies electricity to a buyer, with price, volume and duration agreed between the parties.
[7] Large Power User: A medium- or high-voltage industrial consumer, and SAWEM's main target group at launch.
[8] Independent Power Producer: A privately owned generator that sells electricity to Eskom, traders or large buyers.
[9] Day-Ahead Market: The market where generators and traders submit hourly bids the day before delivery and the Market Operator sets the System Marginal Price.
[10] National Energy Regulator of South Africa: The regulator that licenses traders, approves the Market Code and approves tariffs.
[11] Balance Responsible Party: A market party that forecasts and schedules its electricity volumes and is financially responsible for any imbalance between what it schedules and what is generated or consumed. Traders often take on this role for the buyers they supply.
[12] Renewable Energy Certificate: A certificate representing one megawatt-hour of renewable electricity, used to back renewable energy claims.
