South Africa’s electricity transmission market to be opened up

The draft regulations build on a recent ministerial determination and together provide for the procurement of new electricity transmission infrastructure in three provinces – the Northern Cape, North-West and Gauteng. Seven transmission projects in each province are planned, with a view to improving renewable energy projects’ access to South Africa’s electricity grid.  

In total, around 1,164 km of electricity transmission lines and associated infrastructure is to be procured under a new independent transmission project (ITP) procurement model. Under that model, businesses in the private sector – “independent transmission providers” – will contract with the Department of Energy and Electricity over the supply of the infrastructure, which will be bought by the National Transmission Company of South Africa (NTCSA) under a transmission services agreement. This development is expected to add more than 3.2 GW of new energy to the grid, which is equivalent to 63% of the full combined capacity of the existing Medupi and Kusile power stations.  

Prospective independent transmission providers should familiarise themselves with the draft regulations to gain an accurate understanding of the potential risks and rewards of participating in the independent transmission project (ITP) procurement process. The government should ensure that the final regulations are streamlined to ensure that the rules are easier to navigate for investors so that investments can reach the more market more quickly.

Ultimately, the success of the ITP programme will depend on various factors, including the government’s efforts to assure the private sector of revenue security, and the government adopting proper administrative processes for transmission procurement to establish a scalable model. 

Background

The ministerial determination comes off the back of National Treasury’s announcement last year that South Africa will be pursuing an ITP model, with a view to attracting private sector involvement in the development of the country’s transmission infrastructure.

The announcement stated that government will pursue a two-stage procurement process. The first stage entails the government releasing a request for qualification in July 2025, to prequalify the relevant bidders, whilst the second stage entails the government launching requests for proposals at the end of November 2025. Before this two-stage procurement process can be implemented, and in order to facilitate the procurement process, the government needs to finalise new regulations under section 35(4) of the Electricity Regulation Act. This two-stage procurement process is intended to be used as a pilot programme for the ITP model. 

What is the ITP model proposed?

Under the ITP model, a private sector developer finances, designs, constructs, operates and maintains the electricity transmission asset in exchange for payment of a consistent and long-term fee from the public sector. Only after the concession period ends does the ownership of the asset transfer to the public sector.  

According to the NTCSA’s transmission development plan (TDP) for 2025-34, South Africa needs to develop approximately 14,500 km of new transmission infrastructure in the next 10 years to ensure that the electricity grid can transport around 56GW of new energy capacity from generation sources to end-users.

In recent years, the country has faced major transmission constraints in areas that are rich in renewable energy resources, such as the Eastern, Northern and Western Cape, as well as parts of the North-West. Despite the abundance of renewable energy resources in these areas, the sixth and seventh competitive bid windows under the Renewable Energy Independent Power Producer Procurement (REIPPP) scheme failed to secure any new wind energy projects due to grid capacity constraints in the region. This demonstrates the urgent need to expand the transmission grid to accommodate new generation sources from prospective projects. The implementation of the TDP is intended to not only unlock transmission capacity in areas with significant transmission constraints but also to modernise and expand the country's transmission network.  

The cost of implementing the TDP is estimated to be R440 billion ($24.1bn). The government’s balance sheet is unable to finance the entire development costs. Therefore, to cover the investment shortfall, the government aims to use the ITP programme to realise and leverage private capital, expertise and resources to implement the TDP.

The draft regulations  

After the ministerial determination for procurement of electricity transmission infrastructure was issued on 28 March 2025, the government, on 3 April, moved to publish the draft Electricity Transmission Infrastructure Regulations, under section 35(4) of the Electricity Regulation Act. The draft regulations were open to public comment until 3 May. 

The objectives of the draft regulations include:

• facilitating planning for the procurement from, and establishment of transmission capacity by, private sector developers to accelerate the development of new electricity transmission infrastructure; 

• supporting measures that are aimed at improving the reliability and security of the national transmission power network; 

• facilitating the connection of new generation capacity to the transmission network; and 

• ensuring consistency and predictability in the implementation of section 34(1)(b) of the Act. 

The draft regulations set out the terms guiding the conclusion of transmission service agreements between independent transmission providers and the NTCSA as the offtaker, including proposed cost recovery criteria for both buyers and sellers.

In addition, the draft regulations regulate licensing conditions by setting out requirements for technical and financial capability, including provisions to regulate construction and operation of the transmission infrastructure.

The draft regulations further state that the minister for electricity and energy may make a multi-component determination in respect of a fully integrated energy infrastructure project in instances where it is advantageous for the government to have new generation capacity, electricity transmission and other related or interconnected infrastructure to be combined into an energy infrastructure project.

Notably, the draft regulations state that a person may apply to the minister for exemption – and that the minister may, by notice in the gazette, exempt any person, where justifiable – from complying with any or all the requirements in the regulations. 

In essence, the draft regulations are aimed at creating a predictable, credible and transparent framework which outlines how private sector investors can participate in the development of the country’s transmission infrastructure, whilst striking a balance between cost recovery and system efficiency. The draft regulations are essentially designed to support the roll out of the pilot phase of the ITP programme. 

The draft regulations also address cost recovery. For example, the regulations dictate that buyers must be able to recover their full costs. Tolling will be used to recover cost recovery through using long-term user agreements or, alternatively, wheeling charges.  

The pilot initiative

The minister for electricity and energy has stated that the pilot ITP procurement will be underpinned by the principle of a late-stage tender, which means that issues such as a clear and comprehensive regulatory framework, environmental approvals or permits, right of way, servitude and licensing will be in place by the time the tender is released to the market. This is intended to save time and money for prospective independent transmission providers who will avoid the costly and time-consuming process of acquiring all the necessary approvals.

The minister also stated that by the time the tender is released, the government will procure the electricity transmission infrastructure by using one of two models, namely the build-operate-transfer (BOT) model or the build-operate-own-transfer (BOOT) model. Under these models, the private sector will finance, design, construct and operate the transmission infrastructure for a specified concession period. Under the BOT model, the ownership of the infrastructure is transferred to the NTCSA at the expiration of the concession period, whereas the BOOT model includes an option for the independent transmission provider to own the transmission asset for a portion of the operating period prior to transferring it to the NTCSA.  

To further incentivise private sector involvement, the government is finalising the launch, in early 2026, of a new credit guarantee vehicle (CGV), which is a blended finance instrument that will cover payment and termination risks by using development, multilateral development bank, political risk insurance and grant finance.

Ultimately, the aim is to use the CGV to help derisk projects for infrastructure investors and government will deploy the CGV during the pilot ITP programme.