The Department of Electricity and Energy has published the Electricity Sector Market Transformation Position Paper, 2026 (the Position Paper), the first unified policy document consolidating South Africa's electricity reform agenda. The Position Paper is open for public comment until later this month (September 2026).

Government still aims to soft-launch the South African Wholesale Electricity Market (SAWEM) this year within the Eskom group of entities only, followed by a gradual and phased opening of the market to participants beyond Eskom from 2027. A request for proposals has been issued for a transaction adviser to support the establishment of a fully independent Transmission System Operator (TSO), with an end-2027 target for transaction conclusion.

Government's decision to cease issuing sovereign guarantees for public institutions' debt obligations removes a foundational pillar of project bankability, leaving an urgent gap that private credit enhancement instruments – from bank guarantees to insurance products – will need to fill. National Treasury's publicly announced plans to establish a Credit Guarantee Vehicle (CGV) represent one potential avenue, which plans remain under development. This shift raises profound questions about risk allocation in a post-unbundling South African energy sector.

South Africa's electricity market is being reshaped from the ground up. Nineteen months after the Electricity Regulation Amendment Act came into force, two developments have sharpened the reform picture considerably.

A vision on paper, at last. The Position Paper brings together the various initiatives already underway into a single, coherent agenda for market transformation. At its heart is a frank acknowledgement of South Africa's "energy quadrilemma": government must simultaneously address security of supply, affordability, environmental sustainability and socio-economic development. These are not merely competing priorities; they are structurally in tension and the paper does not pretend otherwise.

SAWEM will include a centralised trading platform while also permitting bilateral contracts – platform use will be voluntary. A capacity market is envisaged to complement short-term price signals over the medium to long term. Legacy IPP contracts will be honoured through novation to the Central Purchasing Agency (CPA, a yet-to-be-established unit of the TSO) as off-taker, even where contract prices are not competitive in the envisaged market.

The TSO question is settled. A request for proposals for a transaction adviser confirms that the policy decision to establish the TSO as a state-owned entity outside Eskom – with ownership and control of the transmission network, which government seeks to expand and bolster through collaboration with independent transmission providers – is final and will not be re-evaluated. The transaction is expected to close within 18 months.

Measures to ensure the independence of the National Transmission Company of South Africa (NTCSA) and the further unbundling of Eskom Distribution and Eskom Generation from Eskom Holdings remain on the outstanding steps list. The Eskom Restructuring Task Team, reporting directly to the President through the National Energy Crisis Committee (NECOM), is the mechanism through which these structural separations are being driven and, where necessary, forced – bypassing ministerial delay.

The guarantee gap. Government has made clear that investments should seek to avoid placing undue pressure on public finances, signalling the end of sovereign guarantees as a backstop for energy sector debt. This creates an immediate gap in the market.

The entire REIPPPP financing architecture was built around state payment support. Remove it, and lenders face an unresolved set of questions: who guarantees the CPA's payment obligations? What credit enhancement will make SAWEM-era projects bankable? Which private instruments – bank guarantees, surety bonds, political risk insurance, liquidity facilities – can substitute for the sovereign?

The market is designed to ensure that risks are allocated to those best placed to manage them – but the allocation itself remains to be determined. Stranded asset risk adds a further layer: as competitive wholesale prices form, existing generation assets with above-market operating costs may struggle to secure offtake, potentially rendering them financially unviable. Government and NERSA will work to identify whether such assets are likely to exist.

South Africa's electricity sector reform is no longer a question of if. It is a question of how, when and who will bear the resultant risks. Those questions do not yet have complete answers, but a variety of stakeholders (including market participants, investors, government and regulators – as supported by professional advisors) is hard at work, with our support, to address them so that we keep the lights on.

Written by Jason van der Poel and Sabelo Ndlovu, from Webber Wentzel

This alert is prepared for general information purposes only and does not constitute legal advice. For specific guidance – for example, on how the developments above will affect your business and/or commercial arrangements, please contact the Webber Wentzel Projects & Construction team.