ENERGY
The last four years have seen an unprecedented shift in global energy dynamics as power demand surged in the wake of Covid-19, the war in Ukraine upended traditional energy supply chains, and climate change risks continued to climb. In response, many power markets have transitioned, or are in the process of transitioning from centralised monopolies to decentralised, competitive ecosystems, ushering in a new era for energy security, economic growth, and sustainability.
To promote competition, increased capacity and additional investment, the country must make the transition to a liberalised market quickly. However, this needs to be balanced with a cautious approach to promote energy security and a stable electricity system.
Policy alone is not enough to chart the course to this future. The willingness to learn from the successes and challenges faced by other countries that have taken the journey toward liberalised energy markets can provide much-needed direction.
Texas: Price volatility is a major pitfall Texas’ s“ energy-only” market has highlighted the drawbacks of price volatility in the sector. The model works by paying power producers only for the energy they produce instead of making capacity payments as well. While this approach attracts significant investment, it can result in extreme price hikes when supply is low. For example, the 2021 Winter Storm Uri resulted in millions of Texans losing power when wholesale prices spiked to their maximum cap, causing devastating losses for market participants and extreme financial pressure for consumers.
This case holds a major warning for South Africa: a market designed without robust mechanisms for grid stability and capacity payments could lead to extreme price volatility and a potential loss of public trust.
Red flags: Cautionary tales for SA South Africa is set to launch the South African Wholesale Electricity Market in 2026, which will be a critical step in our energy reform and seeks to open the sector for increased competition, transparency, and economic efficiency in the sector.
India: Utility debt dampens investment interest For India, the financial woes of its state-owned distribution companies have hindered liberalisation efforts in the electricity market. Decades of regulated, subsidised tariffs have rendered these utilities debt-laden, dampening prospects for long-term Power Purchase Agreements( PPAs) with private generators. This created a high-risk environment which generally tends to hinder or slow down investment.
While the momentum is encouraging, a lot can go wrong when introducing a new market. The experiences from markets ahead of us on the curve offer crucial lessons in what can go wrong when a market is opened.
Similarly, some of South Africa ' s utilities also hold significant debt and therefore face a similar risk. A transparent plan to address this debt or empower distributors to participate in the market is crucial.
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