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How South Africa’s changing electricity market is reshaping municipal tariffs

South Africa’s electricity market is changing, and municipalities are under growing pressure to change with it. The introduction of the South African Wholesale Electricity Market (SAWEM), the growth of rooftop solar and and new approaches to electricity trading are all changing the way electricity is bought, sold and consumed. 

For municipalities, this creates a difficult balancing act. They need to keep electricity affordable for households and businesses while also making sure that their electricity businesses remain financially sustainable. 

This was the focus of the Tariffs, affordability and municipal financial sustainability session at the Municipal Forum during Enlit Africa 2026.

Chaired by Onicah Rantwane, Middle Manager: Electricity Trading Compliance at Eskom, the session brought together representatives from NERSA, Eskom, SANEDI and the City of Cape Town to understand how electricity pricing may need to change as the market evolves. 

The old tariff model is under pressure 

The municipal electricity business model has relied heavily on electricity sales to generate revenue. That model is becoming harder to sustain. More households and businesses have installed roof top solar systems and are adding battery energy storage. This means customers can reduce the amount of electricity they buy from the municipal grid while still relying on the network when they need it. 

The problem is that the cost of maintaining the network does not disappear when electricity consumption falls. 

This raises an important question for the sector. If customers are buying less electricity from the municipality, how should the municipality recover the cost of providing the network? 

Section 15 and the changing role of pricing 

Onicah Rantwane, who is a middle manager Electricity Trading Compliance, ESKOM 

 

Section 15 of the Electricity Regulation Act No. 4 of 2006 (ERA) governs the principles and rules for setting and approving electricity tariffs in South Africa.  

at City Power, looked at the future of electricity prices in the context of Section 15 and the move towards a more market-driven electricity environment. 

As the electricity market develops, the way prices are determined will also change. 

For municipalities, this means understanding how market-linked electricity prices could affect their own tariffs and their ability to recover costs. 

The shift towards a market environment also means municipalities will need to become more sophisticated in the way they manage electricity procurement. 

They will have to consider when they buy electricity, how much they buy and what that electricity costs at different points in the market. 

This could eventually lead to tariffs that better reflect the actual cost of supplying electricity at different times. 

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Affordability remains a major concern 

While there is a strong case for cost-reflective tariffs, affordability cannot be ignored. 

South Africa has many households that already struggle to afford basic services. Simply increasing tariffs to cover rising costs could put additional pressure on these households. 

Muzi Mkhize, Regulator Member at NERSA, highlighted the importance of protecting vulnerable customers as the electricity market changes. 

This means that tariff reform needs to happen alongside effective social support measures. 

Municipalities also need a much clearer understanding of what it actually costs to supply different categories of customers. Cost of supply studies can help provide that information and give municipalities a stronger basis for setting tariffs. 

The challenge is finding a structure that allows municipalities to recover their legitimate costs without making electricity unaffordable. 

Self-generation is changing the municipal business model 

One of the biggest changes facing municipalities is the growth of self-generation. 

Customers who install solar can significantly reduce their electricity purchases. For the customer, this can make economic sense. For the municipality, however, it can reduce revenue from electricity sales. 

This creates a difficult situation. 

A municipality can lose electricity sales while still being expected to maintain the network that connects the customer to the wider electricity system. 

If this continues without changes to the way network costs are recovered, municipal electricity businesses could face increasing financial pressure. 

The panel discussion therefore pointed to the need for municipalities to look beyond traditional electricity tariffs. 

The future may require tariffs that separate the cost of the electricity itself from the cost of providing access to and maintaining the network. 

SAWEM will bring new challenges 

The development of the wholesale electricity market will add another layer to this transition. 

Municipalities will have more options around how they participate in the electricity market and how they procure power. 

That creates opportunities, but it also introduces new risks. 

Municipalities will need to understand market prices and manage their procurement more carefully. They will also need to understand how changes in consumption affect their finances. 

Terry Njuguna, Corporate Specialist: Pricing and Energy Policy at Eskom, pointed to the importance of municipalities preparing for this changing environment. 

A municipality that continues to operate as if the electricity market has not changed could find itself increasingly exposed. 

Technology will play an important role 

Smart meters are likely to become increasingly important as municipalities move towards more sophisticated tariffs. 

Better metering gives municipalities better information about how customers use electricity. It can also help customers understand their own consumption. 

This information becomes particularly valuable when electricity prices vary according to the time of day or market conditions. 

Customers could potentially change when they use electricity in response to prices. That could help reduce pressure on the system and create a more flexible electricity market. 

But introducing smart meters is not simply a technology project. 

Municipalities also need the billing systems, data platforms and internal skills to make use of the information that smart meters provide. 

Municipalities need to rethink their electricity businesses 

Gary Michael Ross, Head of Pricing and Regulation at the City of Cape Town, highlighted some of the practical challenges municipalities face. 

Many municipalities are working with ageing systems, legacy infrastructure and processes that were designed for a very different electricity market. 

Changing the tariff structure is therefore only one part of the problem. 

Municipalities also need to modernise their systems and develop the skills needed to operate in a more dynamic market. 

This includes understanding customer behaviour, managing electricity procurement, using data and responding to new technologies. 

The future municipal electricity utility will need to be much more than a business that buys electricity and sells it to customers. 

Finding a balance 

The discussion at the Municipal Forum made one thing clear. There is no simple answer to the tariff challenge. 

Electricity needs to remain affordable, particularly for vulnerable households. At the same time, municipalities need enough revenue to maintain their networks and provide a reliable service. 

If tariffs are too low, municipal electricity businesses become financially unsustainable. If tariffs rise too quickly, customers may struggle to pay or may look for alternatives such as self-generation. 

The answer lies somewhere between these two pressures. 

Municipalities will need better information about their costs, more flexible tariff structures and better ways of recovering the cost of their networks. 

They will also need to work closely with NERSA, Eskom, National Treasury and other stakeholders as the market develops. 

The electricity business is changing 

The biggest lesson from the session is that municipal electricity businesses cannot rely on the same model that worked in the past. 

Customers are changing. Technology is changing. The market is changing. 

Municipalities need to change too. 

The future is likely to involve a greater mix of electricity suppliers, more distributed generation, smarter networks and customers who play a much more active role in the electricity system. 

For municipalities, financial sustainability will depend on adapting to that reality. 

The goal should not simply be to increase tariffs. It should be to build a tariff system that is fair, transparent and sustainable, while ensuring that customers can continue to access electricity and that municipalities have the resources to maintain the networks on which the entire market depends. 

That will be one of the most important tests of South Africa’s electricity reform journey. 

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