Preparing Eskom Dx for its Role as an Electricity Trader in South Africa’s Forthcoming Competitive Wholesale Electricity Market

The Challenge

South Africa is undertaking one of its most significant energy sector reforms- transitioning from Eskom’s vertically integrated monopoly to a competitive wholesale electricity market. The Electricity Regulation Amendment Act (No. 38 of 2024), signed in August 2024, mandates this transformation.

Under the new framework, Eskom Distribution must establish an Electricity Trading Services (ETS) division capable of purchasing electricity across Day-Ahead, Intra-Day, and Balancing Markets while managing price volatility. This requires sophisticated front, middle, and back-office trading operations supported by forecasting tools, hedging strategies, and robust risk management frameworks.

With no precedent in South Africa, Eskom Distribution needed international expertise to understand best practices and design a fit-for-purpose trading operation for the South African Wholesale Electricity Market (SAWEM).

Our Approach

In February 2025, Eskom Distribution commissioned Nova Economics, partnered with AFRY Management Consulting, to deliver a comprehensive trading readiness program. We provided strategic guidance across four integrated workstreams:

Market Context Analysis

We mapped Eskom Dx’s specific role in SAWEM’s Day 1 operations, analysing current demand profiles, supply composition (including Eskom generation, IPPs, and peaking requirements), and the multi-market structure. The analysis detailed vesting contract arrangements for baseload plants, the capital cost recovery challenge for peaking plants without vesting contracts, trading entity structures, and how REIPPPP legacy costs would be recovered through the Central Purchasing Agency. This established the operational reality and risk exposure Eskom Dx would face.

Risk Management Framework

Drawing on international best practices, we provided a comprehensive overview of how energy trading functions are structured globally. This covered the roles and responsibilities across front office (market-facing trading), middle office (risk monitoring and governance), and back office (settlement and reconciliation). We explained fundamental risk management concepts- how businesses understand their position, evaluate exposure, and deploy hedging strategies through forward and wholesale energy markets.

Systems & Technology

We presented an illustrative Energy Trading & Risk Management (ETRM) systems matrix, mapping the software platforms and technology infrastructure used by leading international traders. The deliverable covered market simulation tools for optimization and arbitrage opportunities, and detailed demand forecasting methodologies across multiple time horizons- from long-term hedging to real-time balancing.

Market Optimization Strategies

We examined how electricity markets internationally facilitate risk management and value creation. This included analysis of products and services offered by leading traders: balance responsibility services to hedge forecasting errors, demand response programs to reduce market exposure, ancillary services for grid support, and Battery Energy Storage System (BESS) optimisation strategies. International case studies from Europe (Next Kraftwerke) and Australia demonstrated how markets aggregate and optimise distributed energy resources through Virtual Power Plants, providing actionable insights for SAWEM.

Client Impact

This project provided Eskom Distribution with the foundational knowledge and strategic framework needed to design and implement a sophisticated electricity trading operation. By combining South African market context with international best practices, Nova Economics equipped Eskom Dx to navigate the transition from monopoly to competitive market participant- positioning the organization to manage price volatility, serve customers effectively, and create value in SAWEM.

The deliverables now serve as reference materials guiding Eskom Dx’s organizational design, technology procurement, and strategic decision-making as South Africa implements its landmark electricity market reforms.