The Determination

Section 34 of ERA empowers the Minister to, in consultation with NERSA, determine that the new generation capacity is needed to ensure the continued uninterrupted supply of electricity within South Africa.  Before the determination process is concluded, NERSA must undertake its regulatory review, public comment process and provide concurrence.

On 4 December 2024, NERSA received a draft section 34 determination from the Minister in accordance with section 34(1) of the ERA. On 16 May 2025 the Minister in consultation with NERSA published a proposal to procure 750 MW of ancillary services to be provided to the NTCSA, in the form of instantaneous electricity reserves and regulating electricity reserves.

In the consultation paper, both NERSA and the Minister indicated that:

• new generation capacity is needed to ensure the continued uninterrupted supply of electricity and ancillary services;
• 750 MW shall be generated from various technologies to provide the NTCSA with instantaneous electricity reserves and regulating electricity reserves, which are allocated as follows:
• Instantaneous Electricity Reserves: 500 MW; and
• Regulating Electricity Reserves 250 MW
• the buyer of the ancillary services shall be NTCSA; and
• the capacity must be procured by NTCSA through a tendering process which is fair, equitable, transparent, competitive, and cost-effective.
• collectively (Determination).

The Determination aims to address current reserves’ shortfall which has made it more challenging to maintain the NTCSA’s transmission and distribution system frequency and stability, resulting in an increase in the number of low frequency incidents.

Opportunity

While the Determination itself for the procurement of a total of 750 MW in reserves is excellent progress in improving the stability of South Africa’s energy landscape, the interesting part of the Determination is its alignment with the new multi-market system introduced under the Electricity Regulations Amendment Act 38 of 2024 (ERA Amendment).

By directing the NTCSA to run a “tendering process which is fair, equitable, transparent, competitive, and cost-effective”, the Determination reduces an exclusive reliance on Eskom SOC Limited (Eskom) for the procurement of reserves’ but opens a bidding platform which will ensure the application of competitive market transactions, an open participation multi-market system and the conclusion of fair physical bilateral transactions.

The provision of ancillary services was first included in the power purchase agreements from the renewable energy independent power producer procurement programme (REIPPPP) bid window 6, launched in 2022. This marked a significant change from previous REIPPPP bid windows, which focused solely on energy provision. The introduction of the provision of ancillary services also brought a new payment mechanism in REIPPPP bid window 6 to account for both energy and ancillary services provided.

The subsequent battery energy storage independent power producer procurement programme (BESIPPPP) bid window 2, launched in 2023, also included the requirement for the provision of capacity, energy, and ancillary services.

As demonstrated in REIPPPP bid window 6, BESIPPPP bid window 2 and the Determination, the South African Government is taking favourable steps in the right direction to opening up South Africa’s energy market to a multi-market system as envisaged under the ERA Amendment as the procurement of reserves from third party private generators will result in a more stable energy landscape, as the South African government is able to procure energy for multiple sources with a view to secure grid reliability and ensure a stable supply of power across South Africa.

Next Steps and Timing

The Determination is currently in the process of public comment and review by NERSA after receiving public comments in June of 2025. We can expect to receive further information from NERSA as well as a full issuance and publication of the Determination during early 2026. Prospective bidders should use this time to assess technical capabilities (including response times and duration), grid connection, contracting with the NTCSA, and compliance with ERA and related instruments governing the provision of ancillary services.