In this opinion article on draft trading rules being considered for release by the National Energy Regulator of South Africa, renewable energy entrepreneur Frank Spencer warns that the proposed rules impose volume caps, broad non-bypassable charges, and structural barriers that will constrain generators and traders alike for years. Spencer stresses that the article is based on documents that were released early and may be retracted, but that the draft documents point to the need for stakeholders to engage actively with the process.

**The draft trading rules commented on here have not been officially released by Nersa. They are still being considered by a working group and the Electricity Subcommittee is yet to approve the release of any draft for public comment.

The National Energy Regulator of South Africa (Nersa) has published its revised draft Trading Rules for the bilateral trading market (Version 01, dated 12 April 2026) together with a consultation paper inviting stakeholder comment by 23 May 2026.

The rules deserve serious scrutiny from the entire electricity supply industry – not just licensed traders, but every independent power producer (IPP) with a wheeling contract, every aggregator, and every customer with embedded generation. Because these rules apply to all of them.

This is the second round of consultation, following the initial draft published in November 2025 and the subsequent public hearings in January 2026 at which Eskom raised significant objections. The revised rules run to 44 pages and set out a four-phase framework for the transition to retail electricity competition.

Applicability extends well beyond traders

Clause 3.1 makes the scope explicit. The rules apply to all licensed traders, all network service providers operating under distribution licences, all retailers operating under distribution licences, and, critically, all generators of capacity greater than 100 kW that are registered with Nersa, and involved in bilateral agreements supplying wheeled energy to consumers, whether directly or via traders.

An IPP with a direct wheeling power purchase agreement (PPA) to a customer faces the same volume restrictions, the same contestable customer thresholds, the same non-bypassable charge (NBC) framework, and the same reconciliation and reporting obligations as a licensed trader. Aggregators bundling multiple IPPs are in the same position. Volume restrictions are measured at the customer level: the aggregate of all third-party supply from all traders and generators combined must fall within the applicable cap (Clause 7.4.5).

Generators below 100 kW (covering most rooftop solar and small-scale embedded generation (SSEG) installations) are explicitly excluded. Their electricity "shall not be eligible for wholesale or retail electricity trading" (Clause 9.4.1).

The contestable market is extremely narrow

Phase 1 limits contestable customers to those with a Notified Maximum Demand (NMD) of at least 1 MVA, plus interval metering and Time-of-Use (TOU) tariff structures. This confines contestability to large industrial and commercial customers. All other customers (the overwhelming majority of South Africa's electricity consumers, including all low-voltage and prepaid customers below 1 MVA) are classified as captive and must continue purchasing exclusively from their incumbent distributor.

The threshold is not relaxed until Phase 3, when contestability extends to customers with a connection size of 100 kVA or more, and Phase 4, when all customers become contestable. But Phase 3 requires the South African Wholesale Electricity Market (SAWEM) to have been operational for a minimum of three continuous years, and Phase 4 requires a further three years after Phase 3 commencement. Given the uncertainty around SAWEM's go-live date (anticipated no earlier than Year 2 of Phase 1) full retail competition is realistically a decade or more away.

Volume restrictions: a six-year glide path starting at 20%

Even within the narrow contestable market, the rules impose volume restrictions on third-party supply. In Year 1, a contestable customer may source only 20% of its baseline consumption from third-party suppliers. The cap remains at 20% in Year 2, rises to 30% in Year 3, 40% in Year 4, and 50% in Year 5. Volume restrictions are removed entirely only in Year 6, contingent on non-bypassable charge thresholds having been met (Table 1, Clause 7.4).

The stated rationale is to limit the financial exposure of incumbent retailer-distributors to uneconomic bypass during the transition away from volumetric tariffs. That concern has merit: current tariff structures recover network, capacity, legacy, and policy costs primarily through energy charges (c/kWh), meaning customers who reduce grid purchases avoid contributing proportionately to those fixed costs. But the consultation paper provides no quantitative basis for the specific pace of the glide path, and the starting point of 20% for two full years is conservative by any international comparison.

Non-bypassable charges cover the full cost stack

Clause 9.16 designates the following categories as recoverable through NBCs: all network costs; legacy Renewable Energy IPP Procurement (REIPPP) programme costs for the duration of existing contracts; ancillary services costs; generation capacity costs; government-mandated social obligation subsidies (including lifeline tariffs, cross-subsidies, electrification, and new connections for poor households); Negotiated Pricing Agreement (NPA) subsidies for energy-intensive, trade-exposed industrial customers; and the Nersa regulatory levy.

These categories, taken together, cover virtually every significant cost component in the electricity supply chain. The energy component (which is the only portion a third-party supplier can displace) represents a diminishing share of the total customer bill as NBCs increase. This structurally limits the value proposition for competitive supply.

Clause 9.15.2 extends the NBC framework beyond contestable customers, applying NBC minimums to two categories: all customers with a connection size of 100 kVA or more (regardless of wheeling or self-generation status), and all customers with wheeling arrangements or self-generation, regardless of connection size. The second category is significant: a small commercial customer with a rooftop solar installation that is well below the 1 MVA contestable threshold and has no involvement in third-party trading is nonetheless captured by the NBC framework on account of its self-generation. The interaction between this provision and existing municipal SSEG credit frameworks (such as the City of Cape Town's feed-in programme) is not addressed.

The ANBC tariff: removing the cap at a price

For customers wishing to exceed the volume restrictions, the rules offer the Accelerated Non-Bypassable Charge (ANBC) tariff from Year 2 of Phase 1 (Clause 9.17). Under the ANBC tariff, the volume cap is removed, but the customer must migrate to a tariff structure in which non-bypassable charges account for not less than 66% of the total fully allocated cost of supply.

In practical terms, two-thirds of the customer's electricity bill becomes fixed and payable to the incumbent distributor regardless of the source of energy supply. The third-party supplier can only compete on the remaining one-third. Once the supplier's energy price, wheeling charges, loss adjustments, compliance costs, and commercial margins are factored in, the savings available to the customer from competitive supply may be negligible.

The ANBC tariff also carries enforcement provisions that create material financial risk. If a customer exceeds the applicable volume restriction by more than 5 percentage points in any financial year without having elected the ANBC tariff, the Primary Retailer must retrospectively apply the ANBC tariff for that entire year and issue a corrected invoice (Clause 9.17.4). If the customer exceeds the restriction by more than 2 percentage points in two consecutive financial years, they are required to migrate permanently to the ANBC tariff for a minimum of 12 months (Clause 9.17.5). These thresholds are tight enough that measurement or estimation errors in metered consumption or wheeled energy quantities could trigger significant retrospective financial adjustments.

Traders excluded from the wholesale market

Clause 10.4 states that licensed traders may not be market participants in SAWEM and may not buy or sell energy at the System Marginal Price (SMP). No rationale is provided for this restriction, and no consultation question invites comment on its appropriateness.

The practical consequence is structural. As SAWEM develops, generators and distributors will access wholesale pricing, hedging instruments, and contracts for differences (CfDs), while traders are confined to bilateral physical wheeling. Traders are excluded from the most liquid and price-transparent segment of the market they are licensed to operate in. This restriction is relaxed only in Phase 3, when traders may apply to become Primary Retailers and SAWEM market participants – but as noted, Phase 3 is contingent on SAWEM having been operational for at least three years.

The absence of any stated rationale, and the lack of a corresponding consultation question, is notable. An unexplained restriction of this magnitude in a regulatory instrument developed under the Promotion of Administrative Justice Act (PAJA) obligations is potentially vulnerable to challenge on procedural fairness grounds.

Virtual wheeling deferred and conditional

Virtual wheeling (essential for matching variable renewable generation to multiple off-takers across dispersed sites) is not permitted until SAWEM goes live (Clause 10.9). Even then, it is restricted to customers with a connection size exceeding 100 kVA.

The rules impose extensive prerequisites: appropriate charging arrangements, detailed operational and settlement procedures, and scalable systems for metering data management, validation, aggregation, and settlement (Clause 10.9.2–3). Clause 10.10.2 states explicitly that until these prerequisites are met and the Trading Rules are formally revised to incorporate a comprehensive virtual wheeling framework, virtual wheeling is not operative - irrespective of whether SAWEM is live.

This creates a double lock: virtual wheeling requires both SAWEM go-live and a subsequent revision of the Trading Rules, with neither on a defined timeline. For generators and traders seeking to serve dispersed customer portfolios or to allocate renewable generation across multiple metering points, this is a fundamental constraint.

Council resolutions as a gatekeeper

The licensing requirements for traders (Clause 9.7.1) include the submission of minutes of a council resolution confirming that the trader may serve customers in the relevant municipality's licensed area of supply. This requirement effectively provides each municipal council with a veto over trader entry into its area.

The well-documented resistance of many municipalities to facilitating third-party energy supply (driven by the risk to electricity surcharge revenue) makes this a significant practical barrier. For traders seeking to operate across multiple municipal jurisdictions, obtaining individual council resolutions introduces administrative delay, political risk, and the possibility of outright refusal without recourse.

Secondary trading prohibited; reporting burden heavy

The rules prohibit secondary trading of Direct Supply Agreements during Phases 1 and 2 (Clause 9.6.1), preventing the development of contract liquidity and limiting the ability of traders and generators to manage portfolio risk through novation or transfer.

Reporting obligations require licensed traders to submit six-monthly reports to Nersa including copies of all the many agreements required as well as reporting on volume restriction compliance confirmations from Primary Retailers, and complaint resolution logs (Clause 9.10). Nersa retains audit rights on reasonable written notice.

The broader picture

These rules arrive in the context of Eskom's court challenge to the five trading licences granted by Nersa in 2025 – a challenge that was stayed, not withdrawn, in February 2026 pending finalisation of the regulatory framework. The revised rules appear to reflect substantial accommodation of Eskom's concerns: tight volume restrictions, broad NBCs protecting the incumbent cost base, deferred virtual wheeling, traders excluded from SAWEM, and council resolutions providing municipal gatekeeping.

The question for the industry is whether this framework, taken as a whole, creates the conditions for a genuine transition to competitive supply, or whether it locks in the structural advantages of the incumbent for so long that the transition becomes nominal. A six-year volume glide path, a decade-plus timeline to full retail competition, NBCs covering the full cost stack, and an ANBC tariff that caps competitive headroom at one-third of the bill do not, on their face, suggest a framework designed to catalyse market entry and investment.

The consultation paper asks 19 questions across eligibility criteria, volume restrictions, the ANBC tariff, wheeling arrangements, and reporting requirements. What it does not ask – and what the industry should address in its submissions regardless – is whether the framework as designed leaves sufficient economic space for competitive supply to deliver meaningful value to customers, and whether the pace of reform is commensurate with the urgency of South Africa's energy challenges.

Spencer, of sbg.earth, is a well-known renewable energy entrepreneur currently developing innovative solutions to unlock private power for all in South Africa’s municipalities. He writes here in a personal capacity.