The strategic significance of the reference to energy reform in South African President Cyril Ramaphosa’s State of the Nation Address cannot be overstated.
Many media reports carried a sense of elation about how this clears the way for resolving the country’s long-term energy crisis. This sentiment is premature: there are many devils in the details that need to be attended to before the country can celebrate.
Ramaphosa announced that the soon-to-be established Transmission System Operator will own South Africa’s transmission assets. This would include all main powerlines and sub-stations. This was contrary to what had been expected, particularly by South Africa’s state-owned power utility Eskom. Its assumption was that it would retain ownership of the transmission assets via its subsidiary, the National Transmission Company of South Africa, that was established in 2024.
Ramaphosa disagreed.
We are restructuring Eskom and establishing a fully independent state-owned transmission entity. This entity will have ownership and control of transmission assets and be responsible for operating the electricity market.
He went on to say:
Given the importance of this restructuring for the broader reform of the electricity sector, I have established a dedicated task team under the National Energy Crisis Committee to address various issues relating to the restructuring process, including clear timeframes for its phased implementation. It will report to me within three months.
The implications of this statement are far-reaching.
Surprise move
The National Transmission Company of South Africa, established in July 2024, is the current owner and operator of the national grid transmission system. It is entirely owned by Eskom Holdings. It was assumed that, within five years, it would be spun out of Eskom and reconstituted as the Transmission System Operator. In other words, in addition to owning the transmission assets, this entity would be the overall operator of the national grid, the manager of the build programme, and operator of the energy market provided for by the Energy Regulation Amendment Act.
In an opinion piece in December 2025 Dan Marokane, Eskom Group CEO elaborated on an announcement by the Minister of Energy and Electricty when he wrote:
Under the chosen modality, the (Eskom-owned) National Transmission Company of South Africa will remain the owner of transmission assets, entering a right-of-use agreement with the newly established Transmission System Operator … responsible for independently operating transmission assets, whether owned by the National Transmission Company of South Africa or private sector players under the envisioned Independent Transmission Projects programme.
This approach took some parts of government and major business and investment associations by surprise.
The objections by business stem from concerns about how the build-out of new energy capabilities will be financed. The US$25 billion plan on the table provides for a grid transmission build programme over the next 10 years to stabilise South Africa’s energy output.
But where will the money come from?
The money question
South African business and Enoch Godongwana, the Minister of Finance, argue that the only affordable and sustainable way to fund this kind of infrastructure build is to rope in the private sector. That there’s money available is not disputed. As a sustainable development scholar my own research for the National Planning Commission shows that there is a surplus of investment capital in South Africa to fund the just transition.
But there are concerns that investors will be reluctant to invest this capital in an Eskom subsidiary because Eskom’s balance sheet is compromised. And because of its track record and low ratings, Eskom is not regarded by some investors as trustworthy. And even if they do invest in Eskom, because of a perceived higher risk, this would raise the cost of capital and push up electricity prices.
Reportedly, Ramaphosa’s statement came after various consultations during December and January.
Why it matters
The widely supported government-approved Transmission Development Plan established by the National Transmission Company of South Africa makes provision for a R400 billion investment strategy over a 10-year period.
This will make it possible to build 14,400kms of new lines, 271 new transformers and rehabilitate the existing infrastructure.
Given the state’s fiscal constraints, massive increases in public funding to achieve the plan’s targets are unlikely. It follows that the bulk will have to come from domestic investors.
That means, if South Africa is truly committed to achieving the plan’s targets then it needs to make sure that the conditions are in place to unlock private capital for public infrastructures.
This is not privatisation. The aim is to mobilize South African capital to meet South Africa’s needs.
The danger of a return to loadshedding
If the conditions for increased private investment in this publicly-owned transmission infrastructure are not put in place, it is very likely that loadshedding will return in 2029.
Eskom’s Medium Term Adequacy Outlook makes clear the risks South Africa faces come 2029/30 when the three oldest power stations – Hendrina, Camden and Grootvlei – need to be decommissioned, and more after them.
The outlook also makes clear that if the much-needed 6GW of gas infrastructure does not come on-line in time to replace coal power, loadshedding is highly likely by 2029. But there is widespread doubt about this gas infrastructure materialising by 2029/30.
And so, if the National Transmission Company of South Africa cannot access the capital needed at the right price to massively expand the grid over the next five years, then the renewables (mainly wind) plus extensive backup that the country needs to prevent loadshedding by 2029/30 will not be able to connect into the national grid.
That will almost certainly result in the return of loadshedding.
Many analysts have raised doubts about whether Eskom has the headroom to raise the required debt against its own balance sheet. If they are correct, creating a “fully independent Transmission System Operator” that controls and owns its own assets is then presented as an easier way to raise debt at a lower price. In turn, this is supposed to have a beneficial impact on tariffs, and prevent loadshedding.
But this is a simplistic understanding of the solution.
The independent Transmission System Operator will take a few years to get established. The report the president wants will describe how the assets can be transferred over time without harming Eskom’s financial position. Sudden shifts should be avoided.
Furthermore, this report will have to deal with the details where the devils reside. In particular, if the Transmission System Operator is fully independent, then what matters is the full independence of the revenue system from Eskom, cost-reflective tariffs and revenue certainty (which includes a solution to the growing mountain of municipal arrears).
The call for a fully independent Transmission System Operator may give lenders the security they need, but the hidden threat is that the risk of revenue shortfalls gets transferred to the sovereign (and ultimately the tax payer).
In the meantime, the transmission build programme must be accelerated. Our research described how the energy transition can be accelerated. We also set out why a renewables-based economy enabled by the transmission build programme is not only the lowest-cost option compared to the alternatives, it is also central to “green growth” which the President described as “[t]he biggest opportunity of all… .”
To establish a fully independent state-owned Transmission System Operator within five years, alignment across three fronts will be required:
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government-wide support for the policy direction described by the President,
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managerial interests within the National Transmission Company of South Africa who see their futures beyond Eskom and act out accordingly over the medium- to long-term,and
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a South African investment community prepared to make big ticket long-term investments in a pipeline of large-scale transmission projects over the next decade.
But this can only work if a revenue model can be designed that is independent of Eskom, guarantees cash flow discipline and ensures cost-reflective tariffs. No document to date addresses this crucial nexus.
With policy and revenue certainty, South African investors will be able to make 20-year investments to implement the Transmission Development Plan. By ensuring that the country avoids loadshedding, these policy-enabled investments will drive accelerated green growth.
Mark Swilling receives funding from National Research Foundation. He is affiliated with the National Transmission Company of South Africa in his capacity as a non-Executive Director. He writes in his academic capacity.
By Mark Swilling, Distinguished Professor of Sustainable Development, Stellenbosch University
