Oshili PowerAsk an executive what a wholesale electricity market means for the company and the answer is usually a price: cheaper, dearer, or more volatile. That is the smallest part of it. A market changes what the company is responsible for. Before it, the utility carried the risk and sent a bill. After it, a large user that chooses to participate carries five things it never carried before, and signs for each of them.
The five things the word hides
A counterparty. Someone sells you the energy who is not the utility: a licensed trader, or a generator under a bilateral contract. South Africa's draft trading rules make the trader a licensed entity, recognised by the network operator as a counterparty for the use-of-system agreement that lets energy be wheeled to you.
A commitment. In a day-ahead market the price for each hour of tomorrow is set the day before. If you buy through the market, someone commits a volume for each hour on your behalf, and the gap between that commitment and what you actually draw is settled afterwards at the balancing price. The draft Code sets the trading period at one hour and settles that gap daily, with the official balancing price fixed seven days later.
A position. Every hour, you are either long or short against your commitment. A plant that trips mid-shift, a furnace that restarts early, a cold front: each one moves the position. Under the draft Code, deviations inside a 5 per cent metering band carry no penalty; outside it, the shortfall is charged at the higher of the balancing price and the system marginal price.
A settlement. The invoice stops being one number a month. It becomes a daily reconciliation of what was committed, what was drawn and what each hour's balancing cost. Someone has to read it.
Credit. The draft Code requires a market participant to hold credit cover with the market operator, as a cash deposit with a licensed bank, sized to the participant's expected unpaid commitments, and failing to maintain it is a default event. Treasury, not procurement, owns that line.
None of this is a reason to stay out. It is a description of what "in" means, and of which parts of the organisation it touches: procurement, operations, treasury, metering, legal. The last point matters most. A company that treats market participation as a procurement project will discover, in the first imbalance invoice, that it was an operations and treasury project all along.
The country that opened the door first
England and Wales opened the first wholesale electricity market of this design on 31 March 1990, and it opened retail choice in the same order South Africa's draft rules now propose: the biggest users first.
- 1990: customers with a maximum demand above 1 MW could choose their supplier. About 5,000 sites, roughly 30 per cent of the market by volume.
- 1994: the threshold fell to 100 kW. About 50,000 more sites, another 15 per cent.
- 1998 to 1999: everyone else, 23 million customers, phased in over a year.
Two features of that first stage are easy to miss and both matter for a South African executive.
First, the first-stage users were not thrown into the pool price. The pool set a price every half hour, but almost all volume in the early years sat under contracts for differences, including the vesting contracts signed on day one between the new generators and the regional companies, which fixed the effective price for most of the market during the first three years while the pool found its feet. The pool was the settlement engine. The contract was the price. That is still the shape of most large-user supply in mature markets: the exchange sets the reference, the contract sets what you pay.
Second, the regulator of the day later judged that those early contracts had held pool prices artificially low at first, then let them rise as the contracts rolled off. The cushion worked, and it also delayed the moment when buyers learned what the market actually cost. Both halves of that lesson travel.
South Africa's version of the same door
The draft trading rules open in two phases. Phase 1: customers connected to the transmission and high-voltage networks may source a portion of their demand from licensed traders. Phase 2: other customers, and trading through the wholesale market itself. The draft Market Code's qualifying criteria admit a consumer connected at high or medium voltage as a market participant in its own right.
The cushion exists too, in a different shape. NERSA's transitional framework proposes vesting contracts between the central purchasing agency and licensed distributors that become market participants, five years in the case of a municipality, so that the regulated price keeps flowing underneath the new market for its first years. That is the English and Welsh design, transposed. Whether a large direct customer gets the same cushion, or buys its own through a fixed-price contract with a trader, is a question the drafts leave to the contract.
One more date worth an executive's attention: any entity that trades today under a distribution licence must obtain a separate trading licence within twelve months of the rules commencing. That is the clock on the counterparties, and it starts before the clock on the customer.
For large power users
Three decisions sit with the board, not the procurement team, and all three can be taken before a single rule is final.
Who holds the pen. One person owns the company's market position: the hourly commitment, the daily settlement and the credit line. In 1990 that job did not exist in most English firms either. It is the job that reads the first invoice.
How much of the load goes first. Phase 1 says a portion. The English experience says the first contract should be a hedge, not an experiment: a fixed price for a slice of the load, with the balancing exposure priced in, while the organisation learns to read a daily settlement.
What the metering can prove. The 5 per cent band only protects a site whose hourly metering data is clean enough to stand in a dispute. Metering is the cheapest decision on this list and the one most companies take last.
Every document behind this piece is a draft or a consultation paper, and may change before it is final. The order of the door opening, largest users first, has not changed in any draft.
Sources
- Ofgem, A review of the development of competition in the designated electricity market, June 1999
- Department for Business, Energy and Industrial Strategy, Competition in UK electricity markets, Energy Trends special feature
- Littlechild, S., Review of Electricity Trading Arrangements: trading inside and outside the Pool, March 1998
- Littlechild, S., The creation of a market for retail electricity supply, EPRG working paper 1017
- NTCSA, SAWEM Market Code Rev 2.3, February 2026, draft submitted to NERSA; NERSA, Rules for Electricity Trading, Version 01, 24 October 2025, draft; NERSA, Transitional Generation Pricing and Vesting Contract Framework, consultation paper, May 2026