South Africa’s Electricity Regulation Act of 2024 paved the way for a new market structure that unbundles generation, transmission and distribution operations in the short-term, while in the longer-term opens the door for further distribution system reform and more retail choice. Experiences from international markets that have gone through similar reforms provide us with a set of tools that, if well employed, can significantly improve the performance of the whole power sector.

In this context distribution sector reform plays an essential role, in particular since the financial viability of the full power system rests on core functions of the distribution network such as metering, billing, revenue collection and theft prevention.

As policymakers guide the transition to a more liberalised electricity sector, experiences from jurisdictions that have successfully unbundled distribution and trading functions can offer valuable lessons.

In this report, authors Chris Ahlfeldt, Alejandro Hernández and Raj Addepalli explain important issues to consider when unbundling distribution functions and how they feed into broader electricity market reforms. They also unpack key lessons learned from disaggregation processes in Brazil, the Philippines, Colombia and India. These include the importance of tailored approaches, an empowered and independent regulator, transparent and targeted reform, the introduction of retail choice and more.

This study investigates how different models of distribution unbundling have been used to attract private investment, reduce technical and commercial losses, and improve reliability. The authors explore the details of each model and apply them to the intricacies of the South African context. Various guiding principles for distribution sector unbundling and power sector reform underpin the recommendations, such as the importance of ensuring financial viability and good governance of distribution utilities and the need for a targeted subsidy scheme to balance cost reflective tariffs with affordability.

Effective implementation of these distribution sector reforms, grounded in international experience and adapted to South African realities, can support both the broader electricity sector goals and the overall economic development of the country.

Photo: Devon Janse van Rensburg via Unsplash