New Losses Charge Proposed for Embedded Generators as Eskom Methodology Amended

The National Energy Regulator of South Africa (NERSA) has formally published a consultation paper on the application submitted by Eskom Holdings SOC Ltd ("Eskom") seeking to amend the calculation methodology for the generator losses charge applicable to embedded generators connected to Eskom's distribution network.

Why this matters

The generator losses charge is a fee that electricity generators pay to cover the cost of technical energy losses that occur when transporting electricity through the grid (e.g., losses as heat in conductors, transformers and other network equipment). Even if a generator produces a certain amount of electricity, not all of it reaches end-users; the difference must be accounted for. Eskom argues that the losses charge sends a financial signal to generators to locate closer to major demand centres, since remote plants typically result in higher losses. In its application, Eskom states that recent technical studies and power-flow simulations show that embedded generators in many areas now contribute to increased network losses, and that the current rebate system for embedded generators is no longer cost-reflective and effectively subsidises some generators.

Key aspects of Eskom's proposed changes

According to the consultation paper, Eskom is proposing the following major changes:

• Recognise that embedded generators, which were historically assumed to reduce network losses, now in most geographic areas increase losses due to factors such as remote location, oversized capacity, off-peak production and bidirectional flows. (Energy Council of South Africa)

• Eliminate the current rebate system for embedded generators in areas with a positive Loss Factor (i.e., where generators contribute to increased losses). (Energy Council of South Africa)

• Introduce a positive losses charge for embedded generators in such areas, ensuring the cost of losses is recovered more accurately. (Energy Council of South Africa)

• Differentiate geographically the loss-factors by using Power Transfer Distribution Factors (PTDFs) to identify areas where generators' exports have higher loss impacts. (Energy Council of South Africa)

• Base the amended methodology on principles such as energy-efficiency, cost-based recovery of losses, distributor responsibility for losses, and differentiated loss factors by voltage and geographic/zone categories. (Energy Council of South Africa)

Legal and regulatory framework

Eskom has applied to amend Section 5.5.1 of the Distribution Tariff Code via the Tariff Code governing charges for distribution use-of-system (DUoS) for generators. (Energy Council of South Africa) NERSA's mandate emerges from the Electricity Regulation Act, 2006 and the National Energy Regulator Act, 2004 (NERA). Under Section 3 of the latter, NERSA is established as a juristic person with regulatory oversight of the electricity supply industry, including approving tariffs and charges. (Energy Council of South Africa) Further, the public consultation process is required under section 10 of NERA and sections 4 and 5 of the Promotion of Administrative Justice Act, 2000 (PAJA). (Energy Council of South Africa)

Financial and technical implications

Eskom's analysis indicates that under the current system (with rebates), the total bill for embedded generators in the Gen-DUoS urban tariff was around R540 million. Under the proposed amended system—elimination of rebates and introduction of positive losses charges in loss-positive areas—the total bill would increase to around R1.088 billion, a jump of approximately 235 %. (Energy Council of South Africa) The technical studies submitted include load-flow simulations and PTDF calculations using Eskom's FY2024/25 network model, showing that many geographic zones have positive loss-factors (i.e., increased losses when embedded generation is exported). (Energy Council of South Africa)

What this means for embedded generators

• Generators connected in areas that the methodology classifies as having positive loss factors are likely to see significantly higher charges (or elimination of prior rebates).

• There is a stronger incentive for generators to locate closer to demand centres, to align with lower‐loss network integration.

• Those generators with large size, located far from load centres, or producing mainly off-peak may face increased cost exposures.

• From a network efficiency perspective, the change is intended to align cost causation (losses) with cost recovery, reducing cross-subsidies.

Timelines and consultation process

• The application was received by NERSA on 28 July 2025. (Energy Council of South Africa)

• Written comments from the public and stakeholders are requested by Thursday 13 November 2025 (Note: some sources indicate a 14 Nov date) to be submitted via email to ertsa@nersa.org.za. (Energy Council of South Africa)

• A virtual public hearing is scheduled for 24 November 2025 via MS Teams and livestreamed on X and YouTube. Those who wish to attend or present must apply by Monday 17 November 2025 (16:30) by emailing publichearings@nersa.org.za. (Energy Council of South Africa)

• Following the public comment period and hearing, NERSA will consider input from the Grid Code Advisory Committee (GCAC) and make a determination. (Energy Council of South Africa)

• The implementation of the amended methodology is intended for the 2026/27 financial year's Eskom Schedule of Standard Tariffs (though some documents refer to 2025/26). (Energy Council of South Africa)

Broader context and outlook

This move reflects broader changes in the electricity landscape in South Africa: increasing penetration of embedded generation (especially renewables), bidirectional flows in distribution networks, and evolving cost causation patterns. The previous assumption that embedded generation inherently reduced network losses is now seen by Eskom as outdated under current deployment patterns. (Energy Council of South Africa) From a policy perspective, ensuring tariffs and charges are cost-reflective is central to fairness and efficiency in the electricity supply industry, aligning with regulatory principles under the Electricity Regulation Act. For generators, especially those developing embedded generation projects, these changes signal the importance of evaluating grid connection costs, network loss implications, geographic siting, export profiles, and the financial impacts of network-use charges beyond generation cost alone. For Eskom and the wider system operator, aligning loss-causing behaviour with cost recovery may help avoid cross-subsidisation, improve transparency, and encourage more efficient generation-to-load alignment.

Next steps for stakeholders

• Review the full consultation paper (available via NERSA's website under "Notices > Public Hearings").

• Assess how your generation site(s) would be classified under the new loss-factor methodology (voltage level, geographic zone, PTDF value, export pattern).

• Prepare and submit written comments by the deadline (13 Nov) if you are affected.

• Consider registering to participate in the public hearing on 24 Nov if you wish to make oral representations.

• For future project planning, factor in potential higher losses charges or removal of rebates when modelling profitability and financing.

• Monitor NERSA's final decision post-hearing, since the methodology may be adjusted in response to stakeholder input.