ANCILLARY SERVICES MARKET GOVERNANCE

Meaning and Concept

Ancillary Services Market Governance refers to the legal and regulatory framework governing services required to keep an electricity system secure, stable and reliable in addition to ordinary energy production. These services support frequency control, voltage stability, system restoration and balancing between electricity supply and demand.

In South Africa, ancillary services include operating reserves, black-start and unit-islanding capability, constrained generation, reactive-power and voltage-control services, and regulation and load following. The South African Grid Code places these functions within the responsibilities of the system operator because they are necessary for secure operation of the interconnected power system.

Regulatory Framework

The Electricity Regulation Act 4 of 2006 provides the statutory basis for regulation of electricity-system operation, licensing and technical codes. NERSA may issue codes governing transmission and distribution systems, while licence holders must comply with applicable licence conditions and Grid Code obligations.

The South African Grid Code specifically regulates scheduling and procurement of ancillary services. Its System Operation Code distinguishes instantaneous reserve, regulating reserve, ten-minute reserve, emergency reserve and supplemental reserve. It also regulates black start, constrained generation, reactive-power support and load-following services.

Procurement and Market Participation

A central governance issue concerns how ancillary services are procured. Traditionally, many such services have been supplied by large conventional generators. A competitive market framework can instead permit generators, storage facilities and qualifying demand-side resources to compete to supply these capabilities.

NERSA documentation confirms that instantaneous reserve may be supplied through generating capacity or managed demand capable of responding within approximately ten seconds. Regulating reserve similarly requires rapid response and supports system frequency as well as scheduled power flows between Southern African Power Pool control areas.

Market governance therefore requires transparent qualification standards, procurement procedures, performance testing, settlement rules and penalties where contracted resources fail to respond.

Role of Storage and Demand-Side Resources

Battery storage and flexible electricity demand can increasingly participate in ancillary-service provision. Batteries can respond rapidly to frequency deviations, while industrial loads may provide reserves by temporarily reducing consumption.

The regulatory challenge is technological neutrality. Market rules should specify the performance required rather than unnecessarily restricting participation to conventional generating technologies. This can increase competition while supporting integration of variable renewable generation.

Constrained Generation and Network Security

Constrained generation is itself recognised as an ancillary service. NERSA has approved arrangements under which generation output may be constrained above or below its unconstrained schedule where necessary to maintain the electricity system within secure operating limits.

This demonstrates that ancillary-service governance is closely connected with transmission congestion, dispatch authority and grid security rather than merely commercial electricity trading.

Pricing, Transparency and Non-Discrimination

An effective ancillary-services market must prevent discriminatory procurement and market manipulation. Providers should face equivalent technical standards where they offer equivalent services.

The transmission framework also contemplates forward identification of opportunities to provide ancillary services for relieving network constraints, supporting greater transparency for prospective market participants.

Case Name/Citation: Eskom Holdings SOC Ltd and Another v Sonae Arauco (Pty) Ltd 2025 (3) SA 78 (SCA)

Facts: The dispute concerned obligations arising when municipalities failed to implement required load shedding while the national electricity system was under stress.

Legal Issue: Whether Eskom, acting within the system-operation framework, was legally entitled and obliged to intervene to protect the national grid when municipal distributors did not shed the required load.

Judgment: The Supreme Court of Appeal held that applicable NERSA codes form part of electricity licensees' regulatory obligations. The Court confirmed that the system operator must take prompt action when abnormal conditions threaten reliable system operation and may assume responsibility for required load reduction.

Legal Principle/Ratio: Grid Codes issued under the Electricity Regulation Act have binding regulatory significance and impose operational duties upon electricity licensees.

Significance: The case supports ancillary-services governance because frequency reserves, emergency reserves and balancing mechanisms similarly depend upon enforceable system-operator authority and compliance with technical codes.

Case Name/Citation: Sibanye Gold (Pty) Ltd and Others v Eskom Holdings SOC Ltd and Others [2026] ZAGPJHC 123

Facts: The litigation involved Eskom, NERSA and private electricity-sector participants in a dispute concerning regulatory and electricity-network arrangements.

Legal Issue: The proceedings required consideration of powers and responsibilities arising under the Electricity Regulation Act and NERSA's regulatory jurisdiction.

Judgment: The High Court considered the statutory framework governing Eskom and NERSA and the legal character of regulated electricity-network relationships.

Legal Principle/Ratio: Electricity-network arrangements operate within a statutory regulatory system and cannot be determined solely through ordinary private contractual principles.

Significance: Ancillary-service contracts must therefore remain consistent with NERSA regulation, system-operation requirements and applicable grid rules.

Conclusion

Ancillary Services Market Governance is essential for maintaining frequency, voltage, reserves, congestion management and system restoration. South African law increasingly allows these services to be provided by generators, demand-side resources and emerging technologies such as storage. Effective governance requires transparent procurement, technology-neutral participation, measurable performance obligations, competitive pricing and strong system-operator authority, all operating within the Electricity Regulation Act, NERSA regulation and the South African Grid Code.