NERSA publishes draft Independent Transmission Project (ITP) cost recovery rules

On 23 September 2025, the National Energy Regulator of South Africa (NERSA) published the draft Cost Recovery Rules for ITPs. NERSA invited public comments by 27 October 2025

The rules are established under the Electricity Regulation Act, 2006, to facilitate the recovery of costs associated with ITPs and are designed to ensure project bankability and cost recovery for ITPs, promoting regulatory certainty.

The objectives of the rules include enabling efficient licensees to recover the full cost of their activities, ensuring financial viability, promoting transparency, and ensuring the availability of electricity on a cost-effective basis. The main principle is that transmission capacity purchases should be acquired cost-effectively, providing value for money.

In sum, the rules set out:

• The process to be followed by the buyer in seeking the approval of costs incurred under the transmission service agreement (TSA)
• The process to be followed in assessing the principle of efficient risk transfer in the transmission service agreement and the mitigation rules in relation to the buyer.
• The factors that should be considered in assessing:
  • the affordability of the proposed ITPs;
  • the allocation of financial, technical and operational risk between the buyer and the ITP
  • the anticipated value for money to be achieved by the ITP; and
  • the asset sharing cost implications where the ITP and National Transmission Company South Africa (NTCSA) are sharing infrastructure, e.g. transformation infrastructure.

The rules are grounded in the Electricity Regulation Act, which empowers NERSA to approve tariffs and ensure efficient cost recovery. They apply to projects procured under a section 34 determination and exclude projects developed by the NTCSA.

Authorisation for cost recovery remains valid for the duration of the TSA, and protections transfer to the relevant licensee in case of restructuring. An appeal process is available for judicial review of administrative actions by the Energy Regulator.

Where authorised by NERSA, transmission capacity costs will be recovered by the buyer as part of its annual allowable revenue through the transmission tariff. Recoverable costs include the following:

• Transmission capacity payments made by the buyer to the ITP
  • Transmission capacity payments made to the ITP including without limitation, and other payments as set out in a TSA inclusive of the indexation of such payments as prescribed by a TSA.
  • NERSA and the Independent Procurement Office will cooperate to make sure that the bidding process yields the most efficient costs possible and delivers value for money. NERSA will not take part in the bid adjudication but will participate in the process of the formulation of the bidding documents, to ensure that the principles of section 15 of the ERA, 2006, as amended, are adhered to.
• Hedging costs
  • These include costs incurred prudently by the buyer and/or an ITP in taking out hedging positions to mitigate, or in obtaining insurance or otherwise indemnifying itself and/or themselves against the risks allocated to the buyer and/or ITP under a TSA including, without limitation, the costs of hedging its and/or their exposure in respect of commodity and foreign exchange risks linked to the repayment of debt.
• Administration of TSAs including professional services
  • These include contract management services required to develop, manage, monitor and account for the buyer’s payment and financial obligations under the TSA.
• Termination costs
  • These are costs to the buyer associated with the termination, by the ITP, of the Transmission Services Agreement, for any reason.
• Other costs
  • Any other costs not covered above that are prudently/efficiently incurred will be allowed by the Energy Regulator as TSA costs and they will be passed through.

The buyer shall not be entitled to recover, through its allowed revenue limit, costs that it has already recovered or been compensated for via another avenue. All double-counted costs shall be excluded from any cost recovery compensation and, if already recovered, shall be addressed through appropriate rules.

Recoverable costs of transmission capacity purchases will be factored into the buyer’s projected allowable revenue requirement using costs as projected per the TSA at the time of submission of the buyer’s revenue application.

An authorisation for transmission capacity purchase cost recovery should remain valid for the duration of the relevant TSA.

The protections offered by these rules will transfer to the relevant licensee in the case of a restructuring and/or transfer of rights and obligations of a TSA.

The rules are effective from the date of approval.

“Enhancing market certainty for ITPs is critical for attracting private investment to address South Africa’s grid infrastructure deficit. The South African government is pursuing several measures to increase investor confidence and mitigate risks, though significant challenges remain. The publication of these draft rules by NERSA for comment is another step towards bringing much needed market certainty for the rolling out of the first phase of the ITP Programme later this year” – Ricardo Pillay Team Lead, LnP Beyond Legal Energy Team.

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