Electricity market design for power system reliability: Lessons for South Africa

Electricity market liberalisation has been accompanied by persistent challenges in maintaining resource adequacy, particularly in jurisdictions undertaking reform under conditions of supply stress, nascent institutional frameworks, or financial fragility of incumbent utilities. This paper proposes a reliability market coherence framework, structured around three sequential reform phases, to evaluate how market design choices interact with long-run investment incentives for resource adequacy. The framework is applied to South Africa's proposed wholesale electricity market as a case study of liberalisation undertaken amid acute supply inadequacy. The analysis identifies three structural vulnerabilities in the proposed design: the absence of a codified resource adequacy standard linked to explicit reliability metrics and economic trade-offs; incomplete specification of long-run capacity procurement mechanisms beyond transitional vesting contracts; and design features that risk suppressing scarcity signals in a system characterised by tight margins and high market concentration. Whilst South Africa provides the illustrative context, the framework and findings are directly applicable to other jurisdictions facing comparable reform conditions. The central finding is that credible resource adequacy in liberalised markets is not an inherent outcome of the formal introduction of competitive trading platforms but depends on the coherence between reliability standards, price formation, market design, and institutional commitment. The paper is therefore relevant to policymakers, regulators, and market designers engaged in electricity sector reform, particularly in emerging and developing economies where market liberalisation is being pursued alongside unresolved challenges of supply adequacy, institutional development, and incumbent financial challenges.