Load shedding back in South Africa after 10 months

From the newsletter

South Africa's national power utility, Eskom, announced the resumption of load shedding last week, ending a 323-day reprieve. The country is currently implementing stage 4 load shedding, resulting in widespread power outages. This comes amid rising electricity tariffs, which have driven many consumers towards self-generation.

• Over the past two years, South Africa introduced solar incentives for both residential and business consumers. The residential incentives have expired, with the business incentives scheduled to lapse at the end of February.

• With solar incentives ending and load shedding returning, the future of South Africa's solar market is uncertain. Will consumers still invest in solar to avoid the unstable grid and rising tariffs, even without government subsidies?

More details

• After enduring 283 days of load shedding in 2023, the South African government has moved swiftly to streamline electricity market regulations. In 2023, it completely removed licensing requirements for private power generation. The Integrated Resource Plan 2019, South Africa's living energy planning document, was revised in 2023, increasing the total planned capacity by approximately 11% to 84 GW.

• Progress has been made. In 2024, approximately 4.4 GW of new private capacity was installed, primarily from solar (2.8 GW) and wind (1.3 GW). However, this has not been enough to meet the growing electricity demand. The IEA projects an average increase of over 5% in electricity consumption between 2025 and 2027. Installed capacity growth needs to accelerate as the demand from the expected economic rebound intensifies.

• Eskom suffers from huge debts that hinder its investment in power infrastructure. It has resorted to annual tariff increases to generate more revenue. However, this has not been smooth. Instead, it has pushed more large consumers towards self-generation, with over 11 GW of installed capacity currently. These are its best-paying customers. Eskom is now left with lower-consuming or less reliable customers, many of whom engage in electricity theft, further exacerbating Eskom's revenue challenges.

• Even residential customers are adopting solar. Prices are down, and financing options are available for those who cannot afford it upfront. Some are completely switching off the grid, but the majority are doing so partially, only switching back to the grid when the sun is not shining.

• The financing options are quite diverse, with many South African banks providing renewable energy financing options. Banks like Absa and Rand Merchant Bank (RMB) have financed several renewable energy projects. Absa has financed projects like the 700 MW wind project for Enel Green Power South Africa and the 140 MW wind project for Red Rocket Energy. RMB has financed Seriti Green's 155 MW wind farm in Mpumalanga and numerous projects within the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

• There are also energy companies that do the financing. Sun Exchange provides financing solutions for solar for residential and small customers. SOLA Group provides financing for large-scale renewable energy projects. The entry of multinational giants like AMEA Power and Scatec, who have significant financial resources, makes it easier for the private sector to switch to solar.

Our take

• The resumption of load shedding and the end of incentives will demand some readjustments. While the immediate impact of the incentive expiration may be a temporary slowdown in solar adoption, businesses must continue operating. The frustration and economic disruption caused by power outages will drive more consumers and businesses to invest in solar and other alternative energy sources.

• This shift will leave Eskom with lower-paying customers, increasing the risk of electricity theft and hindering its ability to generate sufficient revenue for infrastructure upgrades. This will worsen Eskom's financial state, potentially leading to further tariff increases that could drive away even more customers.

• However, this situation presents opportunities for banks and other financial institutions. They can provide tailored financing solutions for renewable energy projects, boosting their sustainability profile and unlocking new market opportunities. Energy companies can also explore partnerships with businesses to create embedded generation solutions and provide much-needed energy security.