SA's private sector projects have tripled in the last two years

From the newsletter

South Africa's National Energy Regulator (NERSA) has reported significant growth in the country's private energy sector. It registered 473 private projects totalling 4,325 MW in 2024. In 2023, 4,530 MW of renewables capacity was registered, nearly triple that of 2022. This growth occurred as the country implemented two-year incentives.

• This surge impacts South Africa's state-owned utility, Eskom, and other African energy providers, potentially catalysing a continent-wide renewables revolution. Increased competition among generators could lead to more efficient pricing and lower electricity costs in the long run.

• The revolution is driven by bold regulatory reforms including South Africa’s 2024 Electricity Regulation Act that introduced an open electricity market, allowing private players to generate, transmit, and distribute electricity to their customers.

More details

• South Africa’s Energy Regulatory Act allowed private players to generate, transmit, and distribute electricity to their customers. Previously, they were required to sell all electricity to Eskom.

• Instead of a single, dominant player (Eskom), private developers, independent power producers (IPPs), investors, and potentially even smaller community-based energy projects have been added to the sector, therefore, reducing risk. 

• It also signals a fundamental re-ordering of South Africa's energy sector by moving away from a centralised, state-dominated model towards a more decentralised, competitive, and market-driven approach. This has the potential to unlock significant benefits for the country, but it also requires careful management to ensure a just and sustainable transition.

• The Energy Regulatory Act has seen renewable energy projects thrive with the likes of SOLA Group’s 600 MW of private renewable wheeling projects and Scatec’s target to reach 15 GW of renewable capacity in operation by the end of 2025 just to name a few.

• The regulations also removed licensing requirements for embedded generation projects – generation for own consumption – which were initially capped at 100 MW. This means private investors can now generate electricity for their consumption with fewer regulatory constraints.

• Eskom faces losing significant market share, potentially impacting its revenue and financial stability. It recently proposed a 57% electricity price increase to be implemented in phases: 36% in 2025, 11% in 2026, and 9% in 2027.

• This stems partly from its ageing coal generation fleet, which accounts for over 80% of its total generation and is a trend that can be seen in many state-owned power utility companies including in Ghana, Kenya, and Nigeria.

• South Africa is starting a revolution here, packed with benefits for African nations that will adopt its model. It's a wake-up call for power monopolies to adapt to a changing energy landscape. 

Our take

• The Electricity Act has liberalised the market and attracted several energy players. This has brought in specialised players to tap into the available opportunities, including electricity trading, which helps to reduce risks. This, in turn, can lead to greater efficiency, and lower costs in the energy sector benefitting consumers.

• There are more opportunities for private sector players to sell electricity to the Southern African Power Pool. Regional countries like Zambia, Lesotho, and Zimbabwe all have inadequate grid supply and need external sourcing to meet their demand.

• South Africa's private sector growth in renewable energy projects over the last two years was mainly supported by government incentives. However, with these business incentives expected to end this February, the industry anticipates some challenges.

• Despite this, the outlook for solar power remains strong. The South African power utility company, Eskom, continues to increase electricity tariffs, making solar an increasingly attractive option for consumers. While the initial investment for solar can be high, it offers long-term cost savings and energy independence. This is likely to drive continued growth in the residential and commercial solar markets, even without the direct support of government incentives.