Another nail in Eskom’s coffin

Private companies have been pouring billions of rands into battery storage projects in South Africa as they try to close the loop and turn intermittent renewable energy into a stable supply. 

This is seen as the final step towards creating private energy producers that can compete with Eskom head-on in the future. 

With an independent transmission grid operator set to be established, the utility will have to increasingly compete with cheaper electricity generators. 

The one major advantage Eskom has is its ability to provide baseload power through its coal-fired power plants.

These plants can produce energy 24/7, providing a stable base for the country’s grid. This is particularly crucial for heavy users of energy and critical infrastructure. 

Renewable energy, on the other hand, is intermittent because it depends on the sun shining and the wind blowing, making it unreliable. 

Private companies are investing heavily to resolve this problem by building huge battery storage facilities across South Africa. 

This will enable renewable generators to store their energy more effectively and smooth the delivery of electricity to the grid, making their operations more akin to reliable baseload power.

Futuregrowth Asset Management portfolio manager Jason Lightfoot recently pointed out that five battery storage facilities have reached financial close in 2026. 

These projects were awarded under the Battery Energy Storage Independent Power Producers Procurement Programme (BESIPPPP) Bid Window 2. 

Totalling R12.8 billion of investment, these projects will supply around 615 MW of storage capacity in the North-West Province, Free State, and Gauteng. 

Financed by a mix of local banks and international investors, the projects have secured 15-year power purchasing agreements with the National Transmission Company of South Africa (NTCSA). 

The NTCSA is set to become the independent transmission grid operator once Eskom’s unbundling is complete in the coming months. 

This unbundling has proven to be more difficult than expected, with the separation of the transmission assets from Eskom coming with significant financial challenges for the utility. 

The business unit contributes around R35 billion to Eskom’s earnings, and its separation has prompted a warning from Moody’s that the utility could be put into financial distress. 

Eskom itself has warned that the separation may result in issues with debt holders and could lead to its credit rating being downgraded or the utility being cut off from capital markets. 

The private sector marches on 

The creation of an independent transmission operator is vital to create the conditions where private companies are comfortable committing billions of rands towards new generation projects. 

This investment is vital for future energy security in South Africa, with the government and Eskom not having the balance sheet strength to commit capital on the required scale. 

“While the public debate fixates on Eskom unbundling delays and Moody’s warnings, the IPP procurement machine is quietly delivering real capital deployment,” Lightfoot said. 

This money is being invested in a technology class that did not exist in South Africa two years ago, giving institutional investors a significant new investment opportunity. 

Lightfoot believes the same flywheel that propelled private investment into renewable generation is playing out in the battery space. 

He explained that the architecture is familiar: standardised contracts, competitive bidding, a clear offtaker, and defined risk allocation.

Of particular importance to the positive feedback loop are the decline in borrowing costs for developers and the decline in prices. 

“The same structural foundations that made the REIPPPP bankable are now being replicated in storage, and bid pricing between BW1 and BW2 fell 35% as competition intensified,” Lightfoot said.  

This has translated into a significant shift in how lenders and investors interact with developers, with borrowing costs falling significantly. 

“In recent REIPPPP rounds, we’ve seen strong bank appetite for a limited pool of bankable transactions compress lending spreads significantly,” Lightfoot said. 

“The same banks are structuring the BESIPPPP deals in the same market conditions. When capital supply consistently outstrips bankable project supply, pricing shifts in favour of borrowers.”

Lightfoot said this is evidence that private markets are working as they should, with supply meeting demand to deliver the best outcome. 

However, he noted that it does raise a question about whether risk is being adequately priced across the infrastructure debt market more broadly.

“The programme architecture works. The question for lenders is whether pricing discipline is keeping pace with structural discipline,” he said.