Energy

South Africa’s solar boom not over yet

Many South African solar installers have noticed a sharp decline in demand for inverters, batteries, and solar panels in recent months, but energy analyst Chris Yelland said the country’s solar boom is not over yet.

After experiencing record levels of load-shedding in 2023, the scale and intensity of load-shedding have been considerably milder since April 2024.

Eskom’s energy availability factor averaged approximately 52% in the first quarter of 2024 before improving notably to 58.2% at the end of April.

This is according to the South African Reserve Bank’s first Financial Stability Review of the year.

This report explained that increasing alternative energy and new electricity generation projects – mostly by the private sector – coupled with broader energy sector reforms and Eskom’s ongoing efforts to stabilise the performance of its coal-fired power stations suggest that electricity supply may continue to improve gradually.

It also noted that the risk of a complete electricity grid failure has been reduced but cannot yet be ruled out completely.

“Over time, such improvement should reduce the drag of load-shedding on economic activity,” the Reserve Bank explained.

Yelland told Daily Investor that although load-shedding has spectacularly driven solar demand, this recent respite from power cuts definitely does not mean the solar boom is over.

“There was a very sharp spike in demand caused by the very intense load shedding last year and in the first months of this year,” he said.

“That spike is over, but the underlying demand is still there.”

Yelland said that even though we will likely experience more load-shedding again in the future, other factors will become more important motivators for buying solar.

Even though load-shedding and security of supply are major drivers of solar demand, there are also two other major drivers – economics and the decarbonisation imperative.

“Even though they maybe have more stable electricity and it may take away this massive spike, the underlying demand driven by the other two drivers still remains, and I think it will continue to grow,” he said.

“Over time, the driver is going to start shifting from being largely driven by security and supply needs to become driven by economics and savings that can be achieved.”

While some have said that the solar market has become oversaturated, Yelland disagreed. “I don’t think that the market is saturated, not nearly.”

He said there is a huge market for rooftops in the commercial spaces in South Africa. “That is going to continue because of price savings and because of pressure to decarbonise.”

“There is plenty of room for them to buy more and, in effect, to buy less electricity from more expensive and dirtier options.”

He explained that South Africans – particularly companies – are looking towards lower-cost options to replace the expensive electricity supplied by Eskom and municipalities, which is largely produced by coal.

“These companies are under huge pressure locally and internationally to decarbonise their footprint,” he said.

“There is also a hiccup you can expect as the municipalities and Eskom restructure their tariffs to increase the fixed component and decrease the variable energy component of the tariffs.”

“But I don’t think that’s going to have a major impact on the economics just yet because it takes a long time to change these tariff structures.”

In the meantime, Eskom and municipal prices will continue to increase at higher rates than inflation while solar solutions are coming down in price.

Yelland said that as Eskom and municipalities continue to increase the price of grid electricity, the demand for solar will increase.

“The economics will still remain strong and stronger as time goes by with the increase in price,” he said.

“I don’t think there are any insurmountable challenges facing the sector – there are huge opportunities facing the sector.”

Electricity Regulation Amendment Bill

South Africa is taking significant steps towards a more open electricity market, which could lead to lower electricity prices, increased reliability of supply, more choice for consumers, and increased investment in the sector.

On 16 May 2024, the National Council of Provinces passed the Electricity Regulation Amendment Bill, which aims to provide for increased electricity generation capacity and additional infrastructure.

It will also establish the duties, powers, and functions of the Transmission System Operator (TSO).

“It’s going to impact the dominance of Eskom as a single buyer of renewable energy and create a more competitive and more diversified electricity sector,” Yelland explained.

“That is good for renewable energy, self-generation, wheeling of power through the grid and training of electricity.”

This Bill would make access to the grid impartial and create a level playing field for all electricity generators, including independent power producers and customers who are building power generation plants.

He said the new Electricity Bill has not yet been signed into law, and South Africa is now waiting to see what happens with the new government.

“Overall, if it gets passed, it will have a positive impact, mainly in the larger industrial mining and agricultural commercial sector,” Yelland said.

“I think it will be a stimulation to the solar, renewable energy sector.”

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