South African banks are competing to dominate the financing of South Africa’s rapidly growing renewable energy sector, with an investment opportunity valued at R1 trillion.
Standard Bank revealed this at its renewable energy roundtable, where the bank gave an update on its progress in funding sustainable energy generation and storage in South Africa and Africa.
Demand from South African businesses and households for alternative energy sources has skyrocketed in the past few years.
Loans from Standard Bank for renewable energy projects have grown to four times the amount lent for non-renewable energy projects.
While this is partly driven by the need for businesses to reduce their carbon footprint, the main driver in South Africa is the need to provide a solution to the country’s energy crisis.
Standard Bank South Africa CEO Lungisa Fuzile said, “We have to balance addressing the challenge of the energy crisis with the opportunities for the just energy transition.”
The bank estimates the value of the energy transition in South Africa to be R1 trillion, and it wants to capture a significant portion of the value.
“When we are successful, Standard Bank can capture a significant portion of the estimated R1 trillion renewable energy investment opportunity,” Fuzile said.
“We ought to be the go-to financial services provider for the energy transition in Africa as the continent’s largest bank.”
Charles Russell of Standard Bank Securities explained how the bank came to the value of R1 trillion for the renewable transition in South Africa.
Russell calculated that of the 1.6 million bondholders of South African households, about 1 million may be able to take on more credit comfortably.
If each of them did solar installations or other alternative energy solutions with R250,000 for their homes, the total credit opportunity for banks would be R250 billion.
Corporations and businesses consume most of the electricity used in South Africa (80%), with households using the rest (20%).
However, some industries, such as mining, have a lot of money and don’t need to borrow money to pay for their energy needs.
So, Russell assumed that corporations and businesses would invest three times more in energy solutions than households, which would mean an investment of R750 billion.
“That’s about a 25% increase in the overall stock of loans in South Africa, so funding of alternative energy supply is not a small theme,” Russell said.