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The corporate renewable-energy market that Discovery Green is part of took off after 2021, when the state opened up private power generation and wheeling to tackle chronic shortages.
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Government buying under its so-called Renewable Energy Independent Power Producer Procurement Programme initially drove growth in South Africa’s renewable industry. The latest expansion, however, has come from companies investing their own capital after the reforms opened the market to private generation and electricity trading.
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While supply constraints are among the chief drivers of the move to renewables, the cost of power is a big factor too. The regulator has allowed Eskom to raise tariffs by rates that have far exceeded inflation in recent years to help the company meet its obligations and as the government struggles to rein in non-paying municipalities. Prices have climbed almost 900% since 2008, equating to an average annual increase of about 15% since then. Eskom, meanwhile, still struggles with a long-term debt pile of 358 billion rand ($22 billion).
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These hikes have eaten into companies’ profit margins and they need to find cheaper alternatives, said Richard Doyle, managing director of JUWI South Africa, which builds and maintains solar and wind plants.
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“The cost of buying energy from Eskom is over 2 rand ($0.12)” per kilowatt-hour, Doyle said. “The levelized cost of solar power now is maybe 50 to 60 cents. It is a complete commercial no-brainer for any and all industries now to move towards solar power.”
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Predictability is also a major motivating factor, said Nepgen.
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“The certainty element of saying ‘this is my cost and it’s only going to increase by CPI’ is hugely valuable for businesses,” he said, referring to consumer price inflation. “When you’re deciding on whether or not to open a new facility, if you have uncertainty around your future electricity costs, that might discourage investment, so that CPI hedge really helps.”
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South Africa has more than 2,500 renewable-energy projects with 19,677 megawatts of generating capacity registered with the National Energy Regulator compared with under 20 megawatts in 2018, the South African Photovoltaic Industry Association said.
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The National Transmission Company of South Africa separately estimates that the nation has about 8,400 megawatts of so-called behind-the-meter private-solar installations that generate power for on-site use and don’t supply the grid. The datasets aren’t comparable and likely overlap in part. Eskom has total installed capacity of about 53,200 megawatts, 85% of which is coal.
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The boom in private generation is redefining Eskom’s role in provision.
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With consumers forced to find alternative sources of consistent supply, Eskom’s revenue has declined. And with their switch to lower-cost options eroding demand from the utility, it seeks bigger price increases that further cut clients’ reliance on it, deepening what the utility itself calls a “death spiral.” Eskom didn’t respond to a request for comment.
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The South African central bank has brought attention to the knock-on effects of inadequate public infrastructure on financial stability, noting in June that increased substitution with private generation also hurts the coffers of municipalities, many of which on-sell Eskom’s supply.
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The company has responded by launching Eskom Green, a utility-scale renewable-energy developer that targets 6,000 megawatts of capacity by the end of the decade.
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The move “is a market signal that renewable energy is now considered essential and is no longer a luxury,” Impala’s Mthombeni said.
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After more than a century of relying on a single dominant utility, businesses are gaining more choices about where their electricity comes from and how much they pay for it.
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