Over the past few months, South Africans have enjoyed something that would have seemed miraculous only a year ago — a stable energy supply.

‘Load-shedding’ — the semi-planned power outages designed to avoid a total grid collapse when electricity supply is insufficient to meet demand — had grown increasingly severe in recent years. In 2023, there were just 30 days when load-shedding was not carried out. PwC estimates that South Africa’s economy would have grown by a further five percentage points in 2022 without these blackouts.

This winter, however, the lights have stayed on. Load-shedding has not been needed since March 26.

There are several reasons for the much-improved situation. Crucially, the coal-fired power stations that still supply the vast bulk of grid electricity have suffered from fewer maintenance problems in recent months. But another factor has been the government’s decision to encourage both householders and businesses to generate their own power from solar systems.

The rush to install solar panels has been a “key driver” in ending load-shedding, says Rentia van Tonder, head of renewable energy, power and infrastructure at Standard Bank.

The installed capacity of privately owned ‘distributed’ solar generation has doubled in just the past two years, reaching 6.1 gigawatts in the third quarter of 2024. Power users that install their own systems are able to escape the worst effects of load-shedding; moreover, with more homes and businesses generating their own power, pressure on the grid is reduced.

Investment opportunities

A key moment for off-grid solar came in July 2022. With the economy wracked by ever-worsening load-shedding, president Cyril Ramaphosa announced that he was removing all limits on the installation of private power generation. Previously, corporates faced an onerous process to acquire a licence from the energy regulator when installing systems larger than 100 megawatts (MW). The threshold had been just 1MW until June 2021.

In effect, the government has been forced to prioritise the interests of power users, over those of Eskom, the embattled state-owned utility, which until recently had an almost complete monopoly over power generation. 

With the shackles removed, private solar systems have been deployed much more quickly than solar projects that provide power to the grid. While South Africa has had some success with ‘utility-scale’ projects, their deployment has been slowed down by bureaucratic resistance and a lack of connecting transmission and distribution infrastructure. The capacity of distributed solar is now more than twice that of utility-scale projects. 

South Africa is “probably the most advanced in Africa” for commercial and industrial (C&I) solar projects, says Marco Arcelli, CEO of Saudi Arabia-based ACWA Power. Offtakers “tend to need hundreds of megawatts”, meaning large C&I installations are comparable in size to utility-scale projects. As a result, developers can benefit from economies of scale.

Paul Frankish, investment director at African Infrastructure Investment Managers (AIIM), says his firm is also “seeing a lot of opportunities” in C&I. He estimates that around two-thirds of AIIM’s investments in South African energy are allocated towards the C&I market currently. A key factor in encouraging investment, he notes, has been reforms to enable ‘wheeling’ — the practice of using existing grid infrastructure to connect renewable power generation in one area to power users elsewhere. 

An evolving market

Worldwide, China leads the way with distributed solar. Its Whole Country PV programme aims to install rooftop solar systems on 50% of government buildings, along with 20% of rural homes. 

Brazil is also a trendsetter, with distributed solar helping to transform an energy system that has historically been highly centralised and dominated by hydropower. Reforms to the net metering system have paved the way for around 2.5 million solar systems to be installed in the South American country. 

But some countries remain wary. “In the Middle East, the utilities are still king in terms of controlling the grids,” says Jeremy Crane, CEO of solar developer Yellow Door Energy. These state-owned utilities “restrict penetration” of distributed solar to protect their monopolies, he says.

By contrast, with its “wide open” regulations, South Africa stands out as an attractive market for C&I solar developers, Mr Crane notes.

However, there is some danger that distributed solar could be a victim of its own success. In South Africa, with load-shedding much reduced, there is less of an immediate incentive to invest in the upfront cost of a solar generation system.

“We’ve seen a slowdown,” Mr Crane continues. New capacity additions are set to be lower this year, he believes, given that the absence of load-shedding has “significantly” affected the impetus to develop new distributed solar projects. 

Ms van Tonder also reports a drop in household demand for rooftop solar panels. The import of panels tripled last year, but distributors are now struggling to shift excess stock after over-estimating growth trends in the market.

She expects the large-scale C&I market to continue growing at a more robust pace, however. That market has “taken off”, with corporates convinced that investing in distributed solar helps ensure a more reliable supply of power at a lower cost. 

An additional “pain point” that encourages large companies to invest in distributed solar, Ms van Tonder adds, is the need to access green energy. International businesses, such as major mining companies, are increasingly concerned at the implications of the EU Carbon Border Adjustment Mechanism, she notes. By investing in a greener power supply — compared to the largely coal-fired power procured from Eskom — companies can potentially attract a significant premium for their exported products.

A key challenge, perhaps ironically, is grid access. Although distributed solar systems can work entirely off-grid, in practice larger projects tend to rely on wheeling and must be able to sell surplus power to the grid to be economical. Eskom has committed to installing 14,000km of new transmission and distribution cables by 2033, but is currently delivering a tiny fraction of this new capacity. 

These challenges notwithstanding, the dramatic improvement in South Africa’s power situation is one of the best examples of how installing solar power goes hand-in-hand with improving energy security. Energy planners from around the world are taking note. 

Ben Payton is a freelance reporter based in London.

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This article first appeared in the December 2024/January 2025 print edition of fDi Intelligence