Posted in: Africa

Sick of load-shedding? How wheeling can save the South African electricity landscape

Just as South Africans start forgetting about the resources that go on behind the scenes when they switch on the lights, they’re reminded about how much they’re actually reliant on Eskom. But the return of load shedding spells something even more concerning than the inability to make supper or catch up on the latest series: how South African industry suffers when Eskom can’t keep up with demand.

Private companies have, however, not been complacent when it comes to their power procurement strategies. As electricity provision and stability becomes a significant business risk, they are seeking out alternative strategies to procure the power that they need. They are demanding more from the market – they want stable, cost effective power – and the market is adapting to meet their needs. This is where renewable energy wheeling comes in.

Wheeling is a financial transaction that allows power to be produced in one location and billed to an energy user in another region via the grid. This allows power to be generated for a private company in bulk amounts, without the generator needing to be geographically located at the site of use (“embedded generation” has been the chief way of providing back-up power until now, through diesel generators, solar PV systems and energy storage or batteries). This enables corporate users of electricity to procure power for their operations, and for the market to provide solutions for them based on their needs.

Wheeling can take place through a wheeling-use-of-system agreement with Eskom, based on the principle of non-discriminatory access, provided that compliance with Nersa and other regulatory requirements are met. This has been in place since 2009, but has rarely been used; the SOLA Group signed the first large-scale wheeling agreement for private buyer Amazon in late 2020. Technically, any form of electricity generation could provide private power through wheeling, but companies who pursue this type of power procurement, like Amazon, are more likely to choose the most cost-effective and sustainable option: renewable energy.

With South Africa’s abundant resources in both solar and wind energy, renewable energy options are proving to be more cost effective than other forms of energy generation – particularly when the generation plants are located in areas with abundant resources of wind and sun. In addition, these forms of energy generation are low-impact to the environment – meaning that they produce very little greenhouse gasses to manufacture and operate throughout their lifespans. This is particularly important for international companies such as Amazon and ABinBev, who have committed to aggressive carbon reduction targets for their operations.

As alternative power procurement grows, it will relieve Eskom’s capacity constraints by providing additional power to the grid. Eskom has reported its urgent need for an additional 4000 – 6000 MW of generation capacity to assist the utility with power provision, alongside its accelerated maintenance programme, in order to reduce load shedding risk.

This could be great news for the economy: load shedding purportedly cost South Africa’s economy around R75 billion in 2020, draining at least 2% to South Africa’s GDP loss during 2020, a year in which economic activity was actually subdued due to the pandemic.

There are legitimate concerns about the phasing out of coal, both from a technical and social perspective. The technical concerns are easily addressed through the provision of energy storage facilities and on-demand back-up power sources like green hydrogen; the social issues by keeping the Just Transition front and centre of the picture. Part of this is recognising the extreme business and social risks that a rapidly warming planet will bring, particularly in countries like South Africa.

As renewable energy wheeling becomes the go-to option for business consumers of electricity, the phase-out of coal will be more achievable. But renewable energy wheeling does not spell the end of Eskom – it just modernises the utility’s function. Wheeling requires a fee to be paid for every kWh wheeled through the grid. It is a great model for the utility, as they get paid to maintain the gridlines that provide South African businesses and citizens with the electricity that is central to their operations and livelihoods. 

Wheeling is the start of a modernised electricity picture, as it uses Eskom’s grid to connect private buyers and sellers together, in turn making more space for competition and choice for private buyers. A modernised grid could see private buyers and sellers of energy trading, whilst Eskom is paid to maintain its important grid infrastructure. This could provide more generation capacity, reduce South Africa’s carbon footprint, and ultimately spell the end of load shedding.

Adams solar facility in the Northern Cape

What does the first large-scale wheeling project mean for South Africa?

SOLA has officially launched a first-of-its-kind 10 MW solar plant in the Northern Cape three months ahead of schedule, which provides clean energy to Amazon Web Services via the Eskom grid. Energy wheeling, a new model of private energy procurement, allows power to be generated and purchased in geographically distinct locations. The Adams Solar PV project will provide over 28 million kWh of clean electricity to Amazon Web Services annually. 

This is the first operational large-scale solar PV wheeling project in South Africa, and the model is futuristic: it uses Eskom’s grid to connect private buyers and sellers together making the way for more choice and competition.  It’s the first step forward in creating grid independence where private buyers and sellers of energy can trade with each other.

This means that the renewable energy plant will provide a low-carbon alternative to coal-fired power for a private offtaker (in this case Amazon Web Services) without needing to be geographically located at the site of use. 

How? The solar PV plant comprises over 24 000 bifacial solar modules on single axis trackers, covering an area of 20 hectares. It is situated in the Northern Cape, where the solar resource is one of the best in the world. The solar PV facility tracks the sun throughout the day and absorbs irradiance from both the sky and reflected light from the ground. This design will see over 25 000 tons of carbon emissions being avoided annually – the equivalent of taking 5400 cars off of the road for a year. 

This model could also help South Africa significantly in sticking to its carbon emission reductions targets whilst supporting economic growth and a just energy transition.

Amazon, like other large corporate consumers of energy, have committed to aggressive renewable energy procurement targets – in their case, 100% by 2025. But the successful provision of renewable energy can only be provided in an environment that supports it. Recently, the Department of Minerals and Energy, NERSA and Eskom have become supportive of renewable energy generation, which has allowed for the approval of renewable power plants such as this. 

This is great news in light of the onslaught of load shedding in South Africa. Power generated from wheeling projects will increase the amount of IPPs and relieve the sole electricity provision burden on Eskom.

The support of renewable projects means the equal prioritisation of economic and social factors. The Adams project is more than 63% black owned, with investor Mahlako a Phahla Financial Services holding stakes in the project, who are committed to delivering returns for local black investors. SOLA is also 100% South African owned, including a 40% shareholding by black investor African Rainbow Energy and Power.

Renewable energy projects which take into account local development are able to develop South African skills and provide jobs. During construction, the Adams Solar Project created 167 jobs, 63% of them from the local surrounding area, and it will sustain permanent jobs for its lifetime in electrical maintenance, cleaning and security. Wooden waste generated during construction, including pallets and electrical cable drums, were donated to local furniture businesses and special skills schools, in order to further bolster the SMME contributions of the project. 

Although the Adams Project is just the start of an energy wheeling and trading landscape in South Africa, it’s indicative of where the picture is heading: toward a modernised grid with renewable energy at its core. It also demonstrates the willingness of the government and the private sector to work together on solving South Africa’s electricity crisis.

Read more about the project here.

SOLA launches its first engineering bursary to encourage solar PV expertise amongst electrical engineers

SOLA has launched its first engineering bursary, giving the opportunity for a final year electrical engineering student to have their tuition paid for and a job opportunity as a graduate engineer in the solar PV field. The move comes as part of SOLA’s broader shared value strategy, that aims to bolster STEM education and give opportunities for young engineers seeking careers in renewable energy to flourish.

“It is a great step forward for us, and one we are very excited about,” said Dom Wills, CEO of SOLA Group. “We know that there are incredibly smart students out there who have faced giant odds to get to where they are. We want to support them on this journey, because that will ultimately make our organisation stronger in the future,” he added.

The bursary is eligible to previously disadvantaged students who plan to enter into their final year of BSc or BEng electrical engineering at a Cape Town based institution in 2022. The bursary will include R75 000 tuition, paid vacation work, and a graduate engineering position after the studies have been completed. 

“We particularly encourage women to apply for the bursary, who have historically been underrepresented in our industry,” adds Wills. “We hope that this bursary can help to demonstrate the viability of a career in renewable energy and encourage more electrical engineers to take this direction.”

SOLA has been a great success story of the renewable energy industry, opening with just four people in 2008 and expanding to in excess of 80 employees in 2021, with some of South Africa’s biggest renewable energy projects under its belt: successful REIPPP bids, South Africa’s first large microgrid project on Robben Island, and securing South Africa’s first large-scale wheeling agreement. The bursary adds to the company’s contribution to South Africa’s economy and its commitment to see South Africa thrive.

Are you interested in applying for the bursary? Click here to find out the eligibility criteria and apply online before 31 August 2021.

What the 100 MW license cap lift means for your business

In June, amid much celebration, Cyril Ramaphosa announced that the amendment of Schedule 2 in the Electricity Regulation Act – a clause that has long had both producers and consumers of energy at loggerheads with government – was imminent. Today, the amendment was officially gazetted. However, what exactly does this amendment mean, and will it affect your business?

The Electricity Regulation Act of 2006 is an important piece of legislation that governs how electricity is generated and distributed in South Africa, and the roles of the various stakeholders involved. Schedule 2 used to specify that any electricity generation activity over 1 MW requires a generation licence. Essentially, this implied the same amount of paperwork for a huge coal-fired power plant as a rooftop solar system! The amendment to schedule 2 of the ERA means that this cap has now been lifted – which is great news for large energy consumers in South Africa.

What does the new Electricity Regulation Act Schedule 2 Amendment say?

In short, this amendment exempts certain activities from licencing and registration with the electricity regulator (Nersa). Such exemptions include:

  • Any generation facility without a connection to the grid
  • Any generation facility below 100 kW in size (provided it complies with standard connection codes);
  • Any generation facility with/without energy storage under 100 MW and either:
    • No wheeling;
    • A wheeling agreement (provided there’s a connection agreement between the generator and the transmitter of the power); or
    • No import or export on to the grid
  • Generation facilities that are used for demonstration purposes and will not be in operation for over 36 months
  • Existing generation facilities that were exempted from the requirement before the gazette need to register within 6 months, if it is compliant with the grid-code and connected to the grid.

This means that, essentially, electricity generation projects under 100 MW, whilst still needing to meet requisite grid-code compliance and normal permitting procedures, will not require a generation licence from Nersa.

This will mean that projects that have historically taken years to complete will now be able to be built much more quickly, thus providing private consumers of energy with power and alleviating South Africa’s electricity crisis. 

Are there still other permits required for electricity generation?

Yes, the relevant regulatory approvals are still required for self-generation. The main change under the new legislation is that projects between 1 – 100 MW will not require a Nersa generation licence, which are substantial and very complex licences to obtain. Historically, this meant that a project of 2 MW would require the same amount of paperwork as a large coal-generation facility (oven GW in size), and thus slowed the uptake of renewable energy quite dramatically. 

It’s important to note that the projects must still be registered with Nersa, in which the relevant grid approval documents and environmental approvals, amongst other documents, will be submitted. Nersa will review the documents over 60 business days before granting registration to the relevant projects.

If the client is part of the municipal grid network, they would still need to obtain the relevant permissions in order to self-generate. This is standard practice for all solar PV plants and is necessary to make sure that the municipality has oversight of how much their grid is likely to be loaded at a specific time. The capacity of the grid needs to be taken into consideration, and so weak grid areas are likely to remain constrained, regardless of legislation.

The gazetting of this ERA Schedule 2 amendment is incredibly positive and will make a big impact on the sentiment toward the Renewable Energy sector – both for the companies that supply renewable energy, as well as the large energy consumers.

What does the amendment say about energy storage? 

Whilst many large energy consumers choose to remain connected to the grid, as it allows the use of the cheapest form of energy at various times of the day (eg., solar during mid day, grid-supply during off-peak hours), there are increasing numbers of energy consumers that are using battery systems to supply them with power 24/7, which also prevents load shedding. The amendment includes energy storage provision – meaning that the licencing exemption applies to energy storage systems as well. 

Hybrid, “islandable” systems which act like on-grid systems, but automatically “island” during load-shedding, are also included in the provision. The opening of the self-generation threshold means that these islandable systems will be increasingly cost-effective, because larger solar PV systems can be built and their cheap power stored in batteries for dispatching during load shedding or the evenings. 

What is wheeling?

Wheeling is the transfer of energy from an independent power producer to a client via the grid. For our clients, this means that electricity can be generated in an area with lots of space and great solar resource, in order to supply an energy consumer that may not have the space or the solar resource available (such as our Amazon Wheeling project). Wheeling requires quite a few different licences, but the advantage of the generation threshold increase would mean that a Nersa generation licence would be one less piece of permitting required. 

Because of its affordability there is likely to be a great uptake of renewable energy with the ERA 2 amendment. We look forward to working with all relevant stakeholders to make this happen.

New report shows that job creation in the PV sector is inevitable

In the most conservative case, we’re looking at over 30 000 jobs created per year in the solar PV industry 

Job creation is one of the most important considerations for the South African economy. Sitting at around 29%, unemployment is a serious hindrance to the South African economy. The creation of solar PV systems for the government and private clients brings down costs and increases energy reliability, bolstering profitability and growing businesses. However, the question of how many jobs the PV industry creates has been a hot topic for several years. 

A new study, completed by the CSIR and commissioned by the South African Photovoltaic Industry Association (SAPVIA) with sponsorship from SOLA, has set out to look at just how many jobs solar PV has created in South Africa so far, and what we can expect from the industry in the future. 

Measuring jobs in the PV sector is tricky, because of the variability of jobs throughout the life-cycle of each plant. Typically, both large-scale and embedded generation plants will have quite a lot of employment during the construction phase, which taper off when the plant goes into Operation & Maintenance (O&M). However, these jobs last the lifetime of the plant, and thus are cumulative over time. 

How are solar jobs measured?


There’s been much discussion about how to measure jobs in the solar PV sector,  which has not had a unified approach or metric, resulting in confusion about the numbers of jobs created by the industry. As such, the first step in the research was coming up with a useful way to measure jobs, particularly those in the solar PV sector that tend to undulate based on construction times. 

Based on an international literature review and experiences in other survey approaches, the CSIR used “Full Time Equivalent” (FTE) as a metric to measure jobs. A FTE job looks at the amount of time that a worker spends at a job compared to a full time employee. For example, if an employee only works half-time, their FTE score would be 0.5. As a result, the metrics represented by FTE show what the equivalent full-time employment would be per annum for a particular job.

In addition, the CSIR used a standardised unit output of MW per annum in order to be able to compare jobs across the value chain. As such, the jobs in the analysis and in the future scenario modelling are represented FTE jobs per MW per annum. This allows the job statistics to be comparable across different sectors and in relation to other forms of employment creation, and takes a conservative view on estimating jobs.

The predicted scenarios for job creation in the solar PV industry in South Africa

The report looked at historical data in order to create a model to predict future employment scenarios in the sector. It modelled three different scenarios, the IRP 2019 scenario, the accelerated case scenario, and the high road scenario.

  1. The IRP 2019 scenario

This scenario looks purely at the jobs resulting from the Integrated Resources Plan 2019 by the South African Department of Mineral Resources and Energy. In this scenario, the solar PV industry would create between 33 000 – 35 000 jobs per year from 2022 and 2030, but there would be little consistency and large variations between years. 

  1. The accelerated scenario

This scenario takes into consideration the growth of the market outside of the IRP guidelines, and assumes that utility scale solar PV will be built in addition to embedded generation, owing to the government’s intention to allow more embedded generation to plug the energy supply gap in the short term. In this scenario, an initial spike in job creation of 51 580 FTE jobs will be created during 2022, followed by a dip back to 31 131 FTE jobs in 2023 and climbing to consistently to 37 975 jobs by 2030

  1. The high-road scenario

In this scenario, the predicted import of solar modules is expected to increase, in addition to the building of both Utility and embedded generation solar PV facilities, which continue to grow post-2022. In this scenario, jobs are expected to bounce up in 2022 to 53 422 FTE jobs, and return to 33 972 in 2023, growing steadily to 39 817 FTE jobs in 2030.

What does this mean for the sector?

The jobs report paints a picture of what the expected job creation trajectories will look like. The research highlights the fact that the halting of renewable energy procurement in 2015 was devastating to the jobs in the sector, but has not prevented it from recovering in the recent years. There are some important aspects to consider in order to ensure the maximum job creation:

  • O&M jobs are the most sustainable, as they run throughout the lifetime of each PV facility (usually around 20 – 25 years). They have the potential to create substantial, lasting job opportunities in the sector.
  • Localising PV component manufacturing could have a significant effect on the growth of PV-sector jobs in South Africa, particularly if there is a clear path to how much the sector will grow each year.
  • The embedded generation market is a very important player in the creation of PV jobs, but has been hindered by policy uncertainty. 

Overall, the report shows that whichever scenario ends up playing out, there is likely to be significant growth of solar PV jobs in the coming years. 

Download the full report here.

Interested in working for us? Have a look at our careers page for possible vacancies.

Energy Wheeling supplies power to areas located away from the direct source of power

SOLA gets approval for largest solar PV wheeling agreement in South Africa

A flagship renewable energy project, commissioned by Amazon, is set to demonstrate the flexibility and convenience of procuring independent power through the electricity grid. The project will see 28 GWh of solar energy wheeled via Eskom’s utility grid from a solar farm in the Northern Cape to Amazon’s facilities each year.

Energy wheeling holds tremendous value in that it enables the supply of energy to urban areas from energy projects in outlying areas, such as a solar farm located in an area where the sun is most powerful and consistent. This is done through the transfer of electrical power via a utility’s distribution system. In other words, the power generated in a sunny area is distributed to an offtaker where there might be less solar resource. 

Chris Haw, SOLA’s Executive Director, explains that although the concept of wheeling energy using Eskom’s existing infrastructure has been in place since 2008, certain administrative barriers have hindered the uptake of such services. “This project, which comprises a 10 MW solar PV farm, has also received a sought-after generation license from NERSA, a milestone that other similar projects have struggled to achieve.”

SOLA will be responsible for developing the project and will build, own and operate the solar facility.

Haw explains that the NERSA process requires a signed Power Purchase Agreement and fully developed project in order to obtain approval. “This creates contractual challenges because many inputs, such as the foreign exchange rate, are still fluctuating whilst the application process is underway. The high standard of development required for submission means that NERSA are not handing out licenses to projects that won’t proceed, which is a very good thing.” 

The project aligns with the South African Government’s intent to open the electricity grid, allowing independent generators of electricity and consumers to enter into bilateral agreements to optimise the cost and sustainability of energy, which has previously been difficult to achieve. The generation license received from NERSA is one of the first granted as part of the recent allocation made for distributed electricity generation in order to plug the short-term capacity gap.

Haw says that SOLA will deliver the energy via the Transmission Network though a Wheeling Use-of-System agreement. “This Wheeling Use of System Agreement is the first of its kind and the largest solar PV wheeling arrangement in South Africa to date.”

Haw credits the company’s multi-disciplined skillset and 10-year track record of developing, financing and building solar PV projects in South Africa with overcoming the many challenges that were faced.

The SOLA Group has a history of breaking down barriers to enable renewable energy projects in South Africa. The group developed some of the county’s first IPP projects, signed the first bi-directional metering agreements with municipalities, and are responsible for innovative solar-plus-storage projects like the microgrid currently powering Robben Island.

The project will be majority black South African-owned, demonstrating a pivotal dedication to transformation in South Africa’s energy sector. Mahlako a Phahla Investments, a black women-owned and operated energy and infrastructure investment holding company will own 45% of the project.

Other investors into the project include African Infrastructure Investment Managers (AIIM), through the IDEAS Fund, one of South Africa’s largest domestic infrastructure equity funds and one of the largest investors in the country’s renewable energy landscape.

The project’s success could mean that more companies like Amazon will look to procure cleaner independent power through the grid.

“This project is the tip of the iceberg in terms of what the electricity picture in South Africa could look like,” says Haw. “Projects like this demonstrate the potential of a truly modernized electricity market where consumers can procure cleaner energy through state-owned grid lines whilst paying for their upkeep in the process,” he adds.

The project will begin construction in early 2021.

South Africa electricity grid supply

The great opportunity to reform South Africa’s power sector

Over the past few weeks, there has been encouraging movement in South Africa’s electricity sector that indicates a gradual opening of the electricity market. NERSA recently confirmed that licensing of electricity generation over 1 MW will be allowed without ministerial sign-off, which could make the processing of renewable energy generation licences more efficient; and municipalities were recently granted the freedom to procure their own power. In addition, the prospect of the renewable energy bid window 5 (REIPPP 5) opening in December indicates that South Africa is starting to take the procurement of renewable electricity seriously. 

And whilst renewables still make up a small share of South Africa’s total generation capacity, the growing cost gap between the grid and solar, along with falling battery prices, means that South African electricity consumers are faced with something new in the context of our traditionally monopolistic electricity market: choice.

As was discussed in our previous piece on going off grid, it is clear that many consumers are choosing to go entirely off grid. However, mass grid defection is not necessarily the most optimal system for the majority of South African consumers. If the government suppresses private and distributed electricity generation, forcing customers to choose between staying on grid with expensive, unreliable power, and quitting the grid entirely, there may be large-scale grid defection as businesses choose to forego the unreliable and expensive grid. This will erode both Eskom and municipal revenue streams, driving more tariff increases that impact many South Africans

However, effective grid modernisation will turn potential defectors into ‘prosumers’, who choose to remain grid-connected and participate in a more open and mutually-beneficial electricity market. There are already some municipalities in South Africa that allow for grid feed-in (see this convenient list), which helps grid-tied solar PV systems become more profitable. However, we’re still a long way from a mature electricity market, where the cheapest electricity can be generated and consumed when it is required, enabling overall cost reductions of electricity. 

A modern grid will make use of enhanced infrastructure for better management of variable renewable energy, and ensure equitable electricity pricing that allows consumers to generate their own electricity and/or buy electricity from independent power producers whilst paying fees to utilise the electrical grid. This could generate new revenue that would enable better maintenance of the existing infrastructure, further replacing outages. 

However, we are still a way off from this “modern grid” idea. Some of the immediate steps that could be taken to enable grid modernisation, preventing mass defection and price increases, could include:

  • Laws and standards must be updated to cater for all technologies in the energy mix. 
    • We’re starting to see some progress on this, but there is still a fair way to go, according to Anton Eberhard:

  • Grid operators should be assisted with tariff modernisation
  • Arbitrary size restrictions on embedded generators should be reset based on rational technical and cost considerations. 
  • Permitting and licencing authorities must be held to their mandates and assisted and upskilled where needed.

If we can ensure that these factors are considered, there will be a hopeful outlook for South Africa’s electricity future. The alternative picture is not as sunny, as our power system could devolve into something undesirable for businesses and inequitable for South African citizens. 

Is it possible for your business to go off-grid?

A question many businesses are asking in 2020, particularly with the onslaught of load shedding, is the possibility of going entirely off grid. This is unsurprising – grid reliability has been severely reduced over the past few years and Eskom tariffs are substantially higher than the costs of solar on an average lifetime basis. As such, many companies are looking at the possibility of severing ties with the grid and managing their energy needs independently.

Historically, solar has not been viable as an alternative primary electricity supply to the grid primarily because of its variability. Because the sun only shines during the day, the deployment of solar has often been limited to partial offset of daytime electricity demand – a solution which tends to save companies significantly on their electricity bill. But for solar to be a ‘dispatchable’, 24-hour alternative to the grid, it needs to be coupled with storage, or with other flexible sources of demand or generation, which has often made it an expensive choice.

This, however, is changing. In South Africa, overall costs of solar-plus-storage have historically compared unfavourably to most grid tariffs, limiting off-grid projects to areas with no grid access or grid capacity constraints. However, there are already several industrial and commercial grid tariff structures that make off-grid solutions a cheaper and more reliable alternative than remaining on grid, particularly for industrial operations that have high power requirements and tend to supplement their supply frequently with diesel generators to keep their electricity supply consistent.

How do you know if it is viable for your company to go off grid? One of the key questions to ask is how much your business currently relies on diesel generators. If you use them around 15 – 20% of the time, it is almost certain that a solar + storage solution will save your business money. Secondly, if your facility has large power (kVA) requirements and is on a high industrial tariff, the business case of going off grid could be advantageous.

Cost reductions and improved efficiency in energy storage technology have major implications for the future of South Africa’s power system: it means that some electricity consumers on expensive tariff structures can already choose an alternative to Eskom or their local municipality. Even those on cheaper tariffs are likely to follow as grid tariffs rise and solar and battery equipment gets cheaper.

Of course, large-scale grid defection might not be the ideal outcome for all South Africans. It will erode the economies of the national grid and increase costs for many segments of society. This is why power sector reform must urgently facilitate an efficient and equitable transition to renewable energy.

How new methods of procuring solar electricity enable more access to affordable power

Intuitively, solar-generated electricity is cheap: the sun, after all, is a free resource, and compared to fossil-based energy such as coal and gas that require constant inputs, once installed, solar PV systems harness the sun’s energy for “free”, providing years of clean energy. So why has solar taken a while to become mainstream?

This is, in part, due to the costs of setting up a solar PV system. Because whilst the solar resource itself is free, there is still an initial cost of setting up the equipment which harnesses the sun. And while electricity grid tariffs are typically made up of ‘pay-as-you-go’ charges for monthly energy and power use, a solar PV electricity generator requires an upfront investment in equipment, which is then followed by minimal operational costs and zero fuel costs. This means that whilst the overall lifetime costs of solar PV are significantly lower than equivalent grid costs, the upfront investment has historically often exceeded the available capital of electricity consumers seeking alternatives.

However, this pattern is changing. For years, businesses with sensitive balance sheets that would not have cause to justify a large capex expenditure on an asset that doesn’t relate to their core business have struggled to justify the costs of a solar PV system – even if it would result in significant cost reductions over time. For this reason, new ways of procuring solar electricity have grown, and many businesses are now choosing to buy power from independent power producers (IPPs) who own and finance the solar assets on their behalf. 

Independent Power Producers (IPPs) gained some traction in the years of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPP), which started in 2008 to see the first renewable energy integrated on to the main grid. Since 2008 a few trustworthy IPPs have stood the test of time and are able to provide Power Purchase Agreements (PPAs) that reliably smooth out the costs of a solar PV generator, making it more affordable and accessible to businesses. In addition, their owning of the solar PV asset removes the technical and operational risks that a business might face through ownership.

Several years ago, small-scale PPA agreements for typical businesses were inflexible and difficult to structure. As mentioned in the previous piece on how energy generation has changed, lower grid tariffs and higher solar equipment costs in the past reduced the financial benefit of solar for the end user. In addition to this, local solar companies were less experienced and technical risks were higher, increasing the costs of finance. Buying solar power from an IPP was akin to renting a house at above market rates, from a landlord who overpaid for the property and got an expensive bond from their bank.

But this has been fundamentally changed by the cost dynamics of the energy sector. Reputable IPPs now have the skills and experience to offer clean solar power at a substantial discount relative to the grid, even for commercial energy consumers. In addition to unlocking greater overall savings, the growing cost gap is enhancing the commercial flexibility of IPP services, and making solar electricity available to a wider pool of consumers. 
A typical PPA can now range from 5-20 years, with the most popular being somewhere around the 10 – 15 year mark. During that time, the offtaker (the company buying the power) and the IPP (the company providing the power), agree to pay for power and provide power, respectively, at an agreed tariff. It’s very similar to buying power from Eskom, except that the companies know upfront how much they’ll be spending on power – and how much that tariff will increase in the coming years. These solar procurement options enable customers with sensitive balance sheets to reduce costs immediately, without the risks of owning or running a solar PV system, and without the risks of unpredictable tariff increases over time.

How electricity generation has changed over the past 10 years – and what it bodes for our future

Alongside the global pandemic, electricity has been on many South African’s minds this year. And rightly so: South Africans can expect a 15% increase in their electricity costs from mid-2021, based on a recent court ruling which grants Eskom the right to recover operating costs through additional tariff escalations. This will mark more than a decade of average annual increases of 14%, relative to average inflation of just under 6%.

These escalations have fundamentally changed South Africa’s economy: the manufacturing and mining sectors have been particularly affected by the rising tariffs, and are doubly affected by the inconsistent supply caused by load shedding. South Africa’s electricity supply from the grid is subject to decreasing reliability, with 2020 already shaping up to be the worst on record for load shedding.

What South Africa is experiencing is not unique, but exposes the global trends that expose the high costs of maintaining an aging and centralised coal fleet. A decade ago, average Eskom tariffs were two times lower than they are today, and the costs of installing solar PV were two to three times higher. That situation is very different today: Eskom and municipal electricity tariffs are now substantially more expensive than solar PV installations on an average, lifetime cost basis. This is driving strong uptake of own-use solar generators, despite persistent policy and regulatory barriers.

This is because the electricity market has fundamentally changed over the last 10 years. The growing cost gap between the grid and solar PV means that the benefits of solar are more economically viable, even if the PV plants generate more power than required (for example on weekends, when a factory does not operate). 

For private electricity consumers, solar electricity is typically used to offset daytime electricity consumption through ‘own-use’ or ‘embedded’ generators that service the electricity needs of the facility on-site. The uptake of embedded solar generation has exploded in South Africa, particularly amongst the retail and manufacturing sectors, because of the cost savings generated by the plants. Despite this, embedded generators are largely restricted from selling power into the grid, although it is looking hopeful that this might change

The fact that solar PV is so much more affordable than Eskom’s grid is also changing the way in which solar PV is consumed by large commercial and industrial facilities. For example, some facilities choose to oversize their solar PV system relative to on-site electricity demand in order to increase morning and afternoon solar electricity production, generate more power in winter, save more diesel during load shedding, reduce peak grid demand charges, and achieve higher overall reductions in grid electricity consumption. 


Other commercial and industrial facilities are opting to oversize their solar PV systems and store the excess affordable power in battery banks – something that, 10 years ago, would have been ludicrously expensive. However, with Eskom’s tariffs increasing the way they are, and with the reduction in the costs of energy storage components, the business case is starting to emerge. The advancement in electricity generation technology gives businesses more flexibility and options when it comes to their energy choices. Own-use solar – whether on or off grid – is an affordable and, by now, well-used option.