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| Author | Jonathan Chou, Penny Liao |
| Updated | July 18, 2023 |
In pursuit of its 2050 net-zero carbon emissions vision, South Africa has been making significant strides in promoting renewable energy development. The Presidential Climate Commission （PCC）outlined ambitious plans for the country to add 50-60 GW of renewable energy capacity by 2030. Nevertheless, as South Africa undergoes its energy transition, state-owned power company Eskom, which has been highly dependent on coal-fired power generation and held a 90% monopoly over the country's electricity supply, is grappling with the consequent surge in electricity demand.
Load shedding has become a prevalent occurrence in South Africa in recent years. To address the pressing electricity crisis, the South African government announced nationwide electricity price hikes of 18.56% in 2023 and 12.74% in 2024. The objective behind these increases is to encourage energy conservation among residents. Moreover, to incentivize the construction of distributed generation projects, the government has introduced two tax subsidy programs for the PV industry worth 4 billion rands （$210 million）combined. Here are the specifics of these subsidies:
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From March 1, 2023 to March 1, 2024, individuals who pay personal income tax and install modules with a minimum power output of 275 W or higher will qualify for a maximum tax rebate of 25%. The cap for the rebate per person is 15,000 rands （approximately $811）. The tax refund pertains to the modules and excludes additional components like energy storage batteries or diesel generators.
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From March 1, 2023 to March 1, 2025, corporate taxpayers can apply for a 125% tax exemption on the initial-year capital expenditure for renewable energy investment projects conducted over a two-year timeframe. This policy canceled the previous restriction on the project size of 100 MW.
Chinese customs data suggest the these policies effectively drive market demand for PV installations among households and small to medium-sized enterprises in South Africa. The country imported 1,187 MW of modules from China in 2022, 570 MW in the first half and 617 MW in the second. In 2023, module import volume skyrockets to 2,665 MW in five months, 4.6 times higher than the same period last year. Based on import volume in the second half of 2022, South Africa is expected to have 1.2-1.9 GW of module demand in the second half of 2023, pushing the annual import volume to 3.8-4.5 GW, 3.4 times higher than a year ago.
South Africa's PV market has experienced rapid growth, resulting in a year-on-year decrease in feed-in tariffs for solar energy, from 131 rand/kWh in 2018 to 86 rand/kWh in 2022. Concurrently, the conflict between Ukraine and Russia in 2022 has led to a 50% increase in the cost of local generators in South Africa. Against this backdrop, discussions on energy storage emerged. To assess the potential of South Africa's energy storage market, InfoLink compiled data as of December 2022, which show South Africa has added 2,288 MW of installed capacity.
Calculating with the globally typical PV-to-storage ratio of 10% and average storage duration of two hours, the potential market size of South Africa's centralized and ground-mounted PV generation projects is 456 MWh. Since South Africa primarily focuses on distributed generation projects and energy storage, the actual market size will be even greater. In 2023, based on the estimated module import volume of 3.8-4.5 GW, South Africa is anticipated to accumulate 500 to 600 MWh of energy storage capacity.
From a broad perspective, the legislation introduced in South Africa this year has effectively stimulated module imports, establishing the country as a significant hub for PV and energy storage development in Africa with notable growth potential. However, despite the promising outlook, the government's planning regarding energy storage-related laws and profit models remains incomplete. One of the main considerations for consumers is the substantial upfront capital required for distributed energy storage projects. Even the subsidies introduced this year are not applicable to battery storage systems.
In 2023, as impacts of the Russia-Ukraine conflicts show signs of easing, the cost of local power generation units began to decline. Whether the cost of distributed power storage is competitive against that of local power generation units remains is still up in the air unless the government introduces subsidies or related profit models for distributed energy storage projects.
As for centralized energy storage projects, as of the first half of 2023, the state-owned power company Eskom has issued tenders for six energy storage projects, collectively accounting for over 0.5 GW/2 GWh of capacity. However, due to their extensive scale, these projects are anticipated to be completed and connected to the grid between 2024 and 2025. Still, South Africa is unquestionably an emerging market worthy of attention.
