South Africa’s Solar Market Needs Innovative Financing

South Africa’s rooftop solar market is quickly falling behind the rest of the world’s due to rebate uncertainty and lack of finance options.
Published: Tue 19 Jan 2016

South Africa’s rooftop solar market continues to offer a number of opportunities for investors especially since there are few competitors in the mounting systems, says CEO Sven Kuenzel of Renusol, a German PV mounting systems manufacturer. But a lack of financing options may be one of the reasons for this.

The company, which is owned by US roofing and ground-mount solar racking specialist RBI, will sell its rooftop mounting systems into the country through a local wholesaler, Lumax Energy.

South African solar market

South Africa has risen to prominence as a buoyant market for PV, with SunEdison winning 371MW of projects in June and Enel constructing an 82MW plant, among other announcements from global players. In announcing the Lumax-Renusol deal, Lumax representative Frans-Willem Vermaak quoted Council for Scientific and Industrial Research (CSIR) figures that said the country could install 500MW of PV annually.

Kuenzel says that the company had been seriously considering South Africa’s PV market because the country has high electricity prices and a relatively unreliable grid. Because the country enjoys high levels of solar irradiance, PV is a highly competitive source of energy when compared with fossil fuel.

He points out that currently there are not many competitors in the rooftop racking section as yet.

Rooftop solar needs innovative financing

The reason for this market gap may be due to the fact that South Africans have limited financing options when it comes to installing rooftop solar panels. Other than extending a home loan (not that easy) or taking a personal loan (with incredibly high interest rates), there is the rebate programme for solar water heaters which was managed by the state-owned utility, Eskom. However, the utility has recently put a stop to its rebate programme for solar water heaters. Rebates ranged from around R5,000 to R12,000, (US$297-US$715) depending on the size and make of the solar geyser. The programme will apparently be handed over to the Department of Energy but no dates have been set as yet leading to great uncertainty in the solar industry.  

But, banks are responding to the market gap, according to  Dirk Visser of Nedbank’s Fair Share 2030 project hub. He says that the company is actively looking at the entire spectrum of efficient and renewable energy solutions – from basic access to energy and solar water heaters for individuals to comprehensive commercial solutions. “We would like to offer a range of financing solutions that can best respond to specific client needs. We believe we can bring some of these financing options to the market relatively soon,” he adds.

Mr Visser pointed out that Nedbank already offers financing for renewable energy to business-banking clients.

Incumbent shows reluctance to support rooftop solar

Despite Eskom’s challenges, the South African government may be reluctant to encourage residential households (and businesses) to generate their own power. [Eskom Applies For a 16% Tariff Increase] South Africa's Massive Electricity Losses Need Attention

Electricity tariffs present a huge revenue spinner for municipalities and, if more customers leave the grid, it would mean a smaller income for both the state power utility and cash-strapped municipalities.

That means South Africans will have to purchase and finance their own solar systems, with all the switchgear and equipment needed to produce off-grid power.

Innovative finance will open doors

Analysts’ calculations show that it makes economic sense for homes and businesses to have PV solar panels on their roofs. Earlier this year, CSIR calculated that residential-sized PV systems were already a cost-competitive alternative to other new-build options, even with finance fees included.[CSIR’s Report Points to Financial Benefits of Renewables in South Africa]

The cost of rooftop solar power – including financing at an interest rate of 9% – came in at R0.81 cents/kWh. (US$0.48)

Power from Medupi and Kusile power stations, which are still under construction, will be sold at 80 cents/kWh, but Eskom’s pricing is likely to escalate.

The situation abroad

Internationally, governments and financial institutions are developing innovative schemes that are encouraging households and businesses to make the switch to solar.

While no figures are available for how many home solar systems exist in South Africa (a problem within itself), the CSIR estimates that the country’s total peak capacity is only about 10MW. This is opposed to the estimate of 1GW installed in the UK’s residential homes. Over 125 000 homes in the UK installed solar PV systems on their roofs last year, driven in part by the country’s feed-in tariff.

In Bangladesh, the government is installing over 80,000 solar home systems every month with the help of a World Bank loan.

In India, the government is considering a tax incentive to encourage households to purchase rooftop solar panels. A target of 40GW of rooftop solar has been set for 2022. [Going Solar On Rooftops: India targets 40GW by 2022] The Indian government is in discussions with banks to provide easy loans for renewable energy schemes, such as rooftop solar installations.

Americans are also certainly benefitting from the rewards of innovative financing. In the US, homeowners who buy their own systems can receive a federal investment tax credit worth 30% of the cost of their system.

But about two-thirds of Americans don’t purchase their solar systems but rather opt for solar leases or power-purchase agreements. These schemes are also popular in the UK. With these agreements, a third party installs and owns the equipment and customers are charged only for the kilowatt-hours of solar power they consume.

No such agreements exist in South Africa currently-a continent that enjoys on average eight hours of sun a day.    

Another market gap worth exploring perhaps?