Economic Perspective

An Economic Perspective of South Africa’s Solar Industry: Current and Future Trends

2011 has indeed been an interesting year for the renewable energy sector in the country. Electricity tariffs went up another 25% in July making all renewable energy technologies more attractive to the consumer, especially solar water heaters (SWHs); and the Integrated Resource Plan 2 (IRP2) was finalized with big wins for the solar industry especially  for large scale solar PV. Following that, the government announced the reduction in rebates for solar water heaters and declared the feed-in tariff model (REFIT) to be illegal, sending renewable energy investors and developers scuttling.  With this rollercoaster chain of events, one ponders where the solar industry is going and whether it is the right time for companies to invest in South Africa.

As we all know by now, the major obstacle to advancement of the solar industry in South Africa, has always been the high cost of the technology. While international learning curves have reduced the cost of renewable energy technologies significantly, most technologies remain prohibitive unless there are incentives such as subsidies and rebates. This has been the case for solar water heaters and solar PV in particular.

Solar Water Heaters

The solar water heaters market has flourished with the number of suppliers increasing more than 20-fold in the last decade to approximately 400 (Frost & Sullivan, 2011) – this in line with the government’s subsidy scheme for domestic users. Although the subsidy which has fulfilled its purpose to kick start the market is now coming to an end, the country’s target for 1 million solar by 2014 still remains. Furthermore, with electricity costs going up another 25% next year, the impending of green building codes for all buildings, and the possible pass over costs of the proposed carbon taxes from Eskom to the consumer, the solar water heaters used in households is forecasted to remain strong. A large growth spurt in the solar water heater industry from 2012 onwards until maturity in 2016 is expected.

Those companies which can secure their place in the market now, using quality products and workmanship will reap the benefits in the years to come. Government has also proposed subsidies for local manufacturers, an opportunity for South Africato become an exporter of green technologies.  What remains is knowledge dissemination and skills exchange to increase the number of technicians, especially plumbers and electricians who can install different types of solar water heaters to meet the projected demand.

South Africa solar industry - Development, growth, maturity

 

Solar PV (Photovoltaic)

Following the solar water heater industry is solar PV, which although still very much in its infancy, is expected to explode beyond its current off-grid use which includes telecommunications, game farms and isolated lodges, rural applications and navigational buoys. While experimental road signage, street lights and billboard illumination has started to take off recently, the price of PV remains uneconomical and government support is largely needed to stimulate this market.

The IRP2 has a target of 8 400MW by 2030, with 300MW planned for installment annually from 2012 for large scale PV – a welcomed surprise considering the price of the solar modules.  While the current price of PV modules has decreased significantly, and the PV manufacturing industry continues to grow, even in the absence of the 5GW Upington Solar Project (comprising both Concentrated Solar Power and solar PV), the potential for an export orientated manufacturing hub in South Africais a key growth area. A report by Frost and Sullivan states that “several global leading manufacturers are currently expressing interest in developing large-scale manufacturing facilities in South Africa”, allowing South Africa to attain growth revenues of $29.8 million by 2014. When the plans for the solar park are confirmed, this will propel South Africa’s manufacturing hub even further. Other industries that will also clearly benefit are sales and distribution, and construction, installation, and maintenance.

It’s a very exciting time for the solar industry in South Africa. The opportunity of a green economy is exactly what South Africa requires to put itself into the forefront of the renewable energy sector, despite the prevailing globally failing markets and the unnerving global economic outlook.

 

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