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Utility Scale Energy Storage and Power Solutions for South Africa

August 1, 2019
Mike Callis

Introduction

South Africa is an appealing market to storage companies considering international expansion.

    South Africa’s Ideal Characteristics:

  1. An abundance of available solar energy.
  2. The utility – Eskom – is struggling to provide power consistently – leading to an inconvenient scenario known as ‘load shedding’ (scheduled power cuts).
  3. The infrastructure of the grid needs significant updating (which would be a major, multi-year project at great expense).
  4. In terms of residential storage: there is a significant middle class that is affluent enough to make independent arrangements to avoid the frustrations of being without domestic energy.
  5. In terms of commercial, large-scale storage (shopping malls, private hospitals, etc…): attracting the custom of that same affluent middle class provides private enterprises with motivation to meet their needs.

*MARKET ENTRY PROJECTS: We have worked on Market Entry projects for our clients in a variety of countries. To discuss Market Entry for a different country, click here.

 

Load Shedding

South Africa is encountering increasing instances of Energy requirements outstripping supply. ‘Load shedding’ occurs when power is cut from sections of the electricity grid, in order to relieve the system of loads it cannot process.
This is necessary for two reasons. Firstly, South Africa, a nation dependent on coal for the vast majority of its power, cannot generate enough energy to meet demand at all times. Whether this is about generating capacity or coal supplies is a matter of constant controversy. Secondly, the transmission and distribution infrastructure cannot process the flow of that power reliably, and is in urgent need of major upgrading. When the demand from consumers is too high, the surge in flow can cause black outs. Black outs may take days to restore, as power facilities have to re-start their units, which is difficult for enormous boilers, turbines and compressor systems.

Economic Impacts

However, whilst necessary in the context, load shedding is a highly undesirable scenario for social and economic development. 2019 has seen ‘Stage 4’ of the utility’s scheduled power cuts, and the situation shows no sign of improvement. This has a significant impact on business, and has been highlighted as a key factor in South Africa’s stalling economic growth. Small businesses in the manufacturing sector are particularly impacted.

The Utility – “Eskom”

Eksom Holdings, is a South African government owned utility that generates, transports and distributes approximately 95% of South Africa’s electricity , as well as suppling to the grids of neighbouring countries. Around 85% of Eskom’s electricity is generated from coal. The organization supplies approximately 6,000 industrial and mining, 51,000 commercial, 82,500 agricultural and 5.6 million residential customers.
With rolling power cuts affecting the population more and more deeply, to the point that cutting power to areas is now a fundamental part of Eskom’s operating strategy, it is underserving the country for a variety of reasons.

Residential And Commercial Market Potential and Attitudes

Ultimately, irrespective of the complex reasons behind the problem, people are unhappy with having disrupted energy supply. Those who can afford to – both residentially and commercially speaking – are becoming more and more likely to consider a degree of independence from the grid. The best method for that is installing Solar PV panels, and having suitable battery storage to hold the energy for times it is needed. Hybrid solutions, utilising solar and storage in conjunction with a diesel generator, also represent a suitable solution. Robben Island, for instance, implemented a fairly well-publicised hybrid diesel-solar PV-battery pilot project, which went live in late 2017.

For investors, there is ample opportunity in the South African market to solve the generation and storage problem from both a commercial and a residential perspective. However, thus far, there have been a variety of issues that have slowed demand pick-up in the private market.

Major Manufacturer Presence In South Africa

The more affluent in South Africa have sought residential battery storage solutions, such as the Tesla Powerwall.

Tesla have had problems in the market due to factors both within and beyond their control:

As one Expert told us,

“They entered the South African Market, and are likely to remain, but not directly, as they had initially intended. It is likely that they will operate through sales reps for the immediate future.”
Expert on African Sustainable Infrastructure Sectors Expert Bio Expand

 

 
In the absence of major manufacturers with direct presence on the ground,

“there are a number of distributors importing batteries and many solar installers that sell this equipment directly to households.”
South African Renewables Investment and Strategy Expert Expert Bio Expand

 

The overall picture seems to present a market that is now primed and reaching a level of maturity that makes it an attractive proposition for major manufacturers to take up a direct presence.

Solar and Storage Market Penetration

Penetration of rooftop solar and storage in the residential sector over the last 5 years has been a story of slow uptake. Primarily, this has been due to regulatory issues and municipal implementation of policy, alongside a consumer base that could just about accept the impacts of a small amount of load shedding.

However, according to an Expert we know who specialises on African Sustainable Infrastructure Sectors, “the coming years will see an expansion as a result of significant Eskom price increases and poor long-term energy security. Better relative economic returns and supply reliability in the context of a worsening performance from the utility looks likely to result in a period of strong growth for the sector.”

One South African Renewables Investment and Strategy Expert told us: “The local battery suppliers I spoke to a couple months ago were all out of stock due to a rise in consumer demand after the rolling blackouts started again in South Africa.”

Regulatory Issues, Wheeling And Selling Back To The Grid

The regulatory landscape is something currently being refined by the South African government. It is a relatively new area of the market, and is in development.

In terms of “smart” storage, selling back to the grid is possible in two municipalities. Experts we know who specialise in this area have stated:
“There is opportunity for wheeling of energy between users; using smart systems is well received for majority of potential client base (middle/high earners).”
“There is a requirement for individuals and companies to register all systems with municipality under 1MW. Over 1MW will require licensing to operate.”

Three Key Attractions Of The South African Market For Manufacturers And Investors:

  1. Residentially, “as energy security decreases, which is very likely, price becomes less of a concern for middle/high earners as daily lives are impacted more regularly by load shedding. The private market will become increasingly willing to pay for independent solutions to avoid the negative impacts of this.”
  2. Commercial entities that are impacted by load shedding, are also seeking ways to be more independent of the grid.
  3. The nascent regulatory landscape is also developing, and the South African government is currently putting real attention into this area.

Pangea Strategic Intelligence has several Experts who can guide clients through the nuances of this if they are considering expansion into South Africa.

Contact Mr Callis on 020 7551 0782 or by email mike.callis@pangea-si.com to connect with an Expert.

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