Heba Hashem is an Egyptian-Jordanian freelance journalist based in Dubai, and a regular contributor to CSP Today, PV Insider and Wind Energy Update. Having closely observed and covered the developments in the global solar power market for the last six years and having interviewed many industry experts and pioneers, she offers an in-depth perspective of the ongoing market activity and direction.
South African PV players eyeing new growth opportunities
A recent survey by PV Insider on the commercial development and sustainability of the South African photovoltaic market revealed some surprising results on the near-term expectations for revenue growth, market drivers and business development strategies.
Not only are companies seeing opportunities beyond the REIPPP program, but they’re also looking beyond South Africa as they investigate other promising Sub-Saharan African markets.
With a total target of 9,770 MW worth of PV deployments by 2030 following the policy-adjusted Integrated Resource Plan, and with the rollout of the Renewable Energy Independent Power Producer Procurement (REIPPP) programme, South Africa’s PV market has shown tremendous growth potential for developers, manufacturers and service providers.
According to the results of a new PV Insider survey which interviewed more than 100 leading professionals, nearly half of the participants have witnessed a revenue increase in the South African PV market over the past year, while about 42 percent said their revenue streams had remained constant.
This is evidence that the profits of the REIPPP are seeping through to the budgets of those active in the market, driven by the undersupply of power in the market and the guarantee of the government procurement programme, which to date has awarded 33 PV projects.
Overall, more than 1 GW of PV has been deployed in South Africa. However, as the production deficiency void shrinks, firms will have to be increasingly competitive to secure consistent revenue streams.
Throughout the survey, it became evident that there was an underlying concern within the market over the commercial sustainability of the current development process.
Although 65 percent of respondents said they saw the market as fairly or totally sustainable over the next three to seven years – which shows a good degree of confidence in growth prospects – about 24 percent said they were unsure about how the market would evolve over this period. In addition, 10 percent believe that the development pattern is slightly or very unsustainable.
Moreover, half of the respondents acknowledged that their business was too dependent on the REIPPP, and that this was the biggest cause of uncertainty for them. Another 30 percent revealed that price levels were dropping too low to for them to stay competitive.
“This fear is certainly backed up by the figures, with the average price of awarded projects in Round 1 of the REIPPP around 270 cents and the average price in Round 3 about 95 cents,” the PV Insider survey report highlighted, adding that if price levels drop any lower, it is clear that some in the industry would no longer be able to be competitive.
Consequently, companies may begin to start taking steps to mitigate against the risk by sourcing a private client base. Meanwhile, the lack of domestic manufacture development, the limited supply of long-term finance for non-REIPPP projects and the ongoing problems with small-scale feed-in domestic and commercial installations were highlighted as other substantial problems by the rest of the respondents.
What regulators can do
In examining what can be done by South African regulators to facilitate the development of a sustainable solar industry over the next 3-7 years, the majority of respondents – around 56 percent – believed that a decrease in bureaucracy was the answer.
About 20 percent said a change was needed in the way the REIPPP was administered, while 19 percent felt that higher local content requirements would be a beneficial measure.
Only five percent cited restrictions on foreign companies entering the market as advantageous to the development of the industry, which indicates that South Africa will continue to benefit from keeping its doors open to foreign investment and expertise.
Additional responses revealed that many companies are craving specific legislations which provide a clear framework for the growth of rooftop PV or an effective framework to conclude private power deals.
Confidence in South Africa’s PV market in the mid-term was once again evident when a staggering 87 percent of respondents said they were expecting an increase in their business development budgets over the next three years. About 40 percent went as far as saying they were expecting a substantial growth in their budgets over this period.
Such positive expectations indicates that companies may be looking to expand their operations in Sub-Saharan Africa and is a clear sign of rising revenues and a continued view of profitability.
As for which Sub-Saharan African markets outside of South Africa represented the biggest potential for PV project development in the next five years, Namibia topped the polling with 33 percent.
Ghana, Nigeria, and Kenya all polled very similarly with around 18 percent each, suggesting that amongst these nations there was a lack of consensus on which would be the best investment opportunity. Other markets being eyed by PV players in the region were said to be Botswana, Mozambique, Tanzania, Zambia and Zimbabwe.
Delving deeper into what would form the largest part of the companies’ business development spend over the next five years, the survey found that South Africa had the highest potential growth, with 53 percent pointing to this market as their priority.
“This is perhaps reflective of companies waiting for demand markets to mature further in the region or for a stronger set of regulatory incentives in neighbouring countries to be set out to incentivize development,” states the PV Insider survey report.
Nevertheless, for about 33 percent, expanding into other Sub-Saharan African markets was their priority over the next five years, while 13 percent underlined cost reductions or technological development as their primary focus.
To effectively develop their business strategies and expand, companies typically need to collaborate and form mutually beneficial relations with government authorities, developers and financial institutions. In South Africa, about 40 percent of survey respondents said that meeting with financiers was what they needed to help them broaden their business, which indicates that many companies in the market may have issues getting low-cost or quick access to capital.
About 20 percent said that meeting with developers would help them improve their business, suggesting that some suppliers are still seeking closer relationships with project developers. For component suppliers, this is particularly essential in order to sustain and grow revenue streams.
Only 14 percent felt that regulators would be the most effective people to meet for the expansion of their business. So while 54 percent had suggested a decrease in bureaucracy was the most important measure needed to facilitate the development of the industry, actually meeting with regulators was not a high priority for many of the companies.
Signs of a market evolution
Despite the REIPPP being the current driver of the South African market, interestingly, only 21.5 percent specified the programme as the most credible source of growth in the next 5-10 years. And with a mere 10 percent identifying utility-scale generation outside of the REIPPP as the most reliable avenue of growth, this was even more indicative of the lack of faith in large-scale PV development.
What is remarkably significant is that almost 51 percent see 1-5 MW industrial and commercial deployment as the most credible area for growth in the next 5-10 years, and almost 17 percent see residential deployment as the future source of growth.
These findings show that the market views small-medium scale deployment of PV as a bigger commercial opportunity than the REIPPP; a perspective which is in line with the other question that found overdependence by companies on the REIPPP among the biggest causes of unsustainability in the market.
“The REIPPP has beyond repute driven growth and investment in the PV market in South Africa, however, here is a clear evidence that firms are wary of their dependence on it,” the PV Insider survey report highlights. But the most important finding, it states, is that companies view the potential of distributed generation over and beyond that of utility-scale deployment.
In conclusion, the South African PV market is on a steep upward curve of project development, as witnessed by the rising revenues and plentiful business opportunities.
While these profits are naturally a welcome boost to balance sheets, companies are wary of the market’s ability to sustain this growth over the next five years. As a result, many firms are putting plans in place to look beyond the REIPPP and to secure a client base amongst the industrial and commercial sectors, thereby ensuring a sustainable project pipeline should any changes occur.