Renewables pricing index up 0.44% in May

From the newsletter

The Africa-wide Renewables Pricing Index saw a 0.44% increase to 1,004 in May. This monthly index reflects the combined average price changes for cash product prices, powering costs, and consumer financing costs for solar home systems. The changes are tracked in four major African economies: Kenya, South Africa, Nigeria, and Egypt.

• To track product prices, we monitor the cost of solar panels, inverters, lithium-ion batteries, and solar home systems. For each of these categories, we select at least three different products for price tracking across the four countries.

• An increase in the index signals rising energy costs. This month's 0.44% rise was primarily driven by higher electricity prices in Kenya and increased inverter costs in South Africa.

More details

• Fuel prices declined in Kenya, South Africa, and Nigeria, but the margins were very small for a meaningful impact. This followed a global oil price decline, which hit its lowest level since the COVID-19 pandemic. Egypt's prices increased by an average of 13.9% as the government slashed fuel subsidies. This resulted from IMF pressure as a qualification for another loan arrangement for Egypt

• Electricity prices held steady in South Africa, Nigeria, and Egypt. However, Kenya saw an average 4% increase, primarily driven by a rise in the fuel cost charge. This component of electricity bills adjusts based on changes in the price of fuel used for power generation, and it increased despite the overall decrease in fuel prices. Additionally, a slight increase in the foreign exchange charge, due to a minor depreciation of the Kenyan shilling, contributed to the higher electricity costs.

• Solar panel prices in China remained unchanged. However, minor fluctuations were observed in Kenya and South Africa. These local changes were primarily due to promotional offers from retailers aimed at attracting customers, rather than a genuine decrease in market prices. This just shows the influence of import prices on local markets. Given the current tariff challenges facing China, there is a potential for these import prices, and consequently local prices, to be affected in the future.

• Generally, the prices of solar panels and batteries have been decreasing due to technological advancements and the economies of scale achieved through mass production. This price reduction is more noticeable in countries with their own manufacturing capabilities. However, for countries that rely on imports, the benefit of these price drops is often dependent on the strength of their local currency. Currency depreciation can sometimes negate any potential savings, leading to local consumers still purchasing these products at the same or even higher prices.

Our take

• In the coming months, oil prices are expected to face downward pressure due to growing concerns about a potential oversupply in the market. The anticipated talks between the US and Iran are a key factor. If these discussions lead to a lifting of sanctions on Iran, it could increase Iranian oil entering the global market, which would likely drive prices down further.

• This is particularly concerning for renewables, which have strived to become cheaper than fossil fuels. This risks eroding the progress made, leaving renewables reliant on the support of those who are pro-environment.

• For Kenyan consumers, the ongoing increases in electricity costs, largely driven by fuel charges, need to stop. Renewable energy offers an alternative solution. Once the initial investment is made, consumers can benefit from stable electricity prices, unlike fossil fuels which are subject to volatile global market fluctuations.