SA power hikes raise solar loan costs in May

From the newsletter

Interest rates on pay-as-you-go solar home systems, financed by South African banks, rose from 6.18% in April to 6.59% in May. Cash prices remained the same, but the monthly repayment amount went up by R79. This comes amidst increased demand for solar as the 12% electricity increase took effect in April and an expected increase in import duties.

• Meanwhile, Kenya’s average markup for financed solar systems dropped by 9% in May. This is due to the fierce competition between solar companies in the country that drives the overall financing costs.

• This information is based on select solar home systems financing data tracked by Renewables Rising in four representative countries: Kenya, South Africa, Egypt and Nigeria, on a monthly basis.

More details

• Banks have better capital compared to microfinance institutions, though they have played a minor role in financing solar home systems, mainly due to the high risk of lending to individuals. South African banks have played a major role in financing. Nigerian banks are also coming in to tap into this growing market.

• However, the mode of financing differs significantly between Nigeria and South Africa. Most Nigerian banks require deposits ranging between 10-30% while South African banks require no down payment. Also, South African banks finance larger solar home systems that go beyond 12 kW given the energy demands for South Africans. 

• Moreover, banks in both countries contrast in interest rates and repayment terms for the same period. In May, Nigerian financing options ranged from 9% to as high as 48% annual interest, typically coupled with shorter loan terms around 12 months, although some extend up to 60 months. South African loans offer longer terms, often 5 to 8 years, which inflate the total amount paid over time despite lower interest rates. Nigeria’s higher interest rates cause a rapid increase in overall costs within a shorter period.

• Overall, South Africa has seen expansive solar adoption and electrification progress, supported by mature financing mechanisms. Nigeria, meanwhile, lags and suffers from one of the least reliable electricity grids in Africa, which hampers consistent energy access despite growing interest in solar solutions.

• That said, the reason for the interest rate increase on solar loans in South Africa in May is the continuing rise in electricity tariffs. The National Energy Regulator of South Africa (NERSA) approved a 12.7% electricity tariff increase for the 2025/26 financial year, with further hikes planned in subsequent years. Banks are adjusting interest rates on solar loans to manage the heightened credit risk and operational costs associated with this volatile environment.

• The tax rebate allowing claims of up to 25% for residential customers of the total solar system cost (capped at R15,000) against tax liability ended earlier in February 2024. This expiration has influenced lending terms and affordability.

• In addition, the South African government has extended free registration for residential solar customers, reducing bureaucratic barriers to installation. However, there is an expected increase in import duties on products used in renewable energy technologies, which may raise the upfront cost of solar equipment and affect overall affordability.

Our take

• Rising electricity tariffs in South Africa are forcing banks to increase solar loan interest rates, which risks slowing down the very clean energy transition these loans aim to support.

• Kenya’s competitive solar financing market shows that when companies compete aggressively, consumers benefit from lower costs and better access to renewable energy.

• Nigeria’s high deposit requirements and steep interest rates reveal that, without more affordable and flexible financing options, many households will remain excluded from solar adoption.