Solar home system upgrades attract new funding

From the newsletter

South Africa's solar energy provider, Wetility,  has secured $28 million in funding from investment firm Jaltech. This investment is a blend of debt and equity and aims to add 16 MW of distributed solar capacity. The company is among the fastest-growing in South Africa, and its financial performance is strong having repaid some of its loans ahead of schedule.

• Wetility was founded in 2019, when South Africans were experiencing the impacts of load shedding. This continues even today and has increased the demand for independent energy solutions.

• New funding comes at a time when the government has extended waivers on registration fees for solar systems and smart meter costs until March 2026. Households are saving up to R9,132 ($505), making solar energy more affordable.

More details

• Wetility's new funding will support solar power installations for both homes and small businesses across South Africa. Since its start, Wetility has raised over $70 million across four funding rounds, with investments from groups like MultiChoice Innovation Fund (MIF) and Sanlam. The company aims to expand its reach, connecting one million customers in South Africa.

• Dawid Swart, Wetility's Chief Financial Officer, commented on the new investment, stating, “This funding unlocks the next phase of our growth, empowering thousands of homeowners and SMEs who want more predictability, control, and savings in the face of a volatile energy landscape. It’s a strong endorsement of our model and mission, and we’re proud to partner with Jaltech, which shares our long-term vision.”

• South Africans are still dealing with power cuts and yearly electricity price hikes from the struggling utility provider, Eskom. Over the past decade, electricity costs have more than doubled, making it unaffordable for many. As a result, many have shifted entirely to their own power generation, while others now rely partially on the grid. However, those without enough capital remain stuck with grid reliance.

• To address this, solar companies are offering solutions that allow for flexible repayment plans, with pay-as-you-go solar becoming increasingly common. Major banks like Absa, Nedbank, Standard Bank, and FNB also provide asset financing options for solar home systems, with repayment periods extending up to six years. The government is supporting this trend by offering waivers on registration fees, further making solar more affordable.

• In a move to enhance consumer benefits, Wetility recently launched "AI Mode," a new software solution. Designed to maximise electricity savings and ensure uninterrupted power supply, this advanced software uses predictive algorithms and real-time data to dynamically manage solar and battery usage. Wetility expects it to increase electricity savings for customers by an average of 65% while maintaining reliable backup power.

• However, the future of solar adoption in South Africa faces a potential hurdle. From July 2024, the government began implementing a 10% import duty on solar panels, with plans to tax other renewable energy manufacturing components. While this measure aims to support local manufacturing of renewable energy technologies, it risks making solar solutions more expensive and out of reach for many. Unless the government also subsidises local production and increases its domestic manufacturing capacity to meet annual demand, this policy could stifle the very growth it seeks to promote.

• Across Africa, energy startups often face stiff competition from established players with proven business models, making fundraising quite challenging. Despite this, some markets, particularly those with significant electricity access deficits, are proving attractive to investors. For instance, Nigeria, where at least 80 million people lack electricity access, has seen recent successes. Sun King Nigeria and Arnergy are notable examples, having secured $80 million and $18 million, respectively, in recent funding rounds.

Our take

• Wetility's successive funding rounds and early repayment of loans are positive indicators of its business model. The company's product offerings, including the utilisation of AI in energy management, make it unique, and this could attract more customers, putting the company on another growth trend.

• The renewable energy sector remains open to startups, but these new companies face the hurdle of proving their business models. Startups that adopt new technologies and address specific market demands are more likely to secure funding.

• Africa's solar home system market is set to continue expanding. Customers are moving beyond basic lighting systems towards larger setups capable of powering appliances. This growth will require significant funding because most consumers cannot afford the upfront costs. Companies offering pay-as-you-go solutions will be favoured in this market.