Solar continues to outshine rivals in South Africa’s tenders

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South Africa has approved six additional solar projects, totalling 1,290 MW, under its seventh renewables procurement round. This follows the reallocation of unused onshore wind capacity to solar bids. Solar PV remains the preferred renewable energy technology and has consistently been oversubscribed in previous bidding rounds.

• The six projects were awarded to Norway-based Scatec (700 MW)  and South Africa's Red Rocket (590 MW). All these projects will be located in the Free State province, which has enough available grid capacity.

• Since South Africa launched the initiative to support the adoption of renewables in 2011, the bid prices for solar have declined by more than 80% to now match wind.

More details

• South Africa has been rolling out the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to accelerate the adoption of renewables through the private sector. However, despite offering hope, the initiative has shown very little success. Of the 14,800 MW tendered since 2020, only 7,343 MW have been awarded, and less than 20% have reached financial close.

• The seventh bidding round, which is the latest, had an overall allocation of 5,000 MW, divided between solar PV (1,800 MW) and onshore wind (3,200 MW). The solar PV allocation was oversubscribed, receiving bids for 8,526 MW of capacity. However, only 1,692 MW of wind capacity was submitted; an outcome attributed to prevailing grid constraints and restrictive grid-access rules in the regions where projects were to be established.

• The imbalance in the bid response led to a reallocation of capacity from wind to solar PV for this round. Winning projects in the reallocation secured 20-year power purchase agreements with Eskom, but at higher average prices. These new projects averaged R0.51/kWh, up from the previous average of R0.46/kWh. This higher price could suggest that private investors may be adopting a more realistic approach to project revenue, seeking to avoid a "race to the bottom" pricing strategy that could jeopardise financial viability.

• Solar has continued to dominate new projects in the renewable energy space. This is even despite the latest IRENA report mentioning onshore wind as the cheapest source of electricity globally, with a global average Levelised Cost of Electricity (LCOE) of $0.034/kWh. Solar PV follows closely at $0.043/kWh. However, solar PV has shown more potential with higher price declines of 90% between 2010 and 2024, compared to onshore wind with a 70% drop over the same period.

• Apart from the cost, solar PV is gaining strong preference across Africa due to its modularity, ease of transport, and adaptability. Unlike massive wind turbines, which require specialised heavy-haul logistics and infrastructure adjustments, solar panels are smaller and lighter. They can be packaged and shipped in standard containers, enabling easy access even to remote locations. This reduces project building time and potentially limits developers' exposure to currency fluctuations.

• Earlier this year, the South African government unveiled plans to deploy at least 3,000 MW of new renewables annually, increasing to 5,000 MW by 2030. These newly awarded projects are part of this broader vision to keep the country right on track to achieve its ambitions. However, it is crucial for these projects to reach financial closure as soon as possible to commence construction. Scatec, in its press release, mentioned that it targets to reach financial close by 2026.

Our take

• The next critical phase for South Africa's energy transition must involve massive, targeted investments in grid upgrades, expansion, and smart grid technologies to unlock the full potential of both solar and wind. Without it, renewable energy targets will continue to be missed.

• With the growing market, developers will be keen on valuing financial returns. They won't just give low bids to secure projects. They will focus more on project longevity and bankability. This might lead to higher PPAs, but to more secure and deliverable projects, reducing the risk of stalled projects.

• South Africa's plan to localise manufacturing will not only reduce reliance on imports and protect against currency fluctuations but also foster local economic growth and job creation, building a sustainable industry beyond just power generation.