Touted as a much-needed solution for small businesses and households that have suffered through South Africa’s 15 years of erratic power supply woes, the government’s entry into the solar funding fray has come a little too late, experts say.
Through National Treasury, the government finally launched the much-awaited Energy Bounce-Back Loan Guarantee Scheme last month, aimed at alleviating the impact of load shedding on small businesses and households.
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Treasury’s scheme aims to generate 1 000 megawatts (MW) in additional generation capacity over a 12-month period and is complementary to the tax incentive measures announced earlier this year, allowing applicants the opportunity to qualify for both.
But, with South Africa’s banking groups and other niche financiers having been the first movers in financing the solar needs of businesses and household clients, with some of the latter having been forced to come up with solutions and build resilience against load shedding without government’s intervention, the scheme is late to the party.
Read/listen: Why SA’s grid expansion will cost R210bn – and how we can fund it
Willie Cronje, a professor at the University of Witwatersrand’s Electricity and Information Engineering department, is of the opinion that while the scheme is laudable, it has come ‘too little too late’ and its effectiveness is questionable.
Doubtful on whether it has the potential to deliver a meaningful impact, Cronje said the scheme’s success lies in how long it will be sustained.
“They are showing that they are trying to do something. Whether it is the most effective way, I’m not sure. South Africa has a history of doing things like that, but then ripping the carpet from underneath after a very short time before it can have its full impact,” he said.
Since the advent of load shedding, South Africa’s economy has seen some battering – in part by dampened activity brought on by the harsh impacts of the power cuts, which have also worsened over the past couple of years. This has led South Africans to take matters into their own hands.
Speaking to Moneyweb, Krutham’s Peter Attard Montalto said the new scheme alongside the tax rebate scheme is positive overall, but he sounded caution about the scale of additional impact.
Uptake of solar is also not likely to see a meaningful increase on the back of the scheme or the tax rebate, he said.
“It will support especially the SMME installer and PV-as-Service startups. This is positive for broader and deeper rollout,” Montalto said.
“However, we already forecast about 3GW of new PV [photovoltaic] this year and next by households anyway. We don’t see this meaningful increasing on the back of this scheme or the tax incentive and so it’s more about accelerating existing plans and broadening the market,” he said.
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South African households and businesses had installed 4 412 MW of rooftop solar as at June 2023, according to data by University of Cape Town energy expert Professor Anton Eberhard, cited in a recent note by law firm Cliffe Dekker Hofmeyr (CDH).
At these levels, it is double the capacity of Eskom under its four previous Renewable Independent Power Producer Programmes (Reippps) and a nearly 350% increase of the installed capacity by households and businesses since March 2022.
“Although households and businesses who have the means to install rooftop solar will continue to do so, there remains a funding gap that still requires government intervention,” Mashudu Mphafudi, Kuda Chimedza and Michael Bailey of CDH write in the note.
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Bank involvement
The scheme, administered through the South African Reserve Bank (Sarb), will see the government assume initial losses of 20% while other participating financing institutions assume the remaining losses. South African banks participating in the energy loan scheme have been confirmed as Standard Bank, Absa, FNB and Nedbank.
Standard Bank South Africa CEO Lungisa Fuzile sees the scheme as a mechanism that will ensure more inclusivity, saying it will be more beneficial for low-income households whose affordability is limited to smaller iterations of solar equipment.
“The bounce-back scheme is a very good initiative in a sense that what it seeks to do is to make sure that everyone has a chance to have these renewable energy rooftop solar systems. Because as you can imagine, low-income households can afford smaller versions of these things, and for them, the proportion that would be covered by that rebate or subsidy of the total price will be bigger relatively speaking,” said Fuzile at the bank’s recent results presentation.
Standard Bank disbursed R1.1 billion for business installations as well as to support solar solutions providers during the first half of 2023, and has granted over R450 million to individuals to install solar solutions or for green-aligned home purchases.
Nedbank, which spent R750 million to finance rooftop solar in the first half of its financial year, told Moneyweb that while there has been interest from clients, financial constraints felt by consumers have led to a slow uptake of its solar financing solutions, while business clients are opting to use existing overdrafts or medium-term financing.
Absa, which launched a new solar solution and has a target of R2.5 billion for 2025, had financed over R1.3 billion in renewable power by the end of June this year. Its new solution offers funding for solar installations, as well as batteries, to keep businesses running.
Included in this offering, SME customers who have financed their property with Absa qualify for a grant equivalent to 10% of installation costs (up to a maximum of R50 000).
Listen as Fifi Peters and Vukile Davidson of National Treasury discuss the Energy Bounce-Back Loan Guarantee Scheme and who can apply (or read the transcript here):
You can also listen to this podcast on iono.fm here.
