The investment landscape for South African solar has evolved dramatically over the past decade, necessitating a relook at where returns are possible for investors.

 

Tariff compression, grid congestion and policy changes have shifted the centre of gravity away from price and toward execution, requiring investors to navigate transmission queues and increasingly complex offtake structures. However, with installed capacity expected to reach 12.2 gigawatts (GW) by 2030, expanding at a compound annual growth rate (CAGR) of 10.6% (10) from 2025, the market remains an appealing investment prospect for those who can cut through the noise.

A changing market landscape: a brief history

In the early 2010s, the path to returns was more straightforward. Early Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) rounds offered government-backed power purchase agreements (PPAs) at predictable tariffs through transparent auction processes, a structure robust enough to draw international capital. When Eskom stalled on signing Round 4 agreements in 2016, it exposed the vulnerability of the single-buyer model. Subsequent rounds became increasingly competitive, driving bid prices down from roughly R1,170 per megawatt-hour (MWh) (2) in Round 3 to between R420 and R490 per MWh (1) by Round 7. Margins tightened, and success began to favour players with strong balance sheets and proven execution track records.

 

Policy liberalisation then opened the door to private and industrial offtake models, introducing flexibility, but also greater investment complexity. Diverse business models emerged, along with structural market shifts. Grid constraints, market liberalisation, curtailment risk, storage economics, and the rise of distributed generation are redefining the investment logic of the sector. Add policy developments to that mix, and investors have their hands full trying to find their next investment.

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1. Grid constraints determine growth

Transmission bottlenecks determine which projects proceed, with connection queues, substation upgrades and node-specific constraints gating development. In Round 7, despite over 10.2GW of bids submitted (3), only projects with credible grid access advanced, and the Minister of Electricity and Energy stated explicitly that the grid has become a binding concern.

Eskom’s transmission approval process averages 24 months for connection studies (4), while its historical build rate of approximately 300 kilometres (km) of transmission lines per year5 falls short of the 2,500 km required annually to meet system needs (9). The National Transmission Company of South Africa was established as a separate subsidiary with a R112bn capital plan over five years (6), and a mandate to integrate about 56 GW of new capacity between 2025 and 2034. That requires roughly 14,500 km of new lines and 210 transformers (6), representing a fivefold increase over the previous decade.

 

Execution risk remains material, but projects with early queue positions, credible substation upgrade plans, and the balance sheet to post guarantees have measurable advantage. Grid access has become a source of competitive differentiation.

 

2. Liberalisation opens the market to opportunities and complexity

The removal of generation caps and the emergence of a wholesale market are changing contracting and trading dynamics, particularly in the Commercial and Industrial (C&I) segment, where monthly or pay-as-consumed structures are gaining ground. These models expand access and stimulate innovation in trading and retail, but they also shift risk allocation, and require more sophisticated diligence.

 

Eskom’s contested trading positions and evolving relationship with private generators add friction. While some curtailment protocols have been clarified, the interplay between transmission control, market participation and regulatory oversight creates ongoing complexity that investors must navigate carefully.

Returns now accrue to platforms that can manage contracting risk, shape exposure operationally, and build portfolios across multiple offtake models.

 

3. Daytime oversupply compresses tariffs and elevates storage

Rapid PV buildout has depressed midday prices in several regions, and curtailment (forced output reduction to protect grid stability) is being used to manage scarce transmission capacity. Revenue depends on shaping output to match demand curves and grid availability, not just contracted MWh pricing. REIPPPP Round 7 introduced a 10% curtailment cap4, replacing uncapped rights from earlier rounds, which creates bounded but material revenue risk that must be priced accurately.

 

Subsequently, batteries have become increasingly important. At grid scale, they stabilise supply and allow producers to dispatch when prices are higher, while in C&I installations, they mitigate curtailment exposure, optimise time-of-use tariffs, and provide backup during outages. Battery Energy Storage Round two showed 35% price compression versus Round 11, signalling both improving economics and rising competition.

 

Conservative models should assume realistic depth-of-discharge parameters, and account for augmentation typically required at year 8 to 10. Investors need to interrogate cycling regimes, degradation assumptions, augmentation plans, warranty coverage, and replacement cost pathways, because projects that treat storage as an afterthought carry downside risk.

 

4. Distributed generation remains a growth outlet

Behind-the-meter solar expanded rapidly, with installed private capacity climbing from roughly 2.26GW in 2022 to about 7.3GW in 20247, a 220% increase over just two years.

 

Momentum slowed in 2024 as load-shedding eased and regulatory clarity lagged, with new project volumes down 60 to 80% year-on-year (8).

 

Despite this slowdown, distributed generation remains compelling for equity because project cycles are short, exposure to Eskom’s grid congestion is limited, and customers value the resilience premium that reliable onsite power provides. Individual assets generate modest returns, but portfolio speed and efficient origination can deliver strong risk-adjusted outcomes.

 

Municipal feed-in tariffs, now active in roughly 80 to 100 of South Africa’s 257 municipalities (8), allow surplus electricity to be sold back into the grid, creating an additional revenue stream that shortens payback periods and stabilises cash flow. Municipalities that formalise and standardise these tariffs represent the next frontier for scalable distributed portfolios.

 

Policy and market signals to watch

Supply and demand trends are not the only market forces at play here: investors must also take notice of the latest policy changes, which promise to impact the market even further.

 

•                Private transmission opening:

Government has introduced Independent Transmission Projects to allow private participation in grid expansion. Seven pilot schemes, covering about 1,164 km in the Northern Cape, North West and Gauteng are planned, with pre-qualification expected by July 20259. If successful, this model could unlock stalled nodes and ease grid congestion; if not, grid scarcity will continue to limit new project growth.

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•                Market design and regulatory reform:

The Renewable Energy Masterplan is beginning to give South Africa’s power sector a clearer industrial and infrastructure direction. Efforts to formalise private participation and develop a wholesale electricity market could improve liquidity and project bankability over time. However, overlapping mandates and regulatory disputes show that reform remains uneven. Investors should structure deals to remain profitable under current rules, but flexible enough to benefit as reforms mature.

 

•                Municipal frameworks for distributed generation:

Local regulation will be decisive for the growth of commercial and residential solar models, such as solar-as-a-service and rent-to-own. Standardised tariffs, streamlined approval processes, and stable wheeling frameworks are essential to attract private capital. While regulation is still fragmented, a growing number of municipalities are setting early examples of how coherent local policy can drive replicable and bankable investment opportunities.

 

What this means for capital allocation

Returns no longer flow from favourable tariffs or cheap capital. They now accumulate to platforms that have developed three specific capabilities: (1) securing early grid queue positions and maintaining relationships with Eskom and NTCSA to navigate transmission approvals, (2) managing battery dispatch optimisation and degradation across asset lifecycles, rather than treating storage as passive equipment, and (3) structuring portfolios across multiple offtake models while maintaining construction discipline when grid capacity constrains.

 

Most developers lack one or more of these capabilities. Grid queues are long because projects enter without credible substation upgrade plans or balance sheets to fund connection guarantees. Storage is being added to meet bankability requirements, but without in-house expertise to optimise dispatch strategies or manage augmentation economics. This capability gap creates genuine selection opportunity in what appears to be a crowded market.

 

For investors, this means evolving the diligence process. The critical questions become:

•                Does the target have existing queue positions at substations with identified upgrade pathways?

•                Have they successfully connected projects to constrained nodes before?

•                Do they have in-house storage expertise to optimise dispatch and manage degradation proactively?

•                Can they demonstrate discipline to slow deployment when grid capacity constrains?

 

Portfolio construction should favour concentrated positions in platforms with proven execution capability over diversified exposure across earlier-stage developers. Execution capability is now the dominant success factor, and it’s not evenly distributed.

 

Where returns live

South African solar is still investable, but it has become more selective. Returns are concentrated in platforms that can manage grid access, integrate storage effectively, and navigate contracting complexity.

 

The investors who will outperform are those who recognise that complexity creates advantage for platforms with genuine capability. Strong returns remain, but they belong to investors who can distinguish platforms that execute from those that merely promise to do so. That distinction requires rigorous operational diligence, and making that investment in due diligence capability creates an edge. 

 

Rautenbach is Vice-President and Le Roux is an Associate | Singular Advisory Africa

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1 Solar Wins South Africa’s REIPPPP 7 Renewable Energy Auction, TaiyangNews

(https://taiyangnews.info/markets/south-africaannounces-preferred-bidders-reipppp-7)
2 2023 Large-Scale Renewable Energy Market Intelligence Report, GreenCape

(https://greencape.co.za/wpcontent/uploads/2023/04/RENEWABLE_ENERGY_MIR_2023_DIGITAL_SINGLES.pdf?utm_source)
3 REIPPPP: Grid challenges in SA limit rollout of new energy projects, ESI Africa

(https://www.esi-africa.com/renewableenergy/reipppp-grid-challenges-in-sa-limit-rollout-of-new-energy-projects/)
4 Eskom clarifies the issue of “curtailment” for IPPs, CDH
(https://www.cliffedekkerhofmeyr.com/news/publications/2024/Practice/Corporate/corporate-commercial-alert-20-march-eskomclarifies- the-issue-of-curtailment-for-ipps)
5 Eskom needs the private sector to help with its R200 billion load shedding problem, BusinessTech
(https://businesstech.co.za/news/energy/768586/eskom-needs-the-private-sector-to-help-with-its-r200-billion-load-sheddingproblem/#:~: text=Eskom%20Chairperson%20Mteto%20Nyati%20said,service%20from%20the%20inside%20out.)
6 NTCSA targets ‘five-fold’ infrastructure delivery expansion over next decade, Energize

(https://www.energize.co.za/article/ntcsatargets-five-fold-infrastructure-delivery-expansion-over-next-decade)
7 Rooftop solar, now at 7 300MW, overtakes all Eskom’s IPP capacity, Moneyweb

(https://www.moneyweb.co.za/news/southafrica/rooftop-solar-now-at-7-300mw-overtakes-all-eskoms-ipp-capacity/)
8 Rooftop solar expected to rebound in 2025, Energize

(https://www.energize.co.za/article/rooftop-solar-expected-to-rebound-in-2025)
9 South Africa Takes a Decisive Step Towards Private Investment in Power Grid Expansion, Africa Digest News
(https://africaenergynews.co.ke/south-africa-takes-a-decisive-step-towards-private-investment-in-power-grid-expansion/amp/)
10 Solar Energy in South Africa Market Size & Share Analysis - Growth Trends & Forecasts (2025 - 2030)
(https://www.mordorintelligence.com/industry-reports/south-africa-solar-energy-market)

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