Renewables boom a boon for banks
South Africans have so far been spared a return to stage 6 loadshedding in 2024, but after suffering through the country’s worst bout of load-shedding in 2023 many continue to invest in making their homes and businesses at least partially independent of Eskom’s unreliable electricity supply.
This has led to a significant increase in the demand for financing for renewable energy and energy storage solutions — and it could not have come at a better time for SA banks.
In its SA Banking Outlook for 2024 published last week, S&P Global Ratings highlighted credit extension to the renewable energy sector as a possible upside to an otherwise lacklustre forecast for growth in credit to the private sector.
Lending plunged from growth rates of between 7% and 10% in 2022 to an expected 5% in 2023 and 2024 because banks “tightened their risk appetite amid high interest rates and inflation”.
“We forecast that growth in credit to the private sector will be subdued at 5% in 2024.
“However, we expect banks to extend credit to the renewable energy sector because of electricity shortages,” S&P said.
Melanie Humphries, head of sustainable solutions at Investec Private Bank, said the bank saw a “massive increase” in the demand for solar and energy storage solutions during 2023.
This is reflected in the new power generation capacity registered with the National Energy Regulator of SA (Nersa).
According to Gaylor Montmasson-Clair, senior economist at the Trade & Industrial Policy Strategies think-tank, new capacity registered in 2023 increased almost threefold compared with 2022 and was 50 times more than in 2021.
Nersa registered 405 new projects in 2023 with combined generation capacity of 4,530MW (roughly equivalent to Kusile or Medupi power station), said Montmasson-Clair.
SA imported more than $3.3bn worth of solar panels, inverters and lithium-ion batteries in 2023 to end-November.
Based on Eskom data, said Montmasson-Clair, SA had 5,200MW of private solar systems installed by end-2023 — double the 2,600MW installed by end-2022.
While there is no doubt that financing demand for renewable energy is on the increase, this demand is still linked to loadshedding and “ebbs and flows in response to shifting [load-shedding] stages”, said Humphries.
“This indicates a continued reactive response to the crisis, with many households solving out of frustration. We believe that residential solar has become an attractive option for households, not just to secure supply of energy but also when one looks at the cost of energy,” she said.
Standard Bank told Business Day the demand for financing for renewable energy projects has increased “significantly” over the past three years and it expects to see further increases in 2024. It saw a 400% growth in demand for LookSee’s solar installation offering and a big increase in “green solution funding”.
Standard Bank and LookSee launched the solar loan in 2023, which forms part of the government’s Energy Bounce Back Loan Scheme, offering loans of between R3,000 and R300,000 over 60 months.
“The bank has led a concerted effort to disburse funds to individuals in SA for installing solar solutions or purchasing ‘green-aligned’ homes. The total green lending book has grown by over 26% to R2.9bn, with over R1.2bn being added in 2023,” Standard Bank said.
Standard Bank has also been a key lender for projects selected under the government-backed independent power producer (IPP) programme. Total funding for renewable energy projects in SA in 2023 amounted to about R12.8bn — this was for projects that will generate about 1,100MW, the bank said.
Absa said it has participated in 53% of Renewable Energy IPP Programme projects, with a combined capacity of more than 4,300MW to date. However, its funding of smaller IPPs outside the programme and utility-scale projects is a “growing trend in the private energy markets”.
“We are taking a longer-term view on these projects and fund them in a manner that addresses the long-term sustainability of these projects.”
The intensity of load-shedding in 2023 increased the rate of adoption of solar in combination with batteries, said Absa.
“It has been evident that systems have moved from grid tied [no battery integration] to hybrid [solar and batteries integrated] ... clients are looking to see more return on investment for their solar assets. By installing batteries, they further reduce their energy costs from the grid.”
About 85% of deals done by Absa in 2023 had battery integration, compared with 55% the previous year.
On the household-consumer side, Absa saw varying levels of demand which are closely linked to periods of higher loadshedding levels. “While inquiries were muted over the festive period, we expect an increase in demand during the year.”