A R1-TRILLION LOADSHEDDING WINDFALL

New research from SBG Securities says SA’s major banks could end up as big winners from the power crisis as the sprint to solar accelerates

Behind every great fortune lies a great crime, said Honoré de Balzac, arguably the most important French writer and a man idolised by a generation of novelists, including Charles Dickens. Power utility Eskom, you’d have to say, probably represents South Africa’s single biggest heist in recent years. Its rolling blackouts have robbed thousands of their livelihoods and prospects, even as the utility was drained of physical cash by such ethics-lite consultants as McKinsey.

And yet, even in such deep gloom, there are opportunities. One man’s misery, cradling a candle in the dark, is another’s fortune.

This is evident from remarkable research by SBG Securities analyst Charles Russell, who has done some number-crunching and concluded that South Africa’s big five banks could benefit to the tune of R1-trillion in new loans over the next four years, as the mad dash towards solar power accelerates.

Russell writes: “This renewable energy finance opportunity is significant for banks, which we estimate to be [more than] R1trillion over the next four years, representing a 6% boost per year over the medium term.”

SBG Securities says the banks with the largest portfolios of home loans, commercial property finance and corporate investment loans — Standard Bank, Absa and Nedbank — would benefit the most, with FirstRand and Capitec bringing up the rear.

For investors this is valuable insight since this potential energy windfall hasn’t been fully factored into stock prices, suggesting a big upside if it all works out as Russell believes it will.

The scope is immense. SBG estimates that 1.1-million homes (about 16% of all households) could take advantage of solar financing, adding R250bn to their mortgages.

Small businesses and companies represent an even greater windfall, since they typically use four times as much electricity as homes do, so here Russell suggests there’s

R750bn in potential solar loans for 100,000 companies.

As it is, imports of solar panels and lithium-ion batteries are soaring (see graph).

Equally intriguing is a survey SBG

Securities sent to about 300 individuals, which may not be statistically significant but is revealing for what it says people would be willing to pay to get rid of load-shedding entirely.

“[We] were not surprised to see that the average respondent would pay a little more than R1,100 per month if they could magically wave a wand and load-shedding would disappear,” says the report. “This confirms our suspicions that the annoyance factor is very high.”

Of those who responded to the survey, 67% still hadn’t installed solar power.

And yet, when you run the numbers, as Russell did, it seems a no-brainer.

Take a medium-sized house, whose owner is looking to install a sizeable R250,000 solar solution: this will add R2,528 to their monthly home loan, but they’ll save R2,390 on their Eskom bill. Factor in the solar tax incentive and a few other costs, and they’ll actually save money.

So what does this do to the value of a house? Russell says that by his calculations, it rises by, on average, 67% of the value of the solar system. So, for that owner’s R250,000 solar system, the house value will rise R166,000.

So the case is clear. But with so many fly-by-night “solar funding” lenders out there, you can understand why people are a little confused. There are rent-to-own systems, other rental options, and vultures trying to hawk extortionate “personal loans”.

Says Russell: “While there has been a proliferation of solar rental companies, we believe that the disadvantages of a shorter lifespan of the agreement and the high finance charges far outweigh the benefit of upgrading the system when the six- to sevenyear term expires. Banks have the advantage of cheaper cost of funding and already have the house as collateral.”

Which is just as well, since power-starved South Africans, desperate to keep the lights on, are an easy target for every twobit finance house.

Last month, Massmart trumpeted that it was providing finance to customers for solar systems, in partnership with the RCS Group. Massmart vice-president Varsha Dayaram said his company has seen a spike in the “number of people who want to find solar energy projects for their home”.

Yet, when the FM tested this, the interest rate offered by Massmart equated to a staggering 28.25% a year. Compare this with adding the cost to an existing home loan where loans are offered at about the prime rate of 11.25% and you can see banks are a better option.

And yet the banks have been surprisingly slow to recognise this opportunity, opting for low-key marketing rather than big-bang publicity. Those banks that recognise this moment, you feel, could capitalise big time.

As Russell says, with South Africa now in the worst bout of load-shedding ever, and with new incentives to sweeten the deal, “solar energy installations are likely to increase exponentially in 2023 and beyond”.

So, as much as companies such as Reunert and Montauk Renewables have been tipped as the place to put your money to mitigate the stifling blackouts, South Africa’s banks may end up being the biggest winners.