With South Africa’s revamped carbon tax policy due to come into effect in 2026, the country’s climate and energy landscapes are expected to undergo a decisive shift, says renewable-energy firm Scatec.

With stricter emissions thresholds and an expanded scope for carbon offsets, Scatec posits that the revised framework is expected to drive significant investment in renewable energy while reshaping how businesses source their electricity.

By making fossil-fuel-based electricity more costly, the updated carbon tax incentivises companies to shift towards cleaner alternatives.

“For businesses tied to coal-intensive energy supply chains, investing in renewables is becoming a financial necessity,” asserts Scatec executive VP for sub-Saharan Africa Alberto Gambacorta.

This economic pressure is increasing the competitiveness of solar, wind and battery storage technologies, particularly for industrial users.

Scatec says the revised policy allows for greater use of carbon offsets, particularly for projects under South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

“However, projects must meet the principle of additionality, demonstrating they would not be viable without the offset mechanism.

“That’s becoming harder to prove in South Africa, and it gets technical very quickly,” Gambacorta cautions.

CONFRONTING GRID CONSTRAINTS

Despite growing demand for clean energy, Scatec says grid infrastructure remains a major bottleneck, noting that several REIPPPP rounds have faltered owing to limited transmission capacity.

Yet, there are signs of progress, the company expresses.

It notes that the government’s Independent Transmission Programme invites private-sector involvement in building 14 000 km of high-voltage lines and hundreds of transformers nationwide.

Storage solutions, particularly battery systems, also present an opportunity.

These technologies help balance the grid by storing excess energy generated during peak sunlight hours and releasing it when demand and capacity align.

The evolving carbon tax is expected to fuel corporate demand for power purchase agreements, as companies look to cut emissions and reduce energy costs, says Scatec.

The renewable-energy firm says this pressure is amplified by international regulations, notably the EU’s Carbon Border Adjustment Mechanism.

“Manufacturers exporting to Europe face punitive tariffs if they rely on coal-based electricity. Procuring renewable energy is no longer just about sustainability, it’s about survival in global markets,” Gambacorta notes.

Moreover, Scatec says the policy shift also presents a long-term opportunity in the production of green hydrogen.

With abundant renewable-energy resources and rising global demand, the company argues that South Africa could become a key player in this emerging sector.

Still, Gambacorta warns that competitiveness will depend on overcoming infrastructure and export limitations.

“You must be able to produce at the right cost and have the means to move your product to market.”

Instead of introducing further regulation, Scatec argues that the focus should be on fully implementing existing frameworks, such as the Electricity Regulation Act and wheeling mechanisms.

A national curtailment framework could also allow renewables to be traded more flexibly.

Moreover, the company posits that municipalities must be better equipped to procure and distribute clean energy.

“Only a few are currently capable of acting as effective offtakers,” says Gambacorta.

To unlock the full potential of South Africa’s energy transition, cooperation between government and the private sector is essential.

Forums for public-private dialogue are already active, but real progress hinges on translating discussions into delivery – expanding grid capacity, accelerating project execution, and supporting municipal readiness, says Scatec.

“With the right collaboration, South Africa can meet its energy goals and build a more sustainable, inclusive economy,” Gambacorta concludes.