The prospect of rapid growth in solar photovoltaic (PV) installations across South Africa will create opportunities for the localisation of supply chains and for domestic manufacturing, a new study commissioned by the South African Photovoltaic Industry Association (SAPVIA) has confirmed.

However, the report also underlines the importance of economies of scale and stable and predictable demand for facilitating the investments needed for the manufacture of components such as PV modules, inverters, mounting structures and cables.

Unstable demand, precipitated by Eskom’s refusal to sign power purchase agreements with renewables projects procured in 2014, negatively affected South Africa’s nascent solar PV component manufacturing sector. That disruption, which was overcome only in 2018, resulted in company closures and disinvestments.

The new publication, written by Urban-Econ, Nikela and Blue Horizon, estimates that South Africa made up about 56% of the 10.3 GW of solar PV installed across African utility-scale plants; commercial, industrial, agriculture and mining (C&IAM) sites and households by the end of 2021.

While modest in size relative to the 1 TW installed globally, the African market is expected to expand strongly over the coming two decades.

For South Africa, the report outlines scenarios for the installation of another 12 GW to 24 GW by 2030.

These installations would be across all three market segments, with the pace of growth depending largely on the intensity of loadshedding over the period and the emergence of supportive policy and incentives.

The study recommends that government should provide incentives for local procurement by offering direct incentives in the residential and C&IAM sectors, possibly through a system of rebates or tax deductions. 

To facilitate the price-competitive localisation of PV modules, the report estimates that stable yearly demand of at least 2 GW from the utility market segment and a further 1 GW from the C&IAM and residential segments would be required.

Stable yearly demand of at least 1 GW is considered to be the minimum threshold for the competitive domestic production of inverters, solar glass and junction boxes.

However, the report also highlights that price-competitive manufacturing is not sufficient on its own, with certain market segments also requiring components to be certified as having been made to the highest and latest international standards.

“Until local capacities are further developed and selected products are manufactured in line with the requirements of the markets, the domestic market penetration of key components will remain limited.”

The report found the domestic solar PV value chain to be well develop already, with some 750 companies employing about 20 000 people.

However, upstream component supply is dominated by foreign brands.

Prospects for localisation are also being improved by global dynamics, including the significant demand growth, which together with supply chain disruptions and rising transport costs, have led to sharp price increases in 2002, with PV module prices in the European Union having increased by over 30% this year.

The report estimates that current production facilities are able to meet only half of future demand, strengthening the business case for localisation.

The business case is being boosted further by efforts to ensure that solar PV industries are protected from exogenous shocks, such as supply chain disruptions.

The SAPVIA study has been produced ahead of the finalisation of the South African Renewable Energy Masterplan, which aims to identify opportunities to create industrial capacity to supply into the country’s emerging renewable-energy sector.

However, it also comes at a time when several independent power producers have raised concern about the ability of domestic manufacturers to support them in meeting the local-content commitments.

In an effort to unlock the much-delayed Bid Window Five of the renewable procurement process, government recently eased local-content requirements set for PV modules.

SAPVIA CEO Dr Rethabile Melamu said the report could be a vital resource in helping both government and the industry develop realistic and sustainable policy approaches to localisation.

“SAPVIA has long advocated for data-driven localisation and local content policy formulation and through this study we have been able to identify opportunities for additional local manufacturing and provide recommendations on how to grow and support the identified opportunities sustainably.

“It is clear from our analysis that there are gaps in local industry’s ability to meet the existing and future demand for many components.

“However, our analysis has highlighted that there is a path towards localisation that starts with unlocking all market segments, not only the utility segment, and enabling a rapid uptake of solar PV systems through solid implementation plans and provision of financing mechanisms,” Melamu said.

The study found that the potential for job creation and local project spend linked to industrialisation of the solar PV value chain differed significantly depending on the localisation and market growth scenarios considered in the report.

However, under a high market growth and high localisation scenario, the local manufacturing sector alone could add and support an average of 5 539 full time equivalent jobs over the next nine years and attract R9.4-billion worth of local spend annually.

The study suggests that local value chains should be enhanced and developed through industry-specific manufacturing incentives and that skills development should be prioritised by drastically expanding on existing skills development efforts.

The report was sponsored by RES4Africa Foundation, SMA Solar Technology, Reatile, Globeleq, EIMS, Enel Green Power, Mainstream Renewable Power, Juwi, STI Norland, bte renewables, Cennergi and Standard Bank.