Challenges to investment
South Africa faces significant challenges in its power supply, with insufficient generation capacity and transmission infrastructure frequently resulting in load shedding (335 out of 365 days saw outages in 2023). Leading into 2023, the government of South Africa had identified small-scale, embedded power generation such as solar rooftop PV as one of multiple solutions to address/overcome these challenges, helping reduce households and small and medium enterprises (SMEs) dependence on the national grid. However, SMEs and households both struggled to meet the high upfront costs required to install such solutions, limiting end-user demand for renewable energy (RE) technologies such as rooftop solar. Limited demand in turn constrained the ability of small Energy Service Companies (ESCOs) and rooftop suppliers to scale up and accelerate deployment.
Approach
To address these challenges, the South African National Treasury launched the Energy Bounce Back (EBB) Loan Guarantee Scheme in August 2023. By guaranteeing solar-related loans, the EBB seeks to facilitate the RE transition and to support 1000 MW of rooftop solar generation by August 2024, increasing resilience against load shedding. To achieve this goal, the government partners with commercial banks, DFIs and non-SME finance providers to identify projects and provide loans to SMEs and households. The National Treasury then guarantees 20% of initial losses on rooftop solar loans, administered by the South African Reserve Bank, and private finance providers assume the remaining risk. The guarantees help reduce the cost of loans by lowering the perceived risk of solar investments, encouraging financial institutions to lend to such projects.
The EBB operates through three main mechanisms. First, EBB offers loan guarantees for rooftop solar systems and power resilience assets (e.g. portable batteries), reducing financial risk for banks and making loans more accessible to SMEs and households. Second, EBB provides loans directly to ESCOs, enabling them to provide leasing, installment sales, and power purchase agreements for solar systems, which reduces upfront costs for end-users. The third mechanism provides working capital loans to businesses within the solar supply chain, ensuring they can meet the increased demand for solar equipment and installations. The EBB will be regularly assessed to evaluate its impact.
Key Enabling Conditions
The EBB’s early progress is supported by several enabling conditions. South Africa’s advanced, stable banking system and deep capital market sustain a foundation for lending, enabling the EBB to rapidly scale its offering. Diverse participation of commercial banks, DFIs, and non-SME finance providers in the EBB facilitates the wider distribution of and access to loans. Also complementing the EBB are policies including tax incentives, which offer deductions of up to 25% of installation costs for households and 125% for businesses investing in RE projects.
Impact / Outcomes
Though results from EBB assessments were still pending at the time of writing, initial results were encouraging. Since August 2023, major South African banks such as ABSA Bank, First National Bank and Standard Bank have participated in the EBB. Immediate access was provided to commercial customers and was later provided to individual customers by the end of 2023, with loan options ranging between ZAR10,000 to ZAR10 million (~USD548 to USD548.6 million) for businesses, and ZAR300,000 (USD16,460) per household.
Additional Sources
- The Banking Association of South Africa “Annual Report 2022”, https://www.banking.org.za/reports/
- The Presidency Republic of South Africa “Just Energy Transition Implementation Plan 2023-2027”, https://www.stateofthenation.gov.za/assets/downloads/JET%20Implementation%20Plan%202023-2027.pdf
- https://www.treasury.gov.za/comm_media/press/2023/2023080801%20Energy%20Bounce%20Back%20Scheme%20FAQs.pdf
- https://www.cliffedekkerhofmeyr.com/news/publications/2023/Practice/Tax/special-budget-alert-22-february-The-lights-are-still-not-on-but-someone-has-finally-come-home.html
- https://www.sanews.gov.za/south-africa/treasurys-bounce-back-measures-help-households-solar
- https://solarquarter.com/2023/08/11/south-african-government-launches-energy-bounce-back-loan-scheme-to-fuel-solar-investment/