The debate over renewable energy often focuses on the price of electricity. For many industrial and commercial users in South Africa, load shedding has become a larger financial burden than paying a premium for renewable electricity through a power purchase agreement (PPA). The reason lies in the economics of downtime. South Africa’s electricity crisis has imposed significant economic costs over the past decade. Research by the University of Johannesburg estimated that severe load shedding has cost the economy up to R1 billion per day in lost economic activity, while the South African Reserve Bank has repeatedly identified electricity shortages as one of the country’s biggest constraints on GDP growth.
Mining companies lose production when crushers, mills, conveyors, and ventilation systems shut down. Manufacturers face production delays, equipment restart costs, labour inefficiencies, and contract penalties. Retailers lose sales, cold-chain operators risk product spoilage, and commercial buildings incur higher operating costs through diesel backup generation. Unlike electricity tariffs, these costs rarely appear on a monthly utility bill.
A solar PPA replaces capital expenditure with a contracted electricity price over a typical 15- to 20-year period.
The tariff generally includes:
- Project financing
- Engineering, procurement and construction
- Operations and maintenance
- Asset management
- Developer returns
- Battery storage, where applicable
Because financing accounts for a significant share of a solar project’s lifetime cost, PPAs in higher-risk markets can carry a premium over conventional grid electricity. That premium often attracts attention. The operational savings usually deserve more attention. According to the International Energy Agency (IEA), financing represents 30% to more than 50% of the levelised cost of electricity (LCOE) for utility-scale solar projects in many emerging markets. In advanced economies, lower borrowing costs reduce electricity prices significantly. South Africa benefits from some of the continent’s most mature renewable energy markets, but developers still price in risks including:
- Higher interest rates
- Currency volatility
- Grid connection uncertainty
- Construction risk
- Offtaker credit risk
These factors can increase PPA prices. They do not necessarily increase the total cost of electricity to the customer. Consider a manufacturing facility consuming 10 MW continuously. Even a two-hour production stoppage can result in:
- Lost production output
- Equipment restart procedures
- Overtime costs
- Contract delivery delays
- Additional diesel generation
- Reduced equipment utilisation
For large industrial operations, those indirect costs can easily exceed the additional cost of purchasing renewable electricity under a long-term PPA. The comparison is therefore is solar premium versus business interruption. Many businesses continue relying on diesel generators during outages. However, diesel-generated electricity frequently costs two to four times more per kilowatt-hour than grid electricity, depending on fuel prices, generator efficiency, maintenance costs, and utilisation rates.
While diesel remains valuable for emergency backup, it becomes an expensive primary energy strategy during prolonged supply interruptions. Solar combined with battery storage offers a different proposition. Instead of generating electricity from imported fuel, batteries store daytime solar energy and discharge it during evening peaks or grid outages, reducing diesel consumption and improving operational continuity.
Read Also: South Africa’s Renewable Energy Market Gets a New Insurance Facility
South Africa’s embedded generation market has expanded rapidly since licensing reforms opened the sector to larger private projects. Mining companies, manufacturers, retailers, property developers, and logistics firms have collectively committed billions of rand to self-generation through solar PPAs, wheeling agreements, and battery storage. The common driver is reliability. Electricity has shifted from being a utility expense to a strategic operational input.
Businesses evaluating energy investments increasingly look beyond electricity tariffs.
They compare:
- Expected downtime costs
- Production losses
- Fuel expenditure
- Tariff escalation
- Long-term energy price certainty
- Operational resilience
When those variables are included, paying a premium for renewable electricity can become the lower-cost option. Load shedding imposes costs that extend well beyond the electricity bill. While premium-priced solar PPAs may appear more expensive than grid electricity on a per-kilowatt-hour basis, they often reduce overall operating costs by protecting production, lowering diesel consumption, and improving energy certainty.
