Part 1: The Investment Case for Battery Storage in South Africa
By Muhammad Patel, Investment Manager, AIIM
Part 1 of 2 | Why flexibility is becoming the scarcest commodity in South Africa’s power system
South Africa’s electricity sector is undergoing a structural transformation. The country’s long-standing dependence on coal is gradually giving way to a more diversified generation mix characterised by increasing levels of renewable energy, growing private sector participation and the progressive implementation of a competitive wholesale electricity market through the South African Wholesale Electricity Market (SAWEM).
This transition is occurring against a backdrop of rising utility electricity tariffs, persistent transmission constraints and an evolving regulatory framework. For commercial and industrial (C&I) customers, the challenge remains clear: securing reliable, cost-effective and increasingly sustainable electricity.
With an increasing proportion of generation being provided by intermittent renewable energy sources, energy storage solutions such as battery energy storage (BESS) are gaining prominence from an energy landscape perspective. South Africa also has limited hydropower potential, which further increases the importance of BESS. Government’s commitment to storage is evident through the Battery Energy Storage Independent Power Producer Procurement Programme (BESIPPPP), which is procuring utility-scale battery projects to provide system balancing, peak support and network flexibility. While the programme itself represents a relatively modest deployment opportunity, it serves as an important signal of the growing role storage will play within the electricity sector.
As renewable penetration increases, transmission constraints persist and market reforms progress, battery deployment is expected to extend well beyond government procurement and scale rapidly across both utility-scale and customer-sited applications.
While storage can help manage congestion and mitigate curtailment to an extent, the real unlock for both generation and dispatch remains grid expansion. The Transmission Development Plan (TDP) provides the roadmap for the significant build-out of transmission infrastructure required to connect new generation capacity, while the Independent Transmission Programme (ITP) seeks to mobilise private capital and delivery capability to accelerate this expansion. Transmission is the critical platform upon which future renewable generation, storage and market liberalisation opportunities will be built, making grid expansion an important investment theme for AIIM within the broader energy transition space.
Together, increased storage and the development of transmission infrastructure represent central enabling themes for South Africa’s energy sector. Our storage investment thesis is anchored on the expected 5.7x increase in flexible power by 2060 and the fundamental belief that value within the electricity sector will increasingly migrate from energy production to energy optimisation and flexible dispatchable power — that is, power that can be turned up, down, stored or shifted in time to meet system needs, rather than being generated only when the underlying resource (sun or wind) is available.
As renewable penetration rises, the grid gets built out and the market becomes more dynamic, the scarce commodity shifts from renewable electricity generation to flexible dispatchable power. In this environment, we see three sources of value emerging:
- Flexibility for generators through co-located storage;
- Tariff optimisation for customers through behind-the-meter (BTM) storage; and
- Long-term aggregation and energy platform opportunities.
While all three rely on the same underlying technology, they differ significantly in their revenue drivers, risk profiles and long-term investment characteristics. This first article sets out the market context and the first of these value drivers: flexibility for generators. Part 2 turns to behind-the-meter storage, the emergence of energy platforms and the three risks and opportunities we consider most important.
The South African Storage Opportunity
South Africa’s electricity system was built around coal-fired generators that were largely, though not entirely, dispatchable and designed to meet relatively predictable demand.
The increasing penetration of wind and solar generation has introduced new operational challenges. Renewable generation is inherently variable, transmission expansion has lagged generation investment in certain regions and periods of localised grid congestion are becoming increasingly common.
Storage addresses these challenges by introducing flexibility to the system. Electricity can be stored when generation is abundant and dispatched when demand is highest or when network constraints ease.
At a system level, storage supports grid stability, mitigates curtailment and improves network utilisation. At an end-user level, storage helps customers manage energy costs, reduce peak demand and improve energy resilience. Importantly, as load shedding has moderated over the past two years, battery storage is increasingly being justified by commercial rather than reliability considerations.
The investment case is shifting from energy security to energy optimisation, creating a broader and potentially more sustainable foundation for long-term growth.
Value Driver 1: Flexibility for Generators
We view co-located storage (i.e. battery storage installed alongside, and directly connected to, a generation asset such as a solar or wind plant) as a natural evolution of utility-scale renewable generation. Historically, solar and wind assets have generated and dispatched electricity whenever the underlying resource was available, and project economics were largely driven by energy yield, plant availability and contracted tariff structures via fixed bilateral PPAs.
The addition of storage fundamentally changes this model by introducing a degree of dispatchability. Through our investments in NOA, Anthem and SolarAfrica, we have either obtained or are in the process of obtaining the relevant permissions for the rollout of co-located BESS at selected PV sites. Of significance is NOA’s 506MW solar cluster, Khauta, which reached financial close in 2025 and includes BESS infrastructure alongside the generation facilities, and Anthem’s 475MW Notsi project, which has already obtained the relevant site permits for a future BESS rollout once the solar facility reaches COD.
The most immediate source of value in South Africa is the ability to manage curtailment and grid constraints. As renewable deployment continues to outpace transmission expansion in certain regions of the country, generation assets increasingly face limitations in their ability to export power to the grid. Batteries provide a mechanism to capture energy that might otherwise be curtailed and shift delivery to periods when network capacity becomes available.
A second source of value lies in production shaping. Corporate off-takers are increasingly demanding more predictable and in some cases matched energy supply profiles as opposed to variable renewable generation profiles. Storage allows renewable generators and aggregators to better align the timing of electricity being dispatched with customer consumption patterns, improving the quality and attractiveness of their energy offering. A solar-plus-BESS arrangement could therefore be expected to provide significant value, as a relatively lower-priced daytime electron can be shifted to a higher-priced peak electron — known as “time-of-use shifting”.
Over time, this distinction is likely to become increasingly important. As renewable penetration increases, periods of energy abundance or oversupply (such as the middle of the day) will become more common and wholesale power prices will become increasingly differentiated across the day. In such an environment, generators will compete both on the price of energy produced and on their ability to deliver firm and dispatchable power.
From an investment perspective, co-located storage should therefore be viewed as a strategy to protect and enhance the value of renewable generation assets by improving the timing, reliability and commercial quality of their output.
It is worth noting, however, that co-location at the point of generation carries a different economic profile to storage located at a customer’s premises (the subject of Part 2). Storage sited at the generation source can face additional network charges where power must be “wheeled” from the generator to an off-taker across the grid, whereas storage sited behind a customer’s meter avoids these charges entirely because the electricity is consumed on-site.
Coming Up in Part 2
In Part 2, we turn to the customer side of the storage opportunity: why behind-the-meter storage may be the most compelling long-term storage opportunity in South Africa, how distributed batteries could evolve into integrated energy platforms and the three risks; grid and curtailment, capex deflation and tariff and regulatory evolution.