Mark Lacey, Head of Resource Equities at Schroders

The measures taken by the finance minister are sensible, but impact South Africa’s grid system in the long term, not the short term.

For example, increasing the maximum size of solar development from 15GW to 30GW, will no doubt improve project returns for developers, as they benefit from economies of scale – and the better returns will increase the deployment growth rate.

This policy very well timed given the cost of solar has collapsed to all-time lows, which again improves overall project returns.

The carbon tax is also a positive move in the right direction and is consistent with the direction of carbon taxes globally. But the overall level of carbon taxes (at $10/tonne) is extremely low compared to other countries globally (see table above) and is unlikely to significantly change corporate investment rates in the short term.

For context Norway’s carbon tax will reach $220/tonne in 2030. This has a massive financial impact on high emitting industries and is already promoting decarbonisation.

So again, to reiterate, we would view this as a positive move, that will not instantly address South Africa’s grid challenges, but over the next few years should start to mitigate the impact of outages going forward.

Image: Carbon taxes in 2023 by country

Source: Statista

ENDS