Cries of ‘solar rip-off’ as firms bypass local rules

Private solar-power companies are set to pocket billions from electricity consumers by sidestepping “localisation” rules that require them to use locally produced solar panels at their plants. Instead, they are using cheaper Chinese panels while still charging premium rates for their power.

The great solar rip-off has come to light in a court application by a local solar photovoltaic (PV) manufacturer alleging widespread noncompliance with local content rules by foreign companies across billions of rand’s worth of Independent Power Producer Programme (IPPP) contracts.

The government has taken no steps to ensure that local panels are used or that the law is enforced, effectively defeating the purpose of local-content rules while allowing producers to charge at a higher rate.

Because localisation would have been factored into the premium pricing of successful bids, the lack of compliance means Independent Power Producers (IPPs) will pocket the premium that South Africans are paying — supposedly to cover the higher cost of local panels.

The sole solar panel manufacturer in Sub-Saharan Africa, Durban-based ARTsolar, has revealed that 18 foreign companies, or their associated joint ventures, were awarded contracts based on critical localisation requirements but are now failing to meet these.

A total of 1,200MW of energy was set to be produced by these 18 companies, stemming from three separate tenders. The tenders were issued in 2021 under the Risk Mitigation Independent Power Producers Programme (RMIPPP), and in 2022 under both the fifth and sixth bid windows of the Renewable Energy Independent Power Producers Programme (REIPPP).

As a part of their bids, the companies committed to sourcing 30% of their panels from local manufacturers. Of particular concern, ARTsolar argues in its court papers, is that the government appears to have turned a blind eye to this noncompliance.

According to the papers — filed in the Pretoria high court in 2024 — none of the 18 companies awarded the solar component of the government’s renewable energy push have complied with the local content rules, opting instead to import.

“The DTIC’s (department of trade, industry & competition) failure to enforce local content requirements creates a significant issue, as it allows preferred bidders to cut costs by sourcing cheaper, foreign-manufactured PV panels, thereby avoiding the higher expenses associated with complying.

“Despite this noncompliance, these bidders still benefit from the full contract value, which was intended to cover the costs of meeting local content requirements,” ARTsolar chairman Eshu Seevnarayan said in the papers before court.

Though the exact profits IPPs will earn remain opaque, the contracts are structured so that they provide initial funds to build and commission the projects. Power is then sold through power purchase agreements with Eskom, which will buy at a defined price — plus escalations — over a defined term, usually 20 years. While Eskom carries the cost, plus the localisation premium, it is ringfenced and fully passed through to consumers in terms of the national energy regulator’s determination.

For example, Norwegian company Scatec’s projects in the Northern Cape, once online, will supply 150MW to the grid between 5am and 9.30pm at a price of R1,884.56 MW/h, according to a statement by partial funder the Industrial Development Corporation.

Artsolar wants the court to either review and set aside the decision by the DTIC and the then department of mineral resources & energy (DMRE) to exempt companies from localisation requirements, or, alternatively, review and set aside the two departments’ failure to determine whether the IPPs had complied with those requirements.

It also wants the court to order the IPPs to conclude agreements with local manufacturers for the supply of PV modules “in accordance with the stipulatio alteri [a contract for the benefit of a third party] contained in the implementation agreements”.

The DTIC and DMRE are listed as the first and second of 26 respondents, including the electricity & energy minister, the finance minister, the National Energy Regulator of South Africa, Eskom, the newly formed National Transmission Company of South Africa, as well as the 18 IPPs.

Crucially, ARTsolar’s application alleges that the DMRE’s deputy chief information officer, Khanyiso Zihlangu, has revealed that no exemptions were granted, possibly meaning the IPPs are not compliant with critical aspects of the requirements.

The DMRE was restructered in 2024 and energy was moved to form the energy & electricity department under minister Kgosientsho Ramokgopa, while Gwede Mantashe retained minerals and petroleum resources.

Ramokgopa and DTIC minister Parks Tau had positioned themselves as supporters of localisation in the past, and have said South Africa cannot afford to wholly outsource production and value creation. But in court, the government — and the IPPs — have resisted efforts by ARTsolar to gain access to the full implementation agreement records, and to establish whether they have been adhered to.

The DMRE, through director-general Jacob Mbele, opposed the application on three main grounds. It argued that ARTsolar lacked standing as it was not a bidder in the REIPPP; and that its application was speculative and contradictory over a claimed exemption.

It also said its own role was limited to procurement, and the competence to issue exemptions belonged to the DTIC.

Last week, the DTIC said it would not comment as the matter was before the courts.

The court case highlights the tension between the government’s ambitions and the challenges of delivering affordable green energy in a market dominated by China, which supplies 80% of the world’s solar panels and remains unmatched in quality and technology.

ARTsolar, which was founded 16 years ago by Seevnarayan (current chairman) and Pat Goss — together with Nhlanhla Zondo of Msebe Energy, who has been a shareholder from inception — remains South Africa’s only 100% locally owned PV module manufacturer.

A major milestone in the company’s growth was securing R90m funding in 2022 from the IDC to install an advanced production line in expectation of orders from successful RMIPPP and REIPPP bidders. The company invested R30m of its own money into the upgrades.

ARTsolar did supply into the REIPPPP Bid Window 3 under licence from BYD, and most recently manufactured under licence from Tier-1 global original equipment manufacturer JA Solar, marking the first time JA Solar modules were produced in Africa.

Despite these achievements, the widespread localisation noncompliance by IPPs has dramatically reduced demand for locally manufactured modules. ARTsolar has had to scale down production volumes and adjust operations to service the commercial and residential markets, but remains fully capable of full-scale PV module manufacturing. This has forced the company to lay off a portion of its workforce.

Energy expert Lungile Mashele said South Africa does not have enough demand to stimulate local manufacturing.

“The question that the rest of us in the industry have been asking is, why is there a focus on panels? It’s not our competitive advantage. You’re not going to compete with China, who supply 80% of the panels in the global market.

“But we do manufacture components locally — such as cables, ingots, and trackers that you need — and our capability is world-class.

“The demand from the local and regional market is enough to sustain a manufacturing sector because they are not just used in solar, they are used in wind as well,” she said.