LUNGILE MASHELE | Energy transition is inevitable

Local manufacturing in the energy sector is a strategic investment opportunity that can unlock jobs, growth and resilience if we make it bankable.

South Africa is firmly in the midst of an energy transition. Solar farms, battery storage systems and transmission and gas projects are reshaping our energy landscape. But behind every panel, turbine and battery lies a global manufacturing story — and, sadly, South Africa is largely a buyer, not a producer.

The question is simple: will we continue importing our future, or will we manufacture it? For the Public Investment Corporation (PIC) and other institutional investors, this is not just an industrial policy debate; it is a strategic opportunity to drive growth, create jobs and deliver long-term returns for clients.

China’s dominance in renewable energy manufacturing offers valuable lessons. Today, China controls more than 80% of the global solar supply chain, from raw materials to finished modules. In 2024 alone it installed 277GW of solar capacity, and in the first half of 2025 another 256 gigawatts. This scale, combined with policy certainty and integrated industrial clusters, has driven global solar costs down by over 80% in a decade.

To justify local solar manufacturing, the required installed capacity depends on which part of the value chain you want to localise. Industry benchmarks and global experience suggest the following:

For module assembly, you need at least 1–2GW of annual demand to operate a module assembly plant competitively. This level of throughput ensures economies of scale and covers fixed costs. Full upstream integration (ingots, wafers, cells) requires far higher volumes, typically 5–10GW per year, because these processes are energy and capital-intensive and rely on continuous utilisation to achieve cost efficiency.

Technology risk is ever-present as rapid innovation can render equipment obsolete

For context, South Africa has installed about 3GW of grid-tied solar power over the past 10 years and about 7.3GW in behind-the-meter installations; the rest of southern Africa has installed 805MW of grid-tied solar PV. However, China installs over 250GW of solar in six months, which is why it can sustain a fully integrated supply chain.

Furthermore, China’s supply chains are uniquely clustered into ecosystems tied to specific regions. This is the culmination of decades of policymaking, research and development, involving suppliers, skills development, specified labour, machines, trade and logistics that form an ecosystem. Manufacturers are tied to a specific region because their entire supply chain surrounds them — this is similar to Silicon Valley or automotive parks in South Africa.

Smaller markets such as South Africa, which currently procure in the less than single-digit GW range annually, cannot yet justify full integration. Instead, they can focus on selective localisation, such as module assembly, mounting structures and electrical balance-of-system components, battery pack assembly and enclosures, wind towers and blade repair, transformers, balance-of-plant and gas pipeline components. These components are heavy, costly to import, and often require customisation, making local production investable.

Manufacturing plants are long-life assets, similar to infrastructure projects, but they carry unique risks. Demand risk arises when procurement pipelines fail to materialise. Policy risk arises when local content rules change abruptly, as seen with the Renewable Energy Independent Power Producer Programme (REIPPP). Currency risk is a concern because imported inputs expose manufacturers to foreign exchange volatility.

Technology risk is ever-present as rapid innovation can render equipment obsolete — parts for some of the first-generation REIPPP programmes are unavailable, leading some project owners to step outside their energy generation domain and acquire factories to secure supply.

For the PIC and other asset managers these risks must be mitigated through structured offtake agreements, blended finance and policy guarantees. Without these measures, energy manufacturing investments remain speculative.

South Africa has tried before, with mixed results. The DCD Wind Towers facility and the recent ARTsolar cases highlighted the dangers of weak demand visibility and inadequate verification. Globally, Europe and the US have seen similar failures, with photovoltaic factories closing due to high energy costs and policy uncertainty.

The takeaway is clear: fragmented demand and policy reversals kill manufacturing viability. Investors need confidence in procurement pipelines, grid readiness, and enforceable local content rules.

Incentives must be tied to performance, ensuring that local content rules reflect genuine manufacturing rather than import substitution

Despite these challenges South Africa offers compelling opportunities. Battery energy storage systems are a prime example. The first two bids awarded 1,128MW, with another 616MW planned, creating anchor demand for local assembly. Mounting structures and balance-of-system components are another area where heavy steel parts make local fabrication ideal.

Gas infrastructure also presents opportunities for localised manufacturing of valves and compressors, reducing costs and lead times. The transmission buildout and upgrades will increase the need for transformers, steel towers, conductors and insulators. These niches combine resource advantage, regional demand and logistics savings, making them attractive for long-term investment.

To unlock capital South Africa needs a bankable manufacturing ecosystem. This requires securing demand through multi-year power purchase agreements and public procurement commitments with take-or-pay clauses. It also calls for blended finance, where development finance institutions de-risk projects through project preparation, concessional loans and guarantees.

Incentives must be tied to performance, ensuring that local content rules reflect genuine manufacturing rather than import substitution. Industrial clusters should be strategically located near ports and transmission hubs to minimise costs, and manufacturing growth must align with grid expansion to prevent the creation of stranded assets.

For the PIC, investing in local energy manufacturing is not just about returns; it is about shaping South Africa’s industrial future. By backing bankable projects in competitive niches the PIC can catalyse a new wave of industrialisation, create jobs and position South Africa as a regional hub for energy component manufacturing.

• Mashele, an energy economist, is sector specialist for energy and infrastructure at the Public Investment Corporation and a member of the board of the National Transmission Company of South Africa.