- New research finds that most South African municipalities are not making excess profits from electricity sales and are instead under recovering their costs.
- Rooftop solar related cost shifts are present but remain relatively modest, with impacts varying widely between municipalities and tariff structures.
- More than US$1 billion is redistributed annually through electricity tariff cross subsidies, highlighting the sector’s dependence on higher paying customers.
South Africa’s rapid uptake of rooftop solar is shining a spotlight on long standing weaknesses in the country’s electricity distribution system, according to new research analysing 165 municipal electricity distributors.
The study titled ‘Who pays for rooftop solar? Cost shifts, stakeholder perspectives and policy tensions in South Africa,’ finds that many of the assumptions shaping public debate around rooftop solar are either exaggerated or unsupported by evidence. While concerns about revenue losses and cost shifting are real, researchers conclude that rooftop solar is not the primary cause of the financial challenges facing municipalities. Instead, it is exposing structural problems that have existed for years.
Rooftop solar installations have expanded rapidly in South Africa as businesses and households seek protection from rising electricity prices and unreliable grid supply. Behind the meter generation now accounts for more than 10% of the country’s installed generation capacity, creating new challenges for municipalities that rely on electricity sales to fund operations and support essential services.
One of the most common claims in the policy debate is that electricity sales provide municipalities with a lucrative source of income. However, the research found little evidence to support this view. Most municipalities are already failing to recover the full cost of supplying electricity, leaving them financially vulnerable even before the impact of growing solar adoption is considered.
The analysis also highlights the significant role of cross subsidies within the electricity system. More than US$1 billion is redistributed annually through tariff structures, with higher paying residential customers and commercial and industrial users helping to support lower income households. As more affluent customers invest in rooftop solar and reduce grid consumption, municipalities face the risk of declining revenue from the customer groups that currently sustain these cross subsidies.
Despite these concerns, the study found that rooftop solar related cost shifts remain relatively small in absolute terms and differ substantially across municipalities. The scale of the impact depends on local tariff structures, customer profiles and the financial health of individual distributors.
Researchers argue that the public discussion around rooftop solar has become increasingly polarised, with stakeholders often interpreting the issue through the lens of their own financial and institutional interests. Municipal utilities generally view fixed charges and tariff reforms as necessary measures to protect revenue and maintain network infrastructure. By contrast, many private sector participants see such measures as barriers to competition and obstacles to renewable energy adoption.
The findings suggest that both perspectives contain elements of truth, but neither fully captures the complexity of the challenge. Concerns about widespread revenue losses from solar users appear overstated in many cases, while issues such as municipal capacity constraints, regulatory compliance and weak governance remain significant risks.
According to the researchers, future policy responses should be guided by evidence rather than perception. They warn that poorly designed regulations could either discourage beneficial investment in rooftop solar or fail to address genuine financial vulnerabilities within municipal electricity systems.
As South Africa continues its transition towards a more decentralised energy future, the study concludes that rooftop solar should be viewed less as a threat and more as a catalyst revealing deeper institutional and financial weaknesses that require urgent reform.
Link to the full paper HERE
Author: Bryan Groenendaal
