South Africa’s next electricity shift: why “when you use power” will matter more than “how much”

South Africa is moving towards a power system where electricity value will increasingly be determined by the time of day, not simply the average price level over a year.

“South Africa is heading into the biggest shift in electricity price formation in its modern history,” said Iranga Mukendi, Investment Manager at African Infrastructure Investment Managers. “The winners are those who understand price shape rather than fixating on headline price levels, because timing becomes value.”

For decades, coal power ran most of the time, and prices were set in a controlled way, so electricity costs did not change much from hour to hour. As competition expands and renewables scale, that approach becomes less reliable. “As the market opens to greater competition, that logic breaks,” Mukendi said. “Prices will increasingly be influenced by the real-time balance of supply and demand for electricity.”

That change has implications well beyond any single investment case. It reshapes how projects should be valued and financed, elevates the importance of flexibility through storage and hybrid designs, and increases the premium on well-structured contracts that protect revenue through periods of volatility. Over time, the same shift will ripple outward to the broader economy, encouraging more time-aware electricity use by businesses and households as the system rewards power delivered and consumed at the right moments.

“The old approach, valuing projects on a single smooth, average price path, is becoming less reliable,” Mukendi said. “Too many investment models still behave as if we live in a regulated, coal-anchored world where averages are stable and tariffs are the story. What is replacing it is a market where volatility becomes a feature rather than a flaw.”

Who wins and who gets squeezed as prices become time-shaped
“This risk is not shared equally across technologies,” Mukendi said. He noted that solar captures limited upside if scarcity occurs outside daylight hours, while wind outcomes depend on how well generation lines up with high-demand periods. “By contrast, storage is built for this environment because it earns value from the gap between low-price hours and peak-price hours”.

He added that as renewables scale, more generation lands in abundant, lower-price windows, especially midday solar, which means scarcity is pushed into fewer, sharper peak periods, often in the evening.

“Over time, long-term returns will depend less on the average system price and more on whether your asset is producing or discharging during price spikes”.
In competitive markets this shows up in capture price, what a project earns on average, based on when it produces, he said, and that can differ materially from the system average. “As penetration rises, solar faces growing cannibalisation risk as more output arrives at the same time, pushing down prices during solar-heavy hours, while storage earns on the spread between low and high prices, not the overall level.

As the system scales, it is plausible to see zero or near-zero prices during high-renewable periods Mukendi said. [“This can reduce realised revenues for projects concentrated in the same high-supply hours, even when headline averages appear supportive.] [It also increases the value of assets that can shift energy across the day, combine technologies, or optimise dispatch into higher-priced peak periods.”]

What to do differently: evaluation, structuring, and risk management
This shift will make prices more uneven through the day, with sharper peaks and deeper troughs, Mukendi said. “If you are still modelling a smooth average price, you are not modelling the market that is coming.”

In the near term, coal availability can move prices quickly. “A small change in availability can trigger an outsized price response when the system has to rely more on gas or diesel.” The implication is that project returns will be driven more by timing and volatility than by a single average price.

Those funding projects should update investment assessments and contracting frameworks to reflect time-of-day price patterns, capture price and volatility, prioritise flexibility through storage and hybridisation, and structure revenue protection through the transition. “If you are still evaluating wind, solar, or storage projects using a single average price assumption, you are likely underestimating risk and mispricing returns,” Mukendi concluded.