South Africa’s rising electricity costs fuel a wave of energy startups

South Africa’s electricity prices will increase by 26% over the next three years, pushing households and businesses to seek cheaper energy alternatives. This rising cost, combined with upcoming VAT hikes, fuels the demand for energy startups to offer innovative solutions like smart technology, renewable energy, and off-grid systems.

With Eskom’s price hikes starting in April and additional increases through 2027 according to figures released by the National Energy Regulator of South Africa (NERSA), consumers face mounting energy bills. In response, a growing wave of energy startups is providing cost-saving innovations to help South Africans reduce electricity expenses and accelerate the shift toward sustainable energy.

Scores of energy startups have launched over the years in response to rising electricity costs, power shortages and decommissioning of coal plants. 

Smart energy solutions on the rise

“We have seen a shift in people wanting energy management tools that can help them shift their load. This shift is evident in the tripling of our smart geyser technology sales in the last 18-24 months,” says Mark Allewel, the CEO of Sensor Networks, a smart home energy management startup founded in 2007.

Sensor Networks provides sensors and a platform that allow users to monitor and control their energy consumption, including geysers, pools, lights, and plugs. By setting timers and monitoring how much energy appliances use, customers can lower their electricity costs. 

Sensor Networks has recently partnered with Ariston, a global water heating solutions company, to bundle its smart tech with Ariston geysers.

“To heat water for a family of four or five, is about R1,300 to R1,400 ($70 to $77) a month now.  If you can reduce that by 30% or 40%, suddenly you are making massive energy savings in the house,” explains Allewel.

Allewel believes that this partnership with Ariston helps scale up their products.

“Looking at the geyser market in South Africa, between 400,000 to 600,000 geysers are sold every year,” he says.

Across South Africa, about 5.2 million geysers were connected in households in 2023, and projected to rise to  6.4 million by 2033, creating opportunities for startups such as Sensor Networks to scale up.

Renewable energy accessibility

Versofy, another energy startup established in 2014, focuses on making renewable energy more accessible by removing the high upfront capital costs associated with solar installations. Their “Solar as a Service” model offers a subscription-based approach with insurance, allowing customers to save up to 70% on their electricity consumption.  

“Our original objective was to break down those barriers by removing the need for upfront capital,” says Ross Mains-Sheard,  Co-Founder and CEO of Versofy. “The value we bring to our customers increases every time Eskom raises their prices,” he says.

Versofy’s business clients benefit from financial dashboards that track their return on investment, while residential customers can monitor their energy usage through an app that gamifies energy-saving behavior.

Smart metering and energy trading

Switch Energy provides software solutions for energy trading, smart metering, and usage management. Their systems help improve energy generation and usage, particularly in projects with localised renewable energy sources.  

“We can use demand-side management techniques such as controllers and sensors to improve consumption and to match generation,” says Andrew Murray, CEO of Switch Energy.

The company is also targeting property owners and developers in low-income communities, providing smart metering and revenue collection systems to ensure fair billing for tenants in backyard dwellings.

The road ahead

While these startups are addressing critical needs, they face challenges such as high capital requirements, regulatory hurdles, and consumer education.

“Launching a business anywhere, in any sector is extremely hard. Our challenges have been amplified due to the sheer amount of capital required for our business,” says Mains-Sheard.

Switch Energy’s Murray highlights the need for a strong business track record and certifications, as well as the limitations of the existing grid infrastructure.

“An energy market where we are not so reliant on coal and from the state-owned Eskom, open market with lots of private sector participation,” is the future envisioned by Murray.

Sensor Networks sees a shift towards “time of use” prices, where consumers will pay more for energy during peak hours and less during off-peak hours, driving demand for smart energy management tools.

“Our prediction is three to five years. Time of use tariffs will be sort of ubiquitous through the market in South Africa, and people are going to look for tools to be able to shift their load,” says Allewel.

As Eskom’s price hikes continue to strain South African businesses and households, the country’s growing energy startup ecosystem is poised to play a crucial role in providing sustainable and affordable energy solutions.