Part 2: The Investment Case for Battery Storage in South Africa

By Muhammad Patel, Investment Manager AIIM

Part 2 of 2 — Behind-the-meter storage, energy platforms, and the risks that matter most

In Part 1, we set out why value in South Africa’s electricity sector is migrating from energy production to energy optimisation as renewable penetration rises — and why co-located storage is a natural evolution of utility-scale renewables, protecting and enhancing the value of generation assets by improving the timing, reliability and commercial quality of their output. In this second article, we turn to the customer side of the opportunity, the longer-term emergence of energy platforms, and the three risks we consider most important.

Value Driver 2: Tariff Optimisation for Customers — The Behind-the-Meter (BTM) Storage Opportunity

Behind-the-meter (BTM) storage refers to battery systems installed directly on-site at commercial, industrial or residential properties rather than out on the main electrical grid. Positioned on the owner’s side of the utility meter, these localised energy storage systems allow businesses and homeowners to capture, store and manage electricity before it ever interacts with the broader power network.

While co-located storage is ultimately linked to generation economics, the BTM opportunity is fundamentally driven by customer economics. We believe BTM storage represents the most compelling long-term storage opportunity in South Africa, as its value proposition is largely insulated from wholesale electricity market outcomes. The opportunity is supported by structural trends already evident today, including rising electricity tariffs, escalating network charges and increasingly complex time-of-use pricing for commercial and industrial customers. However, returns will remain dependent on the creditworthiness and long-term payment capacity of individual customers, making counterparty selection and credit risk management key to a successful investment case.

BTM batteries allow customers to monetise inefficiencies embedded within these tariff structures. The principal sources of value include:

• Peak shaving: Drawing power from a battery during peak periods to lower peak demand and reduce grid stress;
• Demand charge management: Whereby BESS can absorb load spikes to cap demand;
• Time-of-use optimisation: Timing consumption and generation across the day to exploit price or rate differentials;
• Energy arbitrage: Buying (or storing) energy when cheap and selling (or discharging) when expensive; and
• Increased self-consumption of embedded solar generation: Using a battery to store solar output generated on-site during the day and consume it locally outside of peak generation periods.

Unlike utility-scale storage projects, many of these savings can be quantified with a relatively high degree of confidence prior to deployment. The resulting economics are often more visible, more contractual and less dependent on the evolution of future market frameworks. This distinction is important from an infrastructure investment perspective. Although utility-scale storage can exhibit elements of merchant risk, BTM storage increasingly resembles an infrastructure services business underpinned by long-term customer contracts.

The opportunity is therefore an investment in a customer relationship, recurring service revenues and the ability to deliver measurable economic value over the life of the contract, as BTM storage currently offers a more visible pathway to value creation. Co-located storage remains linked to wholesale market dynamics, renewable generation profiles and network availability, but BTM storage derives value directly from customer electricity bills.

The link between rising tariffs, demand charges and battery economics is generally easier to underwrite than future merchant revenues or market participation frameworks. For investors seeking long-duration, predictable cash flows, this creates a compelling risk-adjusted opportunity.

Value Driver 3: The Emergence of Energy Platforms

Beyond standalone storage projects, we believe the most significant long-term opportunity may lie in aggregation. The South African energy market is gradually evolving away from a centralised model towards a more distributed and digitised system. As battery deployments increase, the strategic value will ultimately reside in the coordination and optimisation of large fleets of distributed energy resources.

Currently, storage primarily creates value through customer bill savings and operational optimisation. In the future, fleets of batteries may be aggregated across multiple customer sites, and these aggregated portfolios could participate in energy trading, flexibility services, balancing markets, reserve products and virtual power plant (VPP) models as market structures mature.

In this scenario, the battery itself becomes only one component of a broader integrated energy platform that may include distributed solar generation, energy management software and load optimisation coupled with energy trading capabilities.

The strategic asset therefore becomes the customer network, the operating platform and the data generated by managing distributed energy systems at scale.

The Three Risks and Opportunities We Consider Most Important

A. Grid and Curtailment Risk

Transmission constraints are likely to remain one of the defining features of the South African power sector for the foreseeable future. For co-located storage, this presents both a challenge and an opportunity. Batteries can reduce the impact of curtailment and improve utilisation of scarce network access rights. However, investors should avoid assuming that storage fully resolves transmission limitations, although it is well understood that available grid capacity can be stretched through the implementation of co-located BESS.

Severe and prolonged network constraints can still restrict the value that co-located storage is able to unlock. The economics ultimately remain linked to the availability and utilisation of grid capacity, which will remain constrained until the realisation of the TDP.

B. Capex Deflation, Technology, Degradation and Replacement Risk

Battery costs have declined dramatically over the past decade. According to Bloomberg NEF, lithium-ion pack prices reached a record low of $108 per kWh in 2025 down 8% from 2024, with prices now approximately 93% below their 2010 levels  This trend has been driven by manufacturing scale, intense competition among suppliers, improvements in energy density and the rapid expansion of Chinese battery production capacity.

More recently, a combination of cell oversupply, lower lithium prices and slower-than-expected EV demand growth has accelerated cost deflation, pushing battery prices to record lows, and a further 14–16% reduction in BESS capex is expected over the medium to long term (Aurora Energy Research).

For investors, falling battery prices are both an opportunity and a risk. On one side, lower capex materially improves project economics by reducing the upfront cost of storage deployment and shortening payback periods. On the other, declining replacement costs may erode residual asset value assumptions. Unlike traditional infrastructure assets whose scarcity may support long-term value, batteries are manufactured technologies that become cheaper and often more efficient over time. As a result, future replacement systems may be significantly less costly than those installed today, creating a risk that asset values depreciate faster than their physical performance. BESS investments should therefore be underwritten primarily on the durability of contracted cash flows rather than assumptions regarding terminal asset value.

C. Tariff and Regulatory Evolution

The long-term BTM thesis remains closely linked to customer electricity costs. Aurora Energy Research has indicated that over the last sixteen years, Eskom tariff increases have outpaced inflation by 3x, rising more than 600% since 2009.

Continued tariff increases in real terms suggest that battery economics will improve by increasing the value of avoided energy purchases, peak demand reduction and tariff optimisation strategies.

It is also worth noting that a portion of customer electricity bills consists of non-avoidable charges — such as fixed network, capacity and service charges — which BTM storage cannot reduce regardless of how a customer’s consumption profile changes. The proportion of the bill that is genuinely avoidable through storage-driven optimisation is therefore an important input into the BTM investment case, and one that is likely to vary by customer, tariff structure and network operator, with implications for C&I power development more broadly.

At the same time, the ongoing development of SAWEM and related market reforms may create new opportunities for distributed storage assets to participate in balancing, flexibility and trading markets. While these developments appear promising, we believe investors should remain cautious about underwriting revenues that rely on market structures which are still evolving. Future participation in these markets should be viewed as potential upside rather than a core component of the base investment case.

What does this mean for investors?

Battery storage will become a core component of South Africa’s future electricity system. Aurora Energy Research has indicated that as baseload coal retires and renewable development ramps up, BESS grows from virtually non-existent in the installed capacity mix today to over 17% of installed capacity by 2060. However, we do not believe the most attractive investment opportunities necessarily lie in battery ownership alone. Our central investment thesis is that value will increasingly migrate from energy production towards energy optimisation. As renewable generation continues to expand, flexibility will become one of the most valuable attributes within the power system.

Co-located storage enhances the value of renewable generation by improving dispatchability, mitigating curtailment risk and creating a more valuable energy product. BTM storage represents a different opportunity: a customer-centric infrastructure platform built around tariff optimisation, contracted service revenues and long-term customer relationships. Over the longer term, the greatest value creation may emerge from aggregation, where fleets of distributed batteries evolve into broader energy platforms capable of optimising, trading and ultimately orchestrating increasingly decentralised energy ecosystems.

Technology will continue to improve, and battery costs will likely continue to fall. The enduring investment theme, however, is unlikely to be the battery itself. It will be the growing value of flexibility and the businesses best positioned to monetise it. As power markets become increasingly dynamic, battery storage is poised to play a central role in unlocking and capturing this value across South Africa’s energy system.

Note: Aurora Energy Research is a leading intelligence firm recognised by institutional investors as an industry benchmark for bankable power price forecasting.