Electricity from solar power could be the cheapest in South Africa by 2020, according to a new report by Frost & Sullivan.

The study, commissioned by the South Africa Photovoltaic Industry Association (SAPVIA), found that state utility Eskom will be selling coal-fired electricity for R1.69/kWh (US$0.171/kWh) by 2020.

As the country continues to commission more PV, the cost of electricity from solar could fall as low as R0.74-1.26/kWh (US$0.075-US$0.127/kWh).

“That’s the pricing where we expect to hit grid parity, that could happen around 2018,” Davin Chown, president of SAPVIA and director at Genesis Eco-Energy and Mainstream South Africa told PV Tech.

The Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is targeting 1.45GW of solar PV. The third round of projects will be announced on 29 October.

“The round three REIPPPP figures have not been released yet; it could be good to see in two weeks time what comes out of that process. There has been a very rapid degression from round one where solar projects average around R2.65/kWh (US$0.268) to round two when the average was about R1.65/kWh (US$0.167).

“Some of our projections for 2013/14 were about R1.20/kWh, lets see how accurate we are,” he added. “The technology costs have dropped considerably and we need to see what the impact is going to be in the market”

Despite the falling cost of solar power, Chown warned that letting cost dominate the development of solar in South Africa created its own risks.

“We need to ask what kind of market, what kind of industry we want in South Africa. From a pricing point of view the question is how far down should we be pushing them. The renewables programme is not just about lowering the cost, there are other benefits too. Local content, local ownership, manufacturing capacity, job creation and the benefits for local economic development. So there are a number of other softer objectives for solar to achieve and we are getting there.

“The question is if we do get to that R0.76/kWh, should we be going any lower? It’s a new industry and given the volatility in emerging markets, could we run the risk of pushing prices so low there is no margin for the system to absorb other knocks.

“It’s going to become a build and hold market, it will attract players for the long term.”

“If we can get down to the R0.90/kWh (US$0.091) level those are really sensible numbers; the era of cheap power in South Africa has gone.”

Eskom has been criticised for building huge new coal generation capacity, which it argues is necessary to cope with increasing demand in South Africa.

Chown said the utility had been “quite receptive” to renewables but needed to shift away from its reliance on big, centralised, base-load power stations.

“The risk in the system has not been accurately priced; if one of these big plants goes down a big chunk of the network goes. The consequences for South African business when this happened in 2008 were absolutely staggering.

“We need more diversified generation. Eskom needs to make that shift. So far Eskom has helped a huge amount to make sure projects get connected to the grid on time. It’s in their interest that they do so,” he said.