With the cooling of demand in the European home energy storage market, where next can China’s massive capacity go?
Since 2022, South Africa, the most economically developed country in Africa, has become a new hotspot for Chinese home energy storage companies. Severe power shortages and installation incentives have driven the rapid expansion of South Africa’s solar storage market, and Chinese players have seized this opportunity, making substantial profits in the region.
Deye Technology is a prime example. As early as 2019, it entered the South African market through partnerships with local companies, catching the wave. In the first half of 2023, its sales in South Africa exceeded RMB 1.1 billion, increasing year-on-year by over three times. The company maintained a gross profit margin of over 50%, making it seem like easy money.
Following Deye, other home storage companies, including Dyness, Sungrow Power Supply, Svolt Energy Technology, Paineng Technology, Ginlong Technologies, Guangzhou Great Power, and GoodWe, have also flocked to South Africa. However, the South African market, with a total scale of less than RMB 10 billion, is far from sufficient to meet all these demands. This has led to intense competition, quickly saturating the market.
“Most of the home energy storage products in South African distributors’ stores are Chinese brands, and the inventory can last for at least another year,” an energy storage analyst focusing on overseas markets told 36Kr.
According to his observations, more Chinese players are still entering the South African home energy storage market. At the Future Energy Show held in Johannesburg in March this year, most exhibitors were from China. As the South African market shows signs of fatigue, manufacturers are turning their attention to other African markets such as Nigeria, Morocco, Mali, and Kenya.
However, like most industries expanding globally, making money in developing countries in Asia, Africa, and Latin America is typically more challenging.
African markets outside of South Africa have overall economic development levels far below that of South Africa. The home storage market capacity is small and profit margins are low. The markets are also largely undeveloped, making initial expansion extremely difficult. Compared to these markets, South Africa’s home storage market stands out as an exception.
“It’s hard to say whether the African market is an opportunity. Many African countries lack awareness and popularization of home energy storage, and there’s no basic industry chain, making initial market development very challenging. We can only proceed slowly,” Mark, a marketing manager from a leading home storage company, told 36Kr when discussing its business in Africa.
Regarding the rapid expansion of the South African home energy storage market in the past two years, the causes are primarily similar to the situation in Europe, formed by the resonance of the local power market environment and government subsidy policies.
In high-electricity-cost regions like Europe and the US, the primary purpose of installing home energy storage is to save on electricity bills. In South Africa, where the power system is fragile and power shortages are severe, installing energy storage becomes the most effective means to ensure household power supply, making it a more urgent necessity.
Mark told 36Kr that almost every South African has a “load shedding notifier” app on their phone. The daily power outage schedule is pushed a day in advance, and South Africans have become accustomed to it, much like checking the weather forecast.
Especially in 2022, South Africa experienced the most severe power shortage since its founding, with over 200 days of load shedding throughout the year, and power outages reaching up to level 8, meaning more than four outages per day.
Moreover, the South African government has introduced a series of policies and incentives to encourage the use of renewable energy and reduce dependence on traditional energy sources, such as feed-in tariffs (FITs) and tax reductions, which have all promoted the growth of the home energy storage market.
The extreme power cuts and government subsidies have boosted the demand for home energy storage in the South African market. According to data from EESA, the installed capacity of home energy storage in the South African market was 0.25 gigawatt hours (GWh) and 0.55 GWh in 2021 and 2022, respectively, with a year-on-year growth rate of 120%. Chinese manufacturers such as Deye and Dyness, which had already established a presence in the South African solar storage market, reaped the benefits.
Dozens of Chinese home storage companies, including Huawei, Guangzhou Great Power, Svolt, and Greenway, rushed into South Africa to seize the market, leading to an imbalance between supply and demand. The initially low-profit South African home storage market was suddenly plunged into a price war, becoming fiercely competitive.
Several overseas home energy storage practitioners told 36Kr that latecomers like Svolt lowered rates to the price floor to grab market share, leveraging its cost advantage as a battery cell manufacturer. This move pressured home energy storage integrators who needed to purchase battery cells.
Meanwhile, since the second half of 2023, South Africa’s power cut situation has improved to a certain extent, slowing the growth of demand in its home storage market in 2023. According to EESA, the installed capacity of home energy storage in the South African market was 0.73 GWh in 2023, with a year-on-year growth rate of only 32.7%, far below the previous year’s 120%.
The rapid growth in supply and the slowdown in demand have led to a sharp deterioration in the South African home storage market, causing prices to plummet, high inventories, and increased operational pressure on companies.
Deye, which had previously benefited greatly from the South African market, has also been negatively affected by the market’s cooling. In the first quarter of 2024, its revenue and net profit both declined. Deye explained that the South African market saw a year-on-year decline, and other markets were not yet sufficient to cover the explosive growth of the South African market in the same period last year.
Another company, BSLBATT, which is also involved in the South African market, told investors in May this year that the intensified competition in the South African home storage market and downstream inventory pressure have affected its business.
South Africa is the most developed country in Africa and the largest home energy storage market in Africa. Despite this, the domestic market is still somewhat lackluster.
An energy storage analyst told 36Kr that South Africa’s per capita GDP is only USD 6,800, about half of China’s, with significant income disparity. Therefore, most ordinary households are extremely price-sensitive, not caring about brand or quality, only low prices and functionality, even at the expense of warranties. This makes it difficult for home energy storage providers targeting the mid- to high-end market to scale up, while small companies like Sacolar New Energy and Must Energy, which pursue extreme cost-effectiveness, thrive.
According to BloombergNEF data, the top five countries for global home storage installations in 2023 were Germany (5.11 GWh), Italy (3.387 GWh), the US, Japan, and Australia. The South African market (0.73 GWh) does not even make the global top five.
Other African countries, in terms of economic development and overall market scale, are far behind South Africa and lack presence in the global home energy storage market.
Following South Africa, Nigeria, the largest economy in Africa with a population of over 200 million people, is also seen as having potential for developing home energy storage. Companies like Transsion Holdings, Hithium, Sungrow, Deye, and Longtech Smart Control have entered the market.
However, Nigeria’s per capita GDP in 2022 was less than one-third of South Africa’s, making ordinary households equally price-sensitive to home energy storage products. This poses a significant challenge to manufacturers’ cost control and market strategies.
Despite the huge production capacity and growth anxiety of Chinese home energy storage players, the unappealing African market has still become a “battleground” for them.
Compared to South Africa, other African countries have exhibited similar market characteristics. Most of these countries have fragile power systems with frequent failures, requiring residents to have fuel generators to ensure power supply, creating a rigid demand for energy storage systems.
Against this background, some manufacturers have chosen to target more segmented high-end markets. “Even in poorer sub-Saharan African countries, there is a certain affluent population with a demand for home energy storage solutions,” a marketing manager from a high-end home energy storage brand told 36Kr. The brand’s first stop in the African market was Zimbabwe, a country commonly perceived as economically backward.
Overall, home energy storage companies, after cooling down in the South African market, have had to slow their expansion and adapt accordingly. After all, an annual doubling of growth like in the South African market is not the norm, with African markets likely requiring a long cultivation period to develop properly in the long run.
KrASIA Connection features translated and adapted content that was originally published by 36Kr. This article was written by Wang Fangyu for 36Kr.