Renewable energy in South Africa: Insight for businesses

Experts at an Investec event forecast the end of loadshedding in South Africa by 2025 as a best-case scenario, or 2027 as a worst-case scenario. With businesses in South Africa already facing cost pressures, high inflation and record interest rates, is it worth investing in solar panels, inverters and batteries?

While reducing emissions by transitioning from fossil fuels is crucial for combating climate change, businesses don't need to go completely off-grid to achieve this. Instead, they can integrate alternative energy sources, such as solar power and wind energy, into their energy generation strategies. By adopting a mix of renewable energy solutions and enhancing energy efficiency, businesses can significantly reduce their carbon footprint while reducing their reliance on Eskom and maintaining reliable power supply.

Why renewable energy is a good investment for business:

• Investing in renewable energy technologies can significantly reduce operational costs over time.
  
  
• Companies that are committed to sustainability are attractive to talent, customers, and investors.
  
  
• Selling surplus energy generated can generate an additional income stream.
  
  
• Going renewable makes you feel a part of something bigger.
   

The key takeaway is that bringing renewable energy systems into the mix is about more than beating loadshedding. It’s less grudge purchase and more critical investment.

Choosing the right energy mix for your business

The idea of transitioning is attractive for many businesses. It allows them to experience renewable power without significant financial risks, building systems incrementally to see what works best.

Francois van Themaat, CEO of Sustainable Power Solutions (SPS) and event panellist, outlined the ownership options for businesses in South Africa when investing in renewable energy systems:

• Outright Purchase: Businesses can buy a renewable energy system directly, often paired with a long-term maintenance contract.
  
  
• Power Purchase Agreements (PPAs): Businesses can lease the system without any initial capital outlay.
  
  
• Joint Ownership: This approach involves a power solutions company and the client jointly funding the system, with the company providing strategic guidance to help the client transition to renewable power systems over time.

• Solar rentals: Through flexible rental solutions, supported by Investec, businesses can take immediate action. Solar rental models allow business to achieve savings from the first month, with zero upfront capital and no operational disruption.

When a business decides to invest in renewable energy, any delays can be frustrating, especially if the system eventually goes live during a period where loadshedding decides to take time off. 

“Locally, we have the batteries to build three to four megawatt systems, with a lead time of roughly 10 to 14 weeks. But any bigger and you’ll be importing from the likes of China with lead times stretching beyond 20 weeks,” explained Charl Alheit, Chief Investment Officer of Solar Africa.

Renewable energy considerations for business

When investing in renewable energy systems, businesses in South Africa have several options available and should consider their needs carefully.

• Generators provide a reliable source of power and are essential for businesses with sensitive processes, such as hospitals, luxury lodges, or factories, serving as a final backup.
  
  
• Batteries act as energy storage, saving costs if generators are used more than 20-30% of the time by reducing the need for continuous generator operation.
  
  
• Solar panels require a fair amount of space, and many medium-to-large businesses have limited rooftop space. The concept of ‘wheeling’ allows solar arrays to be installed in less cramped areas, like the Northern Cape, and the power can be transmitted through Eskom’s grid to the business location. This method maximises space efficiency and energy generation potential.
   

For commercial properties, electricity is charged per kWH, with higher costs during peak demand periods. Batteries can be a good option for these properties, allowing businesses to switch to stored battery power during peak hours (known as peak shaving), to lower costs.

For property owners with tenants, a significant concern is how to charge the tenants for the investment in batteries. One way is to ensure that the onsite metering system can charge a different tariff during loadshedding hours. Alternatively, the owner can tie the cost of the battery into the tenants’ leases and escalation terms.

Power wheeling regulation changes

A key change in regulation has awakened the power wheeling market in South Africa.

Power wheeling involves delivering energy from a generator to an end-user in another area using existing transmission networks. This can span multiple distribution networks, like Eskom to a municipality. All customers essentially receive wheeled energy, whether supplied by Eskom or a third-party independent power producer.

“Wheeling was initially done on a one-to-one basis. So, if I built a plant, I was only allowed to wheel to one customer. Now producers can wheel to numerous customers from one plant. If grid constraints are resolved, this will lead to large-scale liberalisation of the energy market,” said Charl.

The one-to-many wheeling development benefits energy consumers and producers alike. If the clouds roll into the Northern Cape, businesses can switch to a producer catching rays in the Eastern Cape. If there is a country-wide cold front, simply switch to wind, geothermal, or hydroelectric power. The ability to source renewable power from multiple producers injects competition into our energy marketplace, resulting in efficiencies. Piecing together the optimal renewable power solution is where energy trading comes in.

The rise of energy trading in South Africa

If more progressive energy regulation is the engine of renewable power, energy traders are the grease making it purr. James Beatty, CEO of Enpower Trading, summarised how energy trading works:

1. Aggregate Consumer Demand: Connecting multiple 10-megawatt customers to a 100-megawatt producer. This diversification reduces risk for both parties, attracting more capital and energy users.
   
   
2. Blend Renewable Energy Sources: Achieve greater penetration by combining different sources. On-site solar energy can typically supply 20-30% of demand, and up to 50% with wheeling. With blended energy solutions, we can get close to 100%, which suits corporates with net-zero targets.
   
   
3. Flexible Contract Periods: Offer customers shorter contract periods than the legacy 20-year offtake agreements between independent power producers (IPPs) and their customers. Such flexibility substantially lowers the risk of transitioning to renewable power. 
    

The contracts also come with fixed escalations linked to CPI, providing consumers valuable predictability around electricity costs, in contrast to the spasmodic NERSA-approved price increases.

Investing in sustainable energy is a strategic move for South African businesses. Beyond addressing loadshedding, it offers cost savings, energy security, and a positive environmental impact. The transition to clean energy may involve initial challenges, but the long-term benefits make it a critical investment for the future.