How businesses can maximise savings with collective renewable energy efforts

At first, businesses thought the rolling blackouts were temporary, writes Neesa Moodley . Then the duration of the power cuts started increasing. By January 2023, it became apparent the energy crisis was unlikely to lift, resulting in massive imports of solar panels.

Just before South Africa’s general elections at the end of May, the country saw a record number of days without load shedding. While some attributed this to electioneering, the reality is that the huge investment in renewable energy by the private sector has managed to lift some of the strain on the national power grid.

Eskom estimated that by March 2024, about 5,440MW of residential and rooftop solar had been installed across the country. The GoSolr “light paper” for April 2024 reports that rooftop solar increased by 2,630MW last year and another 236MW was added in the first quarter of this year.

However, a white paper released this week by Discovery Green points out that businesses procuring too much solar could end up increasing their total energy costs by more than 50% in the long run.

High electricity costs

Teresa Settas, marketing director of the One Energy group, notes that if you assume the conservative viewpoint that Eskom will continue to increase prices by 12% and that municipalities are likely to add a further 2%-3% on top of this – a 15% increase per annum – businesses face high electricity costs over the next 15 years.

Energy generation vs consumption

Andre Nepgen, head of Discovery Green, explains that while you pay for what you use with traditional, largely coal-generated electricity, the flip side is that you pay for the energy generated when you use renewable energy – regardless of whether your business uses the energy or not.?

“This is the fundamental difference between the procurement of renewable energy and utility-supplied electricity – the point of payment,” he says.?

Nepgen says the fix is for businesses to optimise their mix of renewable energy and match it to the business’ consumption patterns up front.

“Our research shows that no industry has an electricity consumption profile that perfectly matches the solar generation profile. It also explains why businesses shouldn’t assume they can solve the remainder of their renewable energy needs in the future – it is more complicated than that,” says Nepgen.

Caution against excessive solar procurement

Nepgen says there is currently a pronounced bias towards solar energy, and while the immediate financial benefits of solar are clear, there is a tendency to overlook the long-term consequences, opting instead for short-term gains.

The Discovery Green white paper research shows that, typically, after replacing 45% of their energy needs with solar, businesses face a 77% premium to fulfil the remaining 55% with renewable sources.?

This is because businesses must find a supply of renewable energy only for their leftover night-time consumption, which is an extremely expensive product to offer for any renewable energy supplier. As a result, businesses tend to settle for a low level of renewable energy coverage after procuring solar, but there is a cost to this too.?

With only a small portion of their total energy demand covered by renewables, businesses remain heavily exposed to high utility-price increases in future years, projected to be well above inflation. These long-term costs are frequently omitted during the sales process and decision makers are not yet equipped to understand all these dynamics.

Part of the problem is that many businesses base their decision-making on historical averages without accounting for the risk of extreme events that could impact generation or consumption.

“Our analysis shows that output from a single solar facility can fluctuate by more than 14% between consecutive months, and by up to 33% for wind plants, and that’s if the sun was to shine and the wind was to blow as expected.?

“This can increase to as much as 72% when considering the potential variability within a single time-of-use billing period, which is what ultimately drives a business’s financial savings,” says Nepgen.

In terms of variability in consumption by businesses, the data shows a stark difference between industries – as much as a 6.5x multiple in certain cases. Failing to consider this variability means that the perceived value of renewable energy may not materialise as expected.

Current renewable energy options available to businesses include:

• On-site installations. These are typically small-scale, using either rooftop solar panels or a solar plant alongside a business’s operating premises. The problem here is that solar panels will exclusively produce energy during the day and businesses will first exhaust their quota of standard hours. Beyond this point, any additional generation capacity added will result in wasted generation.
• A renewable energy wheeling contract with an independent power producer (IPP) for solar photovoltaic (PV). Renewable energy wheeling involves the purchase of privately generated electricity connected to the national grid. The contract could be for the entire generation facility or a share of the plant in a multilateral agreement, most commonly on a take-or-pay structure.
• A wheeling contract with a renewable energy trader acting as an intermediary in the market. Traders contract to purchase renewable solar and wind energy from IPPs and sell this energy to businesses at a trading margin.
• A wheeling contract with a renewable energy product platform. Renewable energy platforms purchase renewable energy en masse from IPPs. The platform often holds two significantly different procurement contracts; one with the IPP and the other with the business as the offtaker.

Diversification of energy supply is key

Nepgen recommends pooling renewable energy from various sources to create a diversified energy portfolio that is more resilient to fluctuations in generation.?

“This diversification helps to smooth out the variability inherent in renewable energy sources, such as solar and wind power, ensuring a more stable and reliable energy supply and a less risky product proposition to businesses,” he says.

The white paper research shows that where a single business can achieve a 49% renewable energy coverage level before energy becomes wasted, a portfolio of five businesses from different industries acting together can increase this coverage level to 78%. The Discovery Green white paper looked at mining, financial services, food retailers, fitness, hospitality and entertainment, agriculture and shopping centres.

“Importantly, businesses can use this model to replace at least 90% of their energy consumption with renewables in a single transaction, eliminating the risks presented by low coverage, solar-focused strategies” adds Nepgen.

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