National power outages due to the overall decline in generational capacity by Eskom - the country’s national state-owned energy supplier – are nothing new to South Africans. These outages come at a great cost to both the state and local businesses. For the remainder of the year, and into 2023, Eskom plans to spend around R1.2 billion per month on emergency diesel expenses, with 2021 seeing a record 37% increase in downtime as compared to the previous year. Looking to the future; the predicted 2022 winter downtime can potentially reach an excess of 100 days of loadshedding and a further estimated 13 000MW shortfall between September 2022 and March 2023. The estimated job losses due to loadshedding are estimated at around 350 000 for the 2021-year.
The government has implemented plans to increase the national generational capacity with the aid of Independent Power Producers (IPPs) in the coming months and years, but these kinds of projects take years to be implemented and are subject to NERSA’s volumes of red tape for approval.
Miles Oates and Nick Weggelaar, directors from the Build Africa Energy conglomerate have given us some valuable insights into the way forward for South African businesses to meet their growing energy needs, at a sustainable cost.
A realistic return on investment (ROI) for a grid-tied solar plant is around four to six years, meaning that the system should pay for itself more than three times during its lifetime
Alternative energy sources to mitigate load-shedding
Diesel Generators
Many businesses have invested in emergency diesel generators to continue operating. However, in addition to the noise- and air pollution, ongoing maintenance costs of fuel, as well as recent spikes in fuel costs, this solution has become an unsustainable business expense.
Battery Backup
Smaller, non-industrial businesses have also looked toward battery backup solutions to ensure that critical office functions can continue to operate during grid failures. The capital outlay on these systems is higher than that of a generator (in terms of capacity installed), but they are quieter to run in an office environment, need less maintenance and no additional fuel, and don’t emit hazardous fumes. Unfortunately, these solutions have been known to have a fairly short lifespan, with lead acid and lead-crystal batteries expecting to last no more than 2-years before needing replacement. These technologies were also not ideal to be used in industrial settings, as their discharge voltages can only supply a fairly low and constant load, and not the spikes industrial applications require.
In recent years, however, lithium-ion-phosphate batteries and high-voltage lithium packs have hit the market. The prices have stabilized to the point where there is a real ROI in using this technology during downtime. The expected lifetime of such batteries is also significantly higher than their predecessors, with an expected life cycle of ten to fifteen years.
The downside to using battery banks as an emergency electricity supply is much the same as a generator in that it is still more expensive to operate per kWh than Eskom power. Thus, by only relying on the generator and/or battery power during grid failures, a business will still increase its overall electricity expenses to compensate for the downtime. However, where technology allows; the batteries may be used for “peak shaving”- that is, during peak times and when kVA spikes - then the ROI of batteries well exceeds the costs of generators.
Grid-tied Solar PV
Grid-tied solar PV has been available on the South African market for more than two decades, but recent years’ escalation in electricity costs has made these solutions increasingly financially feasible. The premise of grid-tied solar PV is to generate the majority of a business’s electricity needs during the day and provide the business with electricity at a lower cost over time than Eskom can supply.
A realistic return on investment (ROI) for a grid-tied solar plant is around four to six years, meaning that the system should pay for itself more than three times during its lifetime, assuming the investment was paid for as a capital expenditure (CAPEX). The initial outlay is purchased at current value, while the lifetime of a good quality solar system can exceed 20 years . Thus, solar technology bought at the present value will produce returns based on the future value of Eskom electricity cost. If the trend in Eskom increases of around 13% per annum continues; energy costs may rise to a staggering R8.71/kWh within the next 10 years, essentially saving the solar-plant owner energy costs at future value with equipment purchased at current value.
The downside of grid-tied solar PV is that it uses the Eskom grid as its battery, meaning that the grid remains the link between generated solar power and the user. By definition, when the grid fails during loadshedding, a grid-tied solar system will necessarily power down to ensure that solar-generated electricity won’t cause an electrification-hazard downstream.
A Hybrid Approach to Security of Supply
The power plant of the future might not be one solution, but rather a combination of alternative supplies. These hybrid solutions aim to assist business operations during rolling blackouts, while still offering financial returns in the long term.
A typical hybrid plant will combine the use of solar generation, with backup battery storage and potentially integrate existing diesel generators as a fall-safe for long-term blackouts. This combination of generational capacity means that solar power can be generated during the day at a lesser price than Eskom energy can be bought, and any excess solar energy is stored in the battery bank for potential grid failures during the day or night. An additional benefit to such a system is that more energy cost savings can be obtained by using the battery bank as a power supply to the site during the peak Eskom tariff period, thereby increasing the overall ROI of the system.
Technology consideration
Investing in solar is a long-term investment, and emphasis should be placed on the quality of technology installed. Developing countries are infamous for being the dumping ground of inferior quality solar inverters and PV panels that have been banned in first-world countries in Europe and the West. It is greatly important to use providers with a proven track record and a thorough understanding of their product performance and safety when investing in these technologies. A ‘bakkie-brigade’-installer might offer products at a cheaper cost, but the buyer needs to ensure that the supplier will be able to offer the long-term relationship and deliverables to ensure the longevity and ROI of the system installed.
Funding of alternative energy
The cost of solar is calculated in Rands per Watt installed, weighed against the predicted annual generation in kilowatt-hours. This calculation also takes factors into account such as maintenance costs and Eskom increases, tax incentives, and the tax implications of energy savings on cash flow.
Many of the financial investment houses and banks in S.A. offer special rates to their clients for investing in renewable energy assets as part of their sustainability drives. The return on investment of such systems can be higher than returns on leaving money in the bank. In the case of bank-funded solar systems (typically 80/20), the ROI should be within one year, meaning that the savings generated throughout that year should exceed the initial loan deposit amount within 12 months.
Tax incentives such as the Section 12B allowance permits the solar owner to depreciate the solar system fully within the first year of installation. Thus, profitable businesses who invest in their solar plant can reap the tax benefits in year 1, as opposed to asset depreciation over three to five years.
