Posted in: Dom Wills

Solar and wind energy could set South Africa on track for the world’s cheapest electricity

This article originally appeared in the Daily Maverick Opinion Section.

It’s a no-brainer — a move to renewable energy will not only boost the economy and create jobs, it is also the path to providing South Africa with potentially the cheapest electricity in the world given our natural wind and solar resources.

Energy was never this difficult. Energy came from coal in the ground, burnt somewhere, put in a turbine, wires were connected, and cheap energy flowed for many years. However, this was never going to last long, because the amount of coal that forms in a year was being burnt in a minute. The world has now realised that this is unsustainable behaviour, and we’re faced with a set of future alternatives: hydro, nuclear, wind, solar, biomass, coal — each with a sidecar of complexity, and we need to make some decisions.

Ten years ago, the general public didn’t know what a kilowatt-hour (kWh) was, what it cost, where it came from; they didn’t know how many litres of water were spent in a flush or shower, how many dams we had or how many megalitres we use per day.

That’s changed. We’re more knowledgeable now. Why? Because we’ve felt the effects. Electricity is expensive and we’ve even run out of it (many times). We’ve been on water restrictions for years, and Cape Town came close to being the first major city in the world to run out. Authorities are having to find alternative methods to abstract water, domestically and regionally. Unemployment is a major contributor to poverty and addiction, and we witness frequent protests against injustice.

Knowledge, however, can help us to solve problems. If the problem at hand is to solve the electricity crisis, we need deep understanding to find the least cost kWh and invest in the technologies that will deliver that. The “least cost” does not only refer to the financial cost, but also the environmental and social cost. The industry has been poor at recognising the entrenchment of communities reliant on the electricity sector and ensuring that reform is done fairly.

In the long wait for the IRP 2019 to be gazetted, many people have missed a recent study published in the international journal, ScienceDirect, which took a bold step forward in modelling a best electricity policy scenario based on cost, water and employment. The strength of this peer-reviewed article is that it is founded on solid scientific data. And while a cold approach to kWhs might not reflect every sensitivity in our country, the study did pay attention to the largest social item on our agenda: jobs.

The paper, titled Pathway towards achieving 100% renewable electricity by 2050 for South Africa, modelled the costs of renewable and non-renewable electricity generation pathways in South Africa, taking into consideration South Africa’s current energy requirements, the expected population growth, and costs of electricity. The paper highlighted the possible scenarios for South Africa’s electricity future — whether we stay on the Current Policy Scenario, highly reliant on coal — or go aggressively into renewable energy (what the authors term the “Best Policy Scenario”).

Their suggested “Best Policy Scenario” (BPS) includes 71% of overall electricity production coming from solar PV and 22% by wind by 2050. In addition to this, storage technologies, transmission grids and gas power plants would be utilised to provide the elements of consistency for a stable electricity supply.

The BPS is 25% cheaper than the current policy scenario, and this doesn’t take into account the additional benefits of electricity being virtually 100% renewable, such as the reduction in the detrimental effects of carbon and other poisonous gases in Earth’s atmosphere, the distributed nature of the employment, and the lower risk in the technologies.

If you put a cost saving to these benefits, particularly the greenhouse gas emissions, then the 100% renewables case becomes more than 50% cheaper than the Current Policy Scenario.

In addition, the cost reductions in Levelised Cost of Electricity (LCOE) are not the only benefit of this pathway. In addition to their findings on LCOE, the authors assert that the low-carbon pathway will also decrease water consumption by 87% by 2030, and by 99% by 2050, compared to the baseline — which would remain in the Current Policy Scenario.

From an employment perspective, the renewables-rich BPS will grow the jobs created by the energy sector dramatically, almost doubling to 408,000 by 2035 and tapering off to 278,000 by 2050 as construction jobs stabilise. In the Current Policy Scenario, fewer jobs are created, never rising higher than the 200,000 mark, and decreasing to 184,000 jobs in 2050.

What about coal and nuclear?

The arguments to retain a coal-heavy electricity supply are becoming thinner, particularly given the overwhelming evidence toward coal’s contribution to greenhouse gas emissions that cause climate change and the fact that South Africa is one of the world’s worst emitters of CO2, clocking in just behind huge economies like China and the US.

The authors assert that coal and nuclear should be phased out in the BPS, adding that new investments in coal and nuclear could be at risk of becoming stranded assets as more banks tend to opt out of investing in non-renewable technologies.

On nuclear energy, the authors assert that, “results for the fully renewable end-point scenarios indicate that there is no need for high cost and high-risk nuclear energy in the future South African electricity mix”.

From the study, it is clear that South Africa has an important policy decision to make: one that will steer its future toward low-cost, low-carbon electricity that will create jobs and reduce freshwater consumption. It is an option that would be to the benefit of all South Africans — and the world at large.

The “side” benefit is that in this scenario, due to our significant wind and solar resources, we’d probably have the cheapest electricity in the world, adding a strong element of competitiveness to our economy, which we’re also trying to grow. Now more than ever, we need to do the right thing. It’s clear as day.

Aries utility solar PPA in South Africa

Electricity in SA seems bleak, but it’s loaded with opportunity.

Originally published on LinkedIn

What the Eskom’s current state of nation-wide load shedding and their 15% tariff increase appeals are teaching us, it is that the fate of South African industry is tied fundamentally to the availability of stable and affordable electricity supply. The sustainability of the utility requires brave, informed and decisive leadership: but it is possible.

We’re in a landmark year that will determine not only the fate of Eskom, but South Africa more broadly. In May, the country will vote on whether to extend the term of the ruling party in a an uncertain global market.  The ANC’s latest manifesto has clear intentions around energy: more renewables, more private partnerships (IPPs), repositioning Eskom and ensuring fair treatment of South Africans as part of a Just energy transition. It also plans to integrate solar PV in state buildings and new developments.

This year, we’re looking at a year of continued change in a sector that badly needs a modern restructure.

Arriving at today’s energy market

In South Africa, 2018 held much in the way of energy sector developments. The renewables-vs-nuclear stalemate came to an end with new energy minister Jeff Radebe signing 27 long overdue renewables projects. Eskom’s mismanagement was placed under the spotlight and a new CEO, Phakamani Hadebe, was appointed in May. In August, the much-awaited draft Integrated Resource Plan (IRP) was released, showing favour toward renewables and gas and less coal and nuclear. Why the sudden change in South Africa’s energy landscape after years of stagnation?

One answer is that South Africa has started to take heed of global trends toward renewable energy. This is not simply a fad: the upsurge in solar PV technology, in particular, is part of a global market context. According to the Global Market Outlook report for solar energy, solar PV accounted for nearly 40% of all new generation technology during 2017: more than any other power generation technology. This was mostly driven by China, US and Japan, whose overall manufacturing influence also drove the costs of solar modules to record lows. It is undisputable that Solar PV’s cost per unit is now cheapest in the world by a significant margin.  Even more growth is expected in coming years.

The challenges for the energy landscape

Back in South Africa, Eskom has a major debt-service problem on its existing assets. The assets aren’t able to cover their own costs at Eskom’s current tariff rate, which is why they are asking for 45% increase over the next 3 years when inflation is just 5% p.a. Put another way, these assets are worth less than the R420Bn of debt that Eskom borrowed when building them in the first place.This is the primary cause of  Eskom’s death spiral.

The challenge for Eskom, and South Africa, remains that a different electricity path is cheaper. The cold numbers show that the lowest cost model is renewable energy and gas, with no new nuclear builds and limited further coal. This has brought up some valid social issues around transformation and the displacement of employment. These issues are important and need to be tackled head on, they also need to be seen in the light of education, upskilling, entrepreneurship and opportunity.

The opportunities for the energy landscape

The energy minister has recently said that the IRP will be signed off in mid-February.  The IRP draft, combined with the ANC’s policy manifesto, does show willingness to dissolve the electricity monopoly, bring private players into the market, reduce the costs of electricity and stimulate the economy, allowing the government to focus on the key areas of the country that need it most.

The President’s recent announcement of his intent to divide Eskom into separate Generation, Transmission and Distribution entities is not only in line with global trends, but it will also ringfence Eskom’s unprofitable generation assets from affecting its profitable grid infrastructure, which is crucial to our country’s stability as an economic entity.  It is hard to know the series of actions that will follow, but we can be sure that it will be done sensitively in an election year.

We’re already seeing large users of electricity investing in their own power consumption, and when the IRP is released, we’ll see generation licenses starting to be awarded to private embedded generators.  Most of this is, and will be in future, solar PV due to the ease of implementation and abundance of solar resource in South Africa. However, there will also be some cogeneration and biowaste projects too.  These steps are very positive, as they set the stage of a socialised electricity grid with multiple power sources, allowing the most affordable energy to be available to South African industry and encouraging economic growth.

The Future is Bright

We have an extraordinary opportunity for electricity reform in South Africa.  If our renewable resources are harnessed, we not only have 20 years of upskilling and job creation, but with our natural resources we could have, sustainably, the cheapest electricity in the world. If we get the structure right, and manage the transition in the best interests of all of our people, it will be a positive boon for South Africa’s economy. This is a major task, but if achieved, we have a lot to look forward to.

Is solar the green solution agribusiness needs?

Agribusiness contributes significantly to a country’s overall industry outlook, particularly because of its links to sectors such as chemical processing and manufacturing. Locally, SADC has identified agro processing as one of three regional priority value chains, along with mineral beneficiation and pharmaceuticals.

That being said, the economic challenge that farmers and agribusiness are facing is a tough one. Over the ten years up to 2017, electricity tariffs to state utility Eskom have risen by 356 percent – four times the rate of inflation over this period. The power utility has requested an additional 15% increase for the 2019/20 period, although the National Energy Regulator of South Africa (Nersa) seldom grants the full requested increase. The coal shortages this November that led to the shut-down of 11 power stations also highlight the uncertainty of the operating climate for South African industry.

In addition to soaring prices of electricity and uncertainty of supply, business in South Africa is affected by climate change. Agriculture is particularly affected by the cycles of rain and drought, as well as temperature, which are both affected by climate change. And because agriculture is, ironically, one of the leading causes of climate change, consumers are now demanding that farming practices meet stringent environmental and ethical standards.

Trade and Industry Minister in South Africa, Rob Davies, acknowledged that uncertainty in this arena is hampering economic growth, following his announcement in October that agro-processing is one of the sectors that government will be targeting with incentives to revive South Africa’s struggling economy.

Solar could give a growth spurt

Given this difficult context, it’s no wonder that Agro-processing is in need of bolstering in South Africa. Embedded generation, which is the small-scale production of power within the electricity distribution network, situated close to the place of consumption, is a great solution to counteract the explosive costs, and unreliability, of grid-tied energy. The cost, per kWh, of solar PV (the most common form of embedded generation)  has dropped dramatically in the past years due to increased uptake globally that has pushed down manufacturing prices. Adopting this cheaper source, close to the point of consumption, can lower the running costs of agro-processing plants significantly, giving them a leg-up in tough economic times.

Financed solar through PPAs

However, in order to purchase a solar PV system, businesses need to outlay capital, which might not be the most appealing option for agribusiness, whose capital budget is used for much-needed maintenance and plant upgrades. However, power purchase agreements (PPAs), which are a way of financing renewable energy systems such as solar, are an attractive alternative.

Renewable solutions are now at the point where they can provide a viable and cost-effective alternative for businesses in this sector.

Entering into a PPA in South Africa is a way for agribusiness to shield themselves from Eskom tariff increases, as it is possible to purchase renewable energy at a lower rate than what Eskom can provide, with a fixed tariff increase.

This is particularly pertinent due to Eskom’s recent 15% tariff increase application. Should a large portion of their energy come from solar, agribusinesses can use solar PPAs to shield themselves from the volatility of Eskom.

Renewable energy is also a significant mitigator of environmental harm, because it reduces industry’s reliance on coal-burning power generation, which releases greenhouse gases into the environment. Reducing greenhouse gas emissions is important for agribusiness, who often have sustainability targets.In fact, every industry should be concerned with addressing the realities of climate change – but none more so than agriculture, which is dependent on steady and predictable weather patterns.

Challenges and possibilities for agribusiness in South Africa

Solar PV power plants are also decentralised and can easily provide power in rural areas without having to erect new infrastructure, such as power lines. However, in South Africa, applying for a grid-tied solar PV system on Eskom infrastructure remains a challenge. Eskom’s independent power producer [IPP] connections do make provision certain for low- or medium-voltage connections, but they require a letter of exemption from Nersa, which is almost impossible to obtain without certainty around the IRP – which should be finalised in February, according to the Minister of Energy Jeff Radebe.

The energy landscape has changed significantly since that Eskom’s memo on low and medium voltage connections was released, and solar PV connections are now much more viable for companies and farms that are currently connected to Eskom infrastructure. Many more businesses would now like to opt for embedded power generation. The updated IRP restriction of only 200MW of embedded generation – which is where the low- and medium-voltage connections will be found – limits the generation capacity that the agro-processing industry urgently needs.

If more and more businesses lobby Eskom to allow low- and medium-voltage connections, they will be able to benefit from competitive electricity prices, while also reducing their carbon footprints. This will serve their stakeholders – and the environment they rely on – well into the future.

A reflection on South Africa’s energy landscape in 2018

South Africa’s renewable energy sector received a new lease on life in 2018, after years of uncertainty and lack of movement.

With the Ramaphosa government signing nearly R56 billion worth in contracts with 27 independent renewable energy producers during 2018, the way forward, notwithstanding legislative and business challenges, is looking much brighter.

Significant progress has been made in the private sector in adopting renewable energy as a viable and consistent energy supply, often beating the costs of Eskom-supplied power.

We believe that more businesses will make use of renewable energy sources either to supplement their power, or for their primary electricity supply, as batteries and solar PV costs continue to fall.

Robben Island is saving millions of rands on its electricity bill though its microgrid. Earlier this year, Cedar Mill Mall in Clanwilliam opened its doors after Eskom told the developers it could not provide the power needed to supply the large building. These project show that despite inertia and a struggling economy, South African business can still benefit from renewable energy.

Uptake is particularly impressive in the retail sector, with malls catching on to the value of solar to produce low cost power during their busiest hours of operations. Ilse Swanepoel, Head of Utilities at Redefine Properties, whose solar PV fleet produces about 35 754 600 kWh per annum, stated “Solar is no longer niche and is a well-entrenched renewable energy source underpinning the achievement of green-building goals. Demand has grown in recent years, with many large blue chip tenants prioritising their own sustainability efforts, expecting the developer to dovetail and help achieve their objectives.”

This is encouraging. However, uptake in renewable energy should not just be supported by the private sector. For the economy to benefit from renewable energy’s reduced costs, the contracts signed by the government with the 27 independent renewable energy producers must translate into action that is sustainable, consistent and measurable.

Independent Power Producers (IPPs) have reportedly created 35 702 jobs and have spent R766 million on education, health, social welfare and enterprise development, according to figures provided by the ministry.

I’m optimistic about the renewable energy sector, given the government’s willingness in 2018 to acknowledge and engage with alternative energy suppliers, which were on hold for several years. REIPPP’s Round 5 is crucial in terms of accelerating the government’s transformation plan as it is set to bring about higher levels of transformation, localisation and community upliftment requirements.

In addition to this, the successful implementation of the Small IPP programme, aimed at smaller scale projects with a focus on SMMEs, high black ownership and local supply chains is exactly what the renewable sector needs. Going forward, we will need to work closer with all role-players as we better understand the sector and its ability to grow and develop South Africa.

Solar will be a boost for SA's economy

One of the most significant documents is the government’s draft Integrated Resource Plan (IRP), which outlines the way for South Africa to meet its growing national electricity demands by 2030.

The IRP was released for public comment in August. The construction industry (with its high electricity costs it incurs) has already welcomed the IRP, with some saying it could revive the industry. It has also been praised for its proposed increased allocation to renewable energy and the phasing out of coal and the pursuit of the ‘least cost option’ which rules out nuclear at least until 2030.

However, the IRP still lacks in clarity and allocation for embedded generation – which is one of the fastest growing energy sources and key to reducing corporate energy costs. A future-facing IRP takes into account not only the cheapest form of energy, but also the changes in the energy environmental happening globally. Coal-based, heavily centralised energy systems are fast becoming redundant with the introduction of smarter technology.

South Africa is no exception in this picture, with state utility Eskom plagued with difficulties in 2018. Still, Nersa’s (National Energy Regulator of South Africa) announcement giving Eskom the go-ahead to recover R32.7 billion (already approved as part of its adjudication of three separate Regulatory Clearing Accounts), will result in further tariff increases.

Embattled state utility Eskom

This will encourage businesses to look at alternative, consistent and cheaper forms of electricity – resulting in less income for Eskom and municipalities that rely on selling power through their grid.

Nersa continues to agree to Eskom’s requests for increasing tariffs. The embattled parastatal has again asked the regulator to push up tariffs – this time a 15% tariff increase per year over three years – this is on top of a 4.41% price increase Nersa has already granted Eskom. This proves to be one of the many reasons why a balanced energy mix should be put in place.

Another piece of legislation crucial to the sector is the so-called Carbon Tax (revised Draft Regulation on the Carbon offset), which Treasury published on 12 November for a second round of public comment.

Small and medium-scale renewable energy projects with a generating capacity of up to 50MW have been listed by Treasury as eligible for carbon offsets, but Nersa’s regulations might hinder national uptake.

Renewable energy trading, embedded generation and renewable IPPs needs to be supported by South Africans. Renewable energy solutions have the potential to jumpstart our economy; legislation is a step in the right direction. It will be interesting to see how the energy sector will develop in 2019.

solar could help Africa's economy to grow

SOLA and project 90 by 2030 worked together on solar PV mentorship programme with Khayelitsha youth

Salt River Secondary receives a solar system, thanks to Project 90 and SOLA

On 7 December, SOLA Future Energy was privileged to build a solar PV system for Salt River Secondary School in Cape Town. This was a culmination of SOLA’s involvement in the “Playing with Solar” project organised by Project 90 by 2030.

The 3.96kWp solar system will save the school around R 8 200.00 on its annual electricity bill. It will also help the school cut back 5 tons on its yearly carbon emissions. The school was awarded a Wessa Eco-Schools flag in 2017.

SOLA installs PV system at Salt River Secondary School

The project and donation came after two months of collaboration between organisation SOLA Future Energy and the YouLead Warriors – youth taking part in Project 90’s climate-focused youth leadership initiative.

The YouLead Warriors were given practical training on the mechanics and benefits of solar power at workshops held earlier in the year. This consisted of two 4-hour workshops at SOLA’s offices, detailing the basics of solar system design and media strategy and communications. The youth also visited two of SOLA’s sites – the iconic Robben Islalnd Microgrid, and Kenilworth Centre’s solar system.

Project 90 site visit Kenilworth Centre

Project 90 site visit to Robben Island

Dom Wills, CEO of SOLA Future Energy, says that it was a privilege to work with these future leaders. “Through this project, we have been able to teach learners that providing a reliable, cheap and clean form of energy is something that can benefit communities and create jobs.”

The ‘Playing with Solar’ initiative was made possible by generous funding from the HCI Foundation.  The installation was made possible through donations from Ingeteam and Lumax Energy, who sponsored the solar inverter and mounting gear respectively.

Acting school principal, Fairuz Patel, thanked everyone who worked on the project, saying that the money they are saving “can make a massive difference in the kind of education we can offer our learners, while also making a real and tangible difference to the environment”.

Langeberg Mall - Mossel Bay

Reflections on the last 5 years of solar PV

Over the last five years, solar PV has moved from a peripheral energy option to the fastest growing energy source in the world, and is predicted to stay that way. What has changed over the last five years, and what does the future look like?

LCOE: then and now

The debate around adopting solar PV, in 2013, remained largely around cost. Although already starting to look competitive, solar PV’s merit still needed to be largely proven and accepted – as argued Bloomberg New Energy Finance’s paper on PV economics.  During 2011, for example, solar PV development stood at 28.5 GW, ten times as much as ten years earlier.In 2013, investing in solar still seemed somewhat risky – even though predictions were that it would become cheaper and more reliable than ever before. It’s potential and appeal as a renewable energy source (with no moving parts or emissions during generation) however, was widely acknowledged.

Fast-forward 5 years, we see a very different picture. According to a study by the International Renewable Energy Agency in 2018, renewable LCOE was the same cost, and at times significantly lower, than fossil-based generation – and the prices are predicted to drop even further. In fact, costs came so low that even with the optimistic predictions in 2012, they were inconceivable – the renewables market outperformed its predictors. It is now widely accepted that solar PV remains one of the cheapest forms of energy available.

Global investment in solar PV - BNEF

Source: Bloomberg New Energy Finance

From REIPPP to Rooftop: the South African market

In 2013, government had received its second round of IPP submissions as part of its world-renowned REIPPP programme. It’s competitive auction model meant that Independent Power Producers (IPPs) needed to be competitive to win projects – and it was hailed as one of the most successful public-private partnerships. In just the first round of submissions in 2012, the cost of solar PV dropped by 40%. In each successive round, the costs dropped further.

Unfortunately, due to state-utility mismanagement and state capture, Eskom’s blatant rejection of this perfectly set up procurement mechanism meant that the IPPs have all but died out. The REIPPP programme was halted, and its fate is yet to be seen (although recent political developments indicate that it will hopefully come back online – at least for the final round of projects).

Nevertheless, what the REIPPP programme did was bring the efficacy of renewables into the public eye – and into the eyes of business and property owners, who prized affordable, clean energy over the uncertainty of Eskom’s intermittent supply and tariff hikes. During 2016, it was estimated that  80 MW solar PV was installed on rooftop projects in South Africa, a figure 10 times higher than 5 years before.

When storage became a real player

5 years ago, although energy storage was part of the conversation, it certainly wasn’t centre stage. Market efforts remained on improving LCOE for solar PV, and storage technology was relatively new and less developed. In fact, despite the fact that storage frequently came up in energy conversations, it was still touted as too expensive to have any long term, significant impact. Even the overall efficacy of solar PV was questioned because of “the storage problem”.

Robben Island battery bank

Lithium-ion batteries store excess solar PV at Robben Island Microgrid

The picture today is different – storage is a topic not only central to conversations about solar PV, but is viewed as less of a problem and more of an opportunity. Indeed the price of lithium-ion storage dropped by 24% in 2017 alone, and we’ve seen the first energy-storage conference in Africa take place at the end of 2017.  Batteries and storage solutions now provide exciting opportunities for linking renewables to grid, peak-shaving and grid-flexibility.

Participants in the first energy storage conference in SA hosted by EE Publishers

Participants in South Africa’s first Energy storage conference. Source: EE publishers

We saw, ourselves, the immense power of storage through our Robben Island solar PV microgrid project. The microgrid now enables Robben Island to save on diesel fuel costs, whilst providing a superior and uninterrupted energy supply for the entire island. In fact, the potential of batteries to supplement both off-grid and grid-connected solutions is, I believe, one of the key areas we will see energy storage deployed in the coming years.

In conclusion

Over the past 5 years we have seen solar PV take centre stage as one of the most affordable, reliable and deployable forms of energy in the world. The expansion of the rooftop market – particularly in South Africa – has meant that businesses can benefit from clean, cheaper energy now more than ever before. Added to this, the development and accessibility of storage solutions now means that completely off-grid, or supplemented grid options, are now available. These developments have taken place  rapidly, and continue to change the face of available energy options in the world. It will be exciting to see what the market brings in the next 5 years.

Dr Dom Wills is the CEO of SOLA Future Energy. The company is 5 years old on the 5 March 2018.

Solar PV offers several ways to optimise the industrial sector

5 ways solar PV can optimise your industrial electricity usage

Inexpensive electricity is the foundation of a globally competitive manufacturing sector and healthy local manufacturing or industrial businesses. In South Africa, electricity prices have increased by an average of 16% per year for the past decade, squeezing an already fragile industrial sector and resulting in less than 1% annual growth in manufacturing output since 2010. Manufacturers in high-tariff areas such as Ekurhuleni and the City of Johannesburg have been particularly hard hit, and Eskom’s  5.23% increase for 2018 threatens to further undermine local industrial resilience.

Thankfully, however, local industry is no longer restricted to the central grid and expensive diesel generators for electricity. Solar PV and battery storage technologies can now reduce  energy consumption, decrease peak demand, improve the reliability of electricity supply and give businesses an edge in local and global markets. Five points below demonstrate five ways in which solar PV can optimise industrial and manufacturing electricity usage.

1. Solar PV reduces energy consumption and utility electricity bills

An industrial solar PV system can reduce electricity consumption from the grid from 30% at a basic level, to 100% if combined with robust battery storage technologies. This reduction of the municipal or Eskom power means that savings are made directly through having to buy less electricity.

Solar systems generally consist of solar panels, inverters and distribution boards that seamlessly integrate solar electricity into a building or plant, combining it with the grid’s power when necessary.

As a plus, manufacturing and industrial plants often have large roof surfaces which are ideal for the deployment of solar panels.

How to understand solar PV cost savings

You might be thinking, “wait a minute, don’t solar PV systems also cost money?” Yes – solar PV systems are not without their own costs – particularly if one wishes to purchase one’s own system rather than going through a solar financing option. However, solar PV systems present several opportunities to save money. Firstly, one saves money directly by simply not buying electricity from the municipality or Eskom. Secondly, industrial plants with solar systems also save on demand charges. Depending on a business’s tariff area, these demand charge savings can be even more than the direct energy savings from reduced consumption.

The Internal Rate of Return (IRR) is a term used to annualise savings from the solar system over its lifetime, relative to the investment in the system. This number is helpful when comparing it to other investments. 

Lets use a fictional example to demonstrate:  

Siphesihle Dlamini runs a paper manufacturing plant in Spartan industrial area in Ekurhuleni, Gauteng. Usually, the plant requires energy during the day because the plant does not run for 24 hours. Their electricity bill is high as they use about 720 000 kWh of energy per month to run the plant.

Because of the electricity needs and the roof size of the plant, Siphesihle needs a system of about 1 MWp of supplied power. Because the plant has a large roof area, he is able to install a 1 MWp solar system on to the roof. On Ekurhuleni’s industrial tariff D, Siphesihle will save R1,786,621.23 in energy per annum by installing a solar plant. His expected internal rate of return (IRR) for will be 33%, and it would take him around 4 years to pay off the system. However, because the solar system lasts for 25 years, he will get 21 years of free energy from this 1 MW plant thereafter. A solar system will prove, for his paper manufacturing plant, to be a fantastic investment.

2. Solar PV and/or battery storage reduces industrial electricity demand charges

Demand charges are a way for utilities (such as Eskom), to reduce supply constraints on the grid during peak demand periods. In South Africa, these are generally most pronounced in the mornings and evenings. In order to work out demand charges, the electrical utility (in this case Eskom) measures customers’ demand on a continuous basis. The peak demand, measured over a month, is determined in units of kVA. The utility then calculates a demand charge by multiplying the measured peak demand (in kVA) by the applicable demand charge rate (in R/kVA).

Demand charges can account for more than half of an industrial businesses’ electricity costs. Solar PV can significantly reduce peak demand in these industrial plants, particularly when electricity consumption peaks at midday (for example where a building has lots of refrigeration or cooling). Where demand peaks in the early mornings or evenings, a solar PV system can be combined with battery storage to dispatch low-cost solar power at any time of day, reducing peaks and driving huge savings.  

Another way that municipalities encourage businesses to limit their peak consumption is through Time of Use tariffs. These allow the electrical utility to charge clients more per unit of energy consumed at peak demand times than at other low demand periods.

Some areas in Gauteng that have high demand charges are:

    • Ekurhuleni, where demand charges are as high as R130/kVA and peak Time of Use Tariffs are as high as R5.20/kWh.
    • Johannesburg (City Power), where demand charges reach R170/kVA and peak time of use tariffs are as high as R2.90/kWh.
    • Tshwane, with demand charges as high as R157/kVA and peak time of use tariffs of up to R3.14/kWh.  

Another fantastic way to reduce demand charges with solar PV can be to combine a solar system with battery storage in order to enable “peak shaving”. This means that excess solar power during the day is stored in batteries, which is then deployed as the sun is rising or setting but the peak demand tariff comes into play. This enables industrial businesses to reduce their demand charges significantly.

Let’s take our earlier example of Siphesihle. Since his manufacturing plant has a large roof space, he is able to install a solar system that is larger than the requirements of his plant, meaning that during the day he produces more power than the plant requires. The excess power generated by the sun could be stored in batteries to be deployed as the sun goes down, reducing his time-of-use tariff dramatically. This could provide even more savings.  

Monitoring energy consumption is key to making energy cost savings

3. A combination of solar PV and batteries is more reliable than a centralised grid

Although South Africa is not currently experiencing load-shedding, reliable electricity supply is an essential component to industrial processes, and without it manufacturing businesses will struggle to make ends meet. When combined with generators and/or batteries, a solar PV microgrid can supply 100% of a building’s energy requirements, preventing the risk of load shedding.

A microgrid works like a “brain”, determining when power is needed and from what source. Usually with a combination of solar PV, batteries and a backup generator, a microgrid can successfully take an industrial plant off the grid entirely.

The main advantage of a microgrid is that it improves not only the consistency, but also the quality, of the energy supply. Where electrical surges could be harmful to industrial processes, these can be prevented through a carefully programmed microgrid.

Battery costs have reduced significantly in the last few years, meaning that going entirely off-grid is now becoming an affordable option.

industrial and manufacturing industries rely on access to clean, cheap power

4. Financing options mean that solar PV is affordable

Many industrial plants, whilst reliant on good quality, affordable energy, do not have a large capital budget to spend on developing a solar PV system, as electricity is considered an operating cost. This means that purchasing one’s own solar system – and perhaps combining this with batteries – can seem unfeasible for many industrial energy users. Thankfully, solar financing options exist, allowing industrial energy users to enter into a solar Power Purchase Agreement or PPA, paying only for the energy that their solar systems provide, rather than buying one outright.

These agreements include a financier who will foot the capital costs of the solar system, in exchange for selling the energy back to the end user. This means that the solar system is externally financed, and industrial businesses need only pay for the power that they use from their system.

industrial PV helps to reduce electricity costs

5. Solar PV reduces carbon emissions

For all of the energy that is diverted from the coal-heavy national grid, carbon emissions are saved – enabling industrial users to reduce their total carbon footprint. This is particularly useful when keeping in line with international standards and in helping manufacturers to reach sustainability targets.

In industrial and chemical manufacturing, reducing one’s greenhouse gas emissions is important, particularly when trying to align with international standards. Although installing a solar PV system on an industrial building won’t reduce direct greenhouse gas emissions, it will reduce indirect greenhouse gas emissions from the energy saving (and, potentially, from the additional insulation provided by the panels on the roof, too). This can help an industrial company to reduce its overall carbon footprint and meet its sustainability targets.

Do you own or know of an industrial manufacturing plant that could benefit from solar energy? Contact us or try out our solar calculator.

Intersolar Europe SOLA Future

Takeaways from Intersolar 2017: the latest and greatest in solar technology

​SOLA CEO, Dom Wills, and CTO, Ian Burger, attended the world’s largest gathering of solar professionals in Munich last week. Below follows a few takeaways from the conference.

A positive outlook

Much of the Intersolar conference focused on the global outlook of the industry during 2016 and using that perspective to predict on the future of solar and its applications. Looking back is informative: in 2016, the world built 76 GW of solar power, which amounted to a conservative turnover of around US$ 85 billion. Much of the market was in China; the US, Japan and India were also very big players.

The pricing of solar is steadily shrinking; as more solar PV is deployed, investors’ confidence increases and increased volume and efficiency means that capex costs are coming down. Although this is a fantastic outlook for solar – and has been the reason for the sector’s exponential growth over the last few years – it is changing the way in which solar is deployed and potentially sold.

China, for example, curtails around 15-20% of its solar power: in other words, the spot price for solar energy is 0, 20% of the time.  The curtailment is factored into the financial model, but an obvious opportunity exists to harness and sell that energy as the penetration of solar increases.  This has huge potential for utility battery storage, because businesses – or even individuals – can buy power for nothing at time of excess, and then sell in high times of need.  Business opportunities also exist to sell ancillary services to the grid, such as frequency or voltage support.

This is great news for people and for industry as a whole – the future could easily see energy being extremely cheap, if not free. For businesses in energy, the business model will be built around power – storing the cheap energy produced by the sun, and selling it back to consumers when it is not shining. It’s likely that tariff structures might change to accommodate this, and that manufacturers and other energy-guzzlers are incentivised to ramp-up operations during the day, when the sun is shining and energy will be cheap.

Away from baseload

The outlook on heavy baseload and centralised grid energy infrastructure is not only becoming more unpopular, the general perception is that the forward costs of nuclear and coal could potentially put economies at risk. Because manufacturing competitiveness relies heavily on energy costs, countries with the lowest energy costs will thrive and those with expensive power will fail.  As such, careful consideration needs to be made as to which energy sources to prioritise. Centralised, baseload-heavy grids are no longer required, competitive or appealing in the global market.

On the positive side of this, microgrid tech is an exciting prospect for countries with little or fragmented access to energy. It’s predicted that microgrids are going to be cheaper than fossil fuels, and Africa is a perfect market for microgrids because of its lack of fixed-line infrastructure. The potential for many more to have access to power is within reach and will not be expensive to deploy.

Storage, storage, storage

Storage was, predictably, one of the major topics at the conference. The general sentiment amongst technical experts is that for every unit of solar PV that is installed from now on, some storage must be included – even if it has to be subsidised at first. The inclusion of storage will be important to avoid large-scale solar PV becoming a nuisance to the grid or having large amounts of curtailment. If storage is incorporated with every PV system, the scale will also assist in bringing down the cost of lithium ion technology – and thus the price of batteries.

Storage came up for other technologies, too. Electric vehicles will increase the demand for electricity in coming years, an flexible charging will be important with on-board storage, so that they can buy electricity when it is cheapest and during peak PV hours. However, there is still much to be done in the way of making cars and their systems smarter.

Hydrogen and Methane were also a topic of discussion on the storage front, as both gases can be created from electricity using chemical processes. Exploring this link opens up the opportunity for long term seasonal and annual storage options which will be particularly useful in countries with large imbalance between summer and winter.

Smart and automated

In line with global technology trends, the Internet of Things is popping up in the energy world, too. Experts believe that IoT It will play a role in allowing ‘smartification’ of devices to use energy efficiently or use energy at specific times, depending on the cost.  This links heavily with the substantial amount of ‘smart home tech’ that is being developed to automate and increase efficiency in households. Drones and robots, too, are a hot topic up for debate. From operations and cleaning to testing and surveillance, they are going to become a useful player in making solar PV more efficient.

SOLA will be hosting an information session on findings from Intersolar Europe on 29 June. If you would like to attend, please get in contact. 

Intersolar Europe

Reflections from Intersolar, day 1

SOLA CEO, Dom Wills and CTO, Ian Burger, are currently in Munich for Intersolar Europe – the world’s largest gathering of solar professionals. Below are some reflections from the first day of the conference. Follow updates on Twitter.


Intersolar Europe 1

2016 was a record year for solar energy

Reduced costs and better technology paints a sunny picture for solar

Overall, 2016 was a record year for solar. This is due to not only increased uptake, but also reduced cost of materials. Overall, the levelised cost of energy – or, what solar energy costs comparative to other sources such as coal and wind –  has come down by 58% in the past 7 years, and storage by 40% in the past 4 years. Both of these factors are predicted to either reduce at the same rate or even an increased rate. This paints a positive picture for the future of solar and its affordability.Technical advances in the actual making of solar panels – such as integrating Silver deposits in silicon wafers that solar panels are made of – is expected to increase the efficiency of solar cells by 0.24%, perhaps even increasing to 0.35% over the next year. These technical aspects, combined with reducing costs of storage, could mean that solar far outstrips its energy competitors in coming years.

Operations and Maintenance key to solar’s effectiveness

Operations and Maintenance of solar was also a key part of the discussion, with the costs of this still needing to be reduced significantly. As more plants are built, there is a need to maintain them; however, costs of maintenance are still relatively high. Soiling losses – or dirt on solar panels that reduces their generating capacity – can be as high as 20%, particularly in dry or dusty areas. This makes the importance of maintaining solar systems even more poignant. Automation, digitization and standardisation will be key components to achieving costs reductions for operation and maintenance.

The development of specific standards for solar, such as international standard DIN77055-1, are currently being compiled and will look to be published in early 2018. Standards such as these focus on record keeping and standardising procedures, which will likely be beneficial for developing the relevant software portals for PV plants in the future.

In conclusion

Overall, the first day of Intersolar Europe was one packed to the brim with positive stories of solar, and how both costs and technology are advancing in the technology’s favour. From the perspective of technical leaders in the field, the future really does look bright.

Follow SOLA CEO, Dom Wills, for updates.

Visit the Intersolar Europe Website.

Contact us to install your own solar system.

Intersolar Europe

The plenary hall was packed for day one of Intersolar Europe