Business

New solar project to test Eskom’s dominance

Read time 3min 30sec
Experts say solar power has become cheaper than grid electricity.
Experts say solar power has become cheaper than grid electricity.

Renewable energy company SOLA Group has partnered African Infrastructure Investment Managers and Nedbank Energy Finance to build 40MW solar projects that will rival Eskom in cities across the country.

The R400 million worth of projects will be preceded by 15MW of solar PV power purchase agreements (PPA) with several breweries and other industrial facilities around South Africa.

SOLA Group says consumers pay for their energy directly, through a PPA tariff that is 20% lower than Eskom or their municipal provider’s rates.

The news of potential cheaper power could be a devastating blow to Eskom, which is in a dire financial state and saddled with R400 billion debt. Eskom hopes the debt will be alleviated by more tariff increases, and it has already asked the regulator to consider a possible hike in price. 

Last month, the power utility had one of the worst business losses in the country’s history, losing R20.7 billion during the 2018/19 financial year.

The SOLA Group says its financed model allows sectors focused on short-term cost reductions in their opex budgets – such as fast-moving consumer goods companies – the opportunity to tap into solar power.

This would allow reductions in operating costs and carbon emissions, which are important to industrial sectors. The financed solar PV is provided through a PPA.

Through its renewable energy fund, dubbed Orionis, SOLA Group will build the solar PV projects without capital expenditure by the electricity off-takers. The projects will be located in Johannesburg, Durban, Cape Town, Ekurhuleni, Nelspruit, Port Elizabeth and Polokwane, with 880 jobs expected to be created.

This latest investment in SA’s renewable energy sector comes as experts say solar power has become cheaper than grid electricity, and this development is a boost to the prospects of industrial and commercial solar.

Chris Haw, chairperson of the SOLA Group, says: “This partnership brings together three highly-experienced entities, whose combined skills offer consumers clean energy solutions at a time when our country desperately needs it.”

Chris Haw, chairperson of the SOLA Group.
Chris Haw, chairperson of the SOLA Group.

Bright future

Analyst Sunny Morgan, MD of Enerlogy, says SA’s renewable energy sector promises good returns.

“There could be a bright future and South Africa could be a world leader if we deal with the challenges besetting us. One challenge that I often highlight is that the current funding models benefit the traditional financial system; the debt and capital markets have a firm hold there.

“We need a local initiative to fund community-owned renewable energy projects. There is currently tens of billions of rands tied up in the Stokvel sector, in union investment vehicles and with faith-based organisations. Community-owned renewable energy can offer sustainable returns for these investors if they seize the opportunity now.”

Morgan is, however, critical of what he sees as the underlying motivation for the private sector to increase investments in renewables, particularly solar energy.

He explains: “The nature of renewable energy projects is long-term – 20 years on average – so this matches nicely with the rates of returns and project income streams.

“Long-term power purchase agreements are excellent opportunities for funders to commit low percentage (cheap) capital as capex outlays, initially with the prospects of 20-year returns. Most are pegged to the electricity price trajectory, so it’s not rocket science to make a determination that the electricity price will trend north. This is pay dirt for investors.”

He argues that renewable energy will play a critical role in SA’s economy going forward, if the country deals with “the issues that unions and civil society raise around the energy transition”.

“If we can deal with the policy uncertainty and loosen the grip of the vested coal interests, then renewable has a bright and sunny future in South Africa.”

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