Long-term cost savings of deploying alternative energy
Businesses or landlords wanting to go the alternative energy route need to determine whether this is going to be a journey to become independent of Eskom, or is the aim to carry the business or residential premises through a couple of hours of load-shedding?
The three key drivers of alternative energy adoption are load-shedding, load reduction and a significant increase in the cost of electricity – on 15 February, NERSA’s 15.6% tariff hike was approved, which means that businesses and individuals are going to pay more for electricity. Either one or a combination of these factors have forced businesses and residential estates to consider alternative energy sources. “The key driver for your individual choice to adopt alternative energy will determine your journey,” says Barry Venter, CEO of Nashua. The savings incurred very much depend on the type of solution, the industry and application.
One of the biggest and most common concerns around alternative energy is always that of affordability, Venter says: “However, you have to consider how much money the business is losing as a result of load-shedding or load reduction. You need to quantify that. Then you’ll realise that it’s not a question of whether you can afford to invest in alternative energy, it’s rather a matter of when you’re going to implement it.”
Also, one should be aware that the installation can be done in phases, it’s not necessary to invest in a full-blown off-grid solution at the outset. “The first step would be to deploy a backup solution, then move into solar, then a hybrid system and eventually an off-grid solution. Instead of asking how much all this is going to cost, the real question that you should be asking yourself is how much revenue are you willing to lose every time your business is without power.”
He goes on to outline the different payment models and affordability. “A rental option is for customers that can’t afford an upfront once-off fee. A power purchase agreement (PPA) can also be considered for businesses that don’t have the money for a big capital outlay. Another option is to incorporate a solar installation or battery backup into other existing rental agreements that the business may have, such as for printers, laptops or computers.”
A PPA is a more futuristic approach that offers an alternative to relying on a loan from internal finance houses. A PPA project is done in partnership with an EPC (engineering procurement and construction) firm. The customer commissions the solar installation, and solar panels are installed on a rooftop in the residential or business rooftop. The customer is then paid a monthly rental for the space occupied by the panels and the power generated is sold on to tenants or residents of the complex.
A PPA is signed with each tenant or resident that states that instead of paying Eskom for electricity, they will pay the solar installation provider on a monthly basis at a rate that’s lower than that charged by Eskom. There are various ways of structuring a PPA, depending on how much of this discount the landlord wants to retain for himself. “Sometimes the landlord commissions the installation and keeps the cost savings for himself and the tenants pay him directly. He has two options here: he can pay upfront for the installation and generate power that he’ll sell on for probably the next 20 years. Alternatively, he can opt to not pay for the installation and the EPC will sell on the power that’s generated at a lesser tariff.”
There’s also a hybrid solution, where the premises has solar generating electricity and storing that into a battery backup so the business or residence has access to that power when there’s load-shedding. During peak load periods, the user can switch between the grid and the power that’s been stored. “By not using Eskom’s power when it’s most expensive and offsetting that by using the power that you’ve stored, you can effect tangible cost savings. Having the battery backup means that you aren’t reliant on the grid even at night, which is ideal for household applications.”
“Solar has definitely become more affordable with time; it’s no longer the expensive commodity that businesses have traditionally shied away from because of the cost.” In fact, says Venter, the costs have reduced significantly to the extent where 2020 was the best year for the alternative energy industry and solar specifically, whereas the majority of other industries had a tough year last year.
How to choose a provider
- Look for a reputable supplier who can provide a comprehensive end-to-end offering.
- The servicing and maintenance element post-installation is very important.
- The longevity of the business is key – will they be around for next 20 years?
- Can they remotely monitor devices to proactively detect issues before they happen?
- Do they have a national footprint?
Venter explains: “As load-shedding and load reduction become increasingly commonplace, alternative energy is becoming a popular market sector for SMEs, but customers have to consider whether these providers are in it for the long haul and do they have the expertise required. This is also probably not a good time to be too cost conscious and shop around on price.”