Energy needs new models in a post-lockdown SA
The novel coronavirus pandemic and subsequent global lockdowns have destroyed the business case for a lot of power purchase agreements (PPA), but this has subsequently created fresh markets. Demand for reliable energy has shifted from corporate offices to smaller businesses at homes, a situation many suggest will persist beyond “hard lockdown”. But being able to meet the need for more cost-effective and reliable energy in homes that are essentially distributed operating units of businesses will require zero cost, zero risk business models to support them, says Wessel Wessels, head of sales of NEC XON’s Alternative Energy division.
One of the major problems following the novel coronavirus pandemic sweeping the world into lockdown is that it ended almost all economic activity. Even conservative estimates say the effects will be well beyond the 2008 global economic downturn. Many compare it to The Great Depression of the 1930s.
The initial response was that, faced with a sudden dearth of customers, many businesses pulled out of shopping malls, for example, while others slashed their energy consumption needs as they scaled back operations. Even Eskom was able to end load-shedding and increase maintenance. But using less energy ruined the business case for many power purchase agreements (PPA) focused on bigger buildings. PPAs are 100% financed-based on buyers paying for electricity used and they typically consider incomes over their full 25-year lifespans.
But, following the huge reduction in commercial and industrial demand, there was a subsequent ramping up of energy use in the home market. With as many people as possible working and schooling from home, often spending eight to 12 hours more drawing energy per day, they have in many cases begun to push their home use into higher consumption brackets. The higher brackets charge more per kilowatt hour, which places a lot more pressure on peoples’ incomes. Plus, Eskom has proposed moving the residential sector to time of use (TOU) tariffs, which charges more for electricity during peak use times in the mornings and evenings, which will put even more financial pressure on residential customers.
With the global economy in free-fall due to worldwide lockdown measures to curb the spread of COVID-19, and local economies such as South Africa’s suffering even more because of the pre-COVID-19 challenges, people have much less money. Jobs have been and continue to be lost. Unemployment is already nudging 40% including those that have given up looking for jobs.
Spend is down. Our South African economy was, as of April already, expected to contract by as much as 6.1%, according to the Reserve Bank, 5.8% according to the International Monetary Fund (IMF), and 2.5% according to Moody’s.
Businesses have closed and continue to do so. Some media reports say as many as 200 000 business could shut down in South Africa as a result of the novel coronavirus pandemic.
Eskom is likely to renew load-shedding sometime during or after May.
Many people are likely to continue working and schooling from home. They will need reliable, cost-effective energy. Renewable energy, such as solar, is a highly attractive option because of its low cost, particularly coupled with storage capacity. But most people will not have the money to finance the solutions.
We need solutions for energy and many other challenges, but we won’t have the funds. We will need some novel and innovative ways to create, deploy and pay for solutions such as renewable energy and storage capacity.
To finance it, we have to understand what’s fundamental to providing cost-effective, reliable energy. We must secure the production of the technologies, the solar panels themselves, which are currently made in China and other countries. The novel coronavirus pandemic impacts the supply chain. Then we must be able to store the energy in batteries we produce so we can release it when the sun doesn’t shine. The final element is being able to manage the asset operationally over its expected 25-year lifespan.
Those foundational elements create viable solutions and those help us recover from the impacts of the pandemic as well as the socio-economic challenges that we already faced beforehand. Our economy absolutely relies on dependable energy production.
The industry was already galvanised into action to achieve all of these goals as hard lockdown began. Some of the role-players, the vendors, the finance and insurance institutions, and the management service providers, are co-operating to create the zero cost, zero risk models based on firm understanding of guaranteed usage and value of the contracts between the creation, deployment, ownership and usage entities. With everything in place, we will have the tools to help us rebuild the economy and our livelihoods.