SA has seen a huge boom in renewable energy investment over the past two years, driven by fast-rising Eskom tariffs and record levels of load-shedding.
Much of this investment has gone to solar power, resulting in total installed solar capacity in SA nearly doubling last year. According to Eskom data SA had 5,200MW of private solar systems installed by end-2023.
However, a new report by Discovery Green, says the approaches available now to businesses for procuring renewable energy might prove risky and expensive in the long run. This was mainly because businesses were procuring too much solar which could end up increasing their long-term energy costs by more than 50%.
Financial services group Discovery launched its energy offering, Discovery Green, last year. The renewable energy platform, which is expected to start delivering electricity to clients in 2026, will operate through a wheeling process that will entail electricity generated at the most efficient locations for wind and solar generation in the country being wheeled to a business through Eskom’s national grid.
In a research paper published on Wednesday, Discovery Green provides a technical review of the five most common renewable strategies (such as rooftop solar, wheeled wind generation and energy trading) and which provide the best long-term financial benefit and protection for businesses against uncertainties.
“While with traditional largely coal-generated electricity, you pay for what you use; with renewables, you pay for what was generated, regardless of whether your business uses the energy or not. This is the fundamental difference between the procurement of renewable energy and utility-supplied electricity — the point of payment,” Andre Nepgen, head of Discovery Green said.
Research showed that no industry had an electricity consumption profile that perfectly matched their solar generation profile, he said.
Typically, he said, after replacing 45% of their energy needs with solar, businesses faced a 77% premium to fulfil the remaining 55% with renewable sources. This was because businesses needed to find a supply of renewable energy only for their leftover night-time consumption, which was extremely expensive, or they remained heavily exposed to Eskom’s tariff increases in future years, which were projected to be well above inflation.
Financial savings
The research shows results from a modelling done to determine the maximum renewable energy coverage level (share of total energy demand supplied by renewables) and financial savings that businesses in different sectors can achieve before generation is wasted and the marginal gains begin to diminish.
Total savings from renewable energy begin to diminish at the point where the effective cost of renewable energy exceeds the business’s prevailing utility price.
Assuming Eskom electricity tariffs will continue to increase at rates at least 3% above consumer inflation each year, businesses opting for embedded solar generation the coverage level that can be achieved ranges from as little as 8% to about 40%.
For businesses entering renewable energy wheeling contracts with independent wind and solar power producers the coverage level can vary between 40% and 73%.
Wheeling contracts with energy traders and aggregators, who purchase renewables from multiple independent power producers (IPPs) can result in coverage of 63%-73%, while a wheeling contract with a renewable energy product platform can achieve 90% coverage.
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