Big energy savings: the business case for solar investment
It costs half as much to generate solar power as it does to buy in electricity – and costs remain fixed for the solar plant’s lifetime. Learn how much your business could save by including solar in your energy portfolio. by Trevor Crighton
By 2025, the volume of electricity generated by the private sector in South Africa will exceed that generated by Eskom’s fleet. Research from RMB Morgan Stanley estimates that Eskom will produce approximately 25 200MW of electricity in 2025 – just over 47% of its maximum capacity. Alternative energy sources will produce 26 600MW.
Solar PV power is driving the shift. A study by Professor Anton Eberhard, who runs the advisory board of the Power Futures Lab at the University of Cape Town’s Graduate School of Business, estimated that the country’s installed solar rooftop PV increased from 983 MW in March 2022 to 4 412 MW in June 2023 – a 349% increase in just over a year. The commercial and industrial sectors present the biggest short-term opportunity in solar PV generation sector, accounting for about 70% of new rooftop solar PV installations nationally.
The cost savings of solar energy
“Solar PV power is definitely the cheapest source of energy in the world today,” says Rogan Davies, Group CEO of Rhino Energy Holdings, specialists in solar solutions for commercial and industrial businesses.
“The current technology allows a solar PV plant to generate 1kWh at a rough cost of R1/ kWh over its lifetime, if you look at the Levelised Cost of Electricity (LCOE) for Soalr PV. In Johannesburg, the average tariff per kWh is R2.00 and in Midrand, it is R2.50, so it’s immediately at least half the cost of procuring it from Eskom or a municipality – and that cost is guaranteed for the 25-year lifespan of a solar plant.”
Relying on diesel for back-up power during loadshedding is up to twelve times more expensive than solar, with the LCOE for a diesel generator at between R8 and R12 per kWh.
“A solar battery system is high-CapEx, low-OpEx, whereas a diesel generator is low- CapEx, high-OpEx,” explains Davies. “To demonstrate the ROI on a solar plant, we deploy sophisticated payback and financial models based on clients’ inputs.”
Diverse benefits of solar integration
The value proposition for a solar battery installation is threefold. “The LCOE easily demonstrates that solar is definitively cheaper than buying electricity from Eskom or a municipality or producing it via a diesel generator,” says Davies.
“Secondly, the value of continuity – being able to continue running critical components of a business under battery power when grid power isn’t available – is quantifiable.”
Thirdly, a solar PV installation delivers a quality of power that the grid can’t, which is particularly important when it comes to operating sensitive equipment. Eskom and municipal supply fluctuates between 160 and 260 volts, causing damage to equipment at both ends of the spectrum.”
Not only does solar offer the highest quality at the lowest cost, but solar generation costs continue to decrease. South Africa does, however, face a real challenge. Thanks to the long-term devaluation of the Rand against the global currencies in which solar PV components are priced, we are not able to capitalise fully on lower costs, explains Davies.
“The biggest factor to consider is actually how much the cost electricity from Eskom and municipalities has increased so quickly,” he says. “Grid tariffs continue to increase annually and in such leaps that it helps us build a case for solar PV. Five years ago, the payback period on panel installation alone was five to six years, and about 10 years with batteries. Now, it’s less than three years on panels and four to five years with a battery system.”
Building your business case for solar investment
“It’s important to have transparency and visibility around CapEx, OpEx and warranties – and take into account the long lifespan of solar panels, while the longevity of batteries and inverters is improving all the time,” offers Jaco Burger, Head of Corporate Venturing at Standard Bank, and one of the founders of PowerPulse. This industry-first digital platform service provides custom solar feasibility reports to build the business case for solar investment, taking into account the cost of installation and maintenance.
Can business sell power back into the grid?
South Africa’s energy crisis has triggered much talk about selling excess power back into the grid, which would further strengthen the business case for solar. According to Davies, that is not yet feasible. Municipalities, in particular, find themselves in a catch-22. Since their biggest source of revenue comes from selling Eskom-generated power, the more businesses and residences that reduce their reliance on Eskom, the more money municipalities lose, explains Davies.
“All around the world, large producers are able to recoup money or offset solar costs by selling power back into the grid. But when you run the numbers here, it just doesn’t pay you to do it – even if you can. I expect it to become a reality in a few years, but for now, the country is lagging behind.”
PowerPulse is an industry-first digital platform that connects you to the right solar solution for your business and offers expert support from assessment to installation. Get a free solar feasibility report and custom proposals from accredited providers. Learn more and sign up at powerpulse.standardbank.co.za