Solar warning for South Africa

Discovery Green has warned South Africans against overinvesting in solar, saying that doing so could increase their total energy costs by more than 50% in the long run.

Last year, Discovery launched its renewable energy platform, Discovery Green, to connect businesses with renewable energy to reduce their carbon footprint, save money on electricity costs, and mitigate the effects of load-shedding.

This new company has compiled a report based on analysing over 58 companies, various renewable energy generation facilities and over 300 connection points.

The report showed that the current approaches available to businesses for procuring renewable energy are short-sighted and risky.

It revealed that businesses are procuring too much solar, growing the solar industry at an alarming rate, which could increase their total energy costs by more than 50% in the long run.

The company said businesses’ urgency to secure renewable energy from the market is understandable. However, it is critical to question whether the current strategies are appropriate and scalable.

“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,” the head of Discovery Green, Andre Nepgen, explained.

“Our research shows that no industry has an electricity consumption profile that perfectly matches the solar generation profile.”

“It also explains why businesses shouldn’t assume they can solve for the remainder of their renewable energy needs in the future – it is more complicated than that,” Nepgen said.

“We believe there is currently a pronounced bias towards solar energy, and while the immediate financial benefits of solar energy are clear, there is a tendency to overlook the long-term consequences,” Nepgen said.

Typically, after replacing 45% of their energy needs with solar, businesses face a 77% premium to fulfil the remaining 55% with renewable sources.

This is because businesses must find a supply of renewable energy only for their leftover nighttime consumption, which is extremely expensive in the current market.

As a result, businesses tend to settle for a low level of renewable energy coverage after procuring solar, but this has a cost, too.

With only a small portion of their total energy demand covered by renewables, businesses remain heavily exposed to high utility-price increases in future years. These long-term costs are frequently omitted during the sales process.

Nepgen said it is dangerous to assume that the sun will shine, the wind will blow as expected, or that business consumption will be stable.

Moreover, businesses often underappreciate the extent of variability in renewable energy generation and electricity consumption.

Many businesses base their decision-making on historical averages without accounting for the risk of extreme events that could impact generation or consumption.

“Our analysis shows that output from a single solar facility can fluctuate by more than 14% between consecutive months and by up to 33% for wind plants, and that’s if the sun was to shine and the wind was to blow as expected.”

“This can increase to as much as 72% when considering the potential variability within a single time-of-use billing period, which is what ultimately drives a business’s financial savings.”

The data shows a stark difference between industries regarding variability in businesses’ consumption, as much as a 6.5x multiple in certain cases.

Failing to consider this variability means that the perceived value of renewable energy may not materialise as expected.

The solution

Nepgen said the solution lies in traditional insurance principles of risk pooling and diversification in terms of energy generation and consumption.

“By pooling together renewable energy from various sources, you can create a diversified energy portfolio that is more resilient to fluctuations in generation.”

“This diversification helps to smooth out the variability inherent in renewable energy sources, such as solar and wind power, ensuring a more stable and reliable energy supply and a less risky product proposition to businesses. “

In terms of consumption, the financial and risk benefits of a diversified business portfolio are even more effective.

A portfolio of diverse business consumption profiles can create an ecosystem that achieves a higher percentage of renewable coverage with a negligible risk of wasted generation.

The results show that where a single business can achieve a 49% renewable energy coverage level before energy becomes wasted, a portfolio of five businesses from different industries acting together can increase this coverage level to 78%.


This article was first published by Daily Investor and is reproduced with permission.

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Solar warning for South Africa