Warning for solar users in South Africa
A new research paper from Discovery Green has warned businesses against “over-investing” in solar, saying that doing so could lead to much higher costs in the long run.
This is because no industry in the country has an electricity consumption profile that perfectly matches the solar generation profile – which means that solar users invariably end up turning to utility-supplied power to meet their needs.
The expensive procurement of renewable energy on top of having to use utility-supplied power could result in consumers increasing their total energy costs by more than 50% in the long run.
According to Andre Nepgen, head of Discovery Green, traditional coal-generated energy has a purchasing model where “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.
“This is why it is critical to optimise the mix of renewable energy and match it to a business’ consumption patterns up front,” he said.
“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.
The whitepaper was based on data from Discovery Green’s platform, which has 343 points of connection from 58 businesses in 17 industries.
It provided a technical review of the five most common renewable strategies (such as rooftop solar, wheeled wind generation, trading etc.) and which provide the best long-term financial benefit and protection for businesses against uncertainties.
The analysis was conducted for seven industries, from mines, to agriculture, to shopping centres.
Each of the five strategies was also tested against the most likely futures—such as a national oversupply in solar generation or high local or international carbon taxes—and against their ability to withstand volatility in generation and consumption.
The researchers found that, typically, after replacing 45% of their energy needs with solar, businesses faced 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 an extremely expensive product to offer for any renewable energy supplier.
“As a result, businesses tend to settle for a low level of renewable energy coverage after procuring solar, but there is a cost to this 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, projected to be well above inflation.
“These long-term costs are frequently omitted during the sales process, and decision-makers are not yet equipped to understand all these dynamics,” Discovery Green said.
Rooftop solar
For embedded generation, specifically—i.e., rooftop solar and the like—the cost-benefits are significant at lower levels of coverage and then pricing quickly spikes up.
At lower levels of coverage, Discovery Green noted that there is minimal risk of any generation being wasted as the business’s consumption comfortably exceeds the number of kilowatt-hours generated by the embedded solar facility at any point in time.
However, because embedded generation does not benefit from monthly energy reconciliation (ie, ‘monthly banking’), a coverage level is soon reached where generation is wasted.
The point of maximum savings using embedded generation occurs at around 30% coverage – with the consequence being that a business looking to increase its coverage level beyond this point is an exponentially increasing level of “wasted generation” and hence an exorbitant effective price paid.
“Importantly, for businesses with a consumption profile that is skewed more towards off-peak hours than for the consumption profile assumed above, the turning point occurs at a coverage level lower than 30% as standard consumption hours are exhausted at a quicker rate,” the researchers said.
The opposite holds true for standard heavy consumption profiles.
“Importantly, the pricing pathway does not extend to high levels of renewable energy coverage as the absence of monthly banking means the business will never be able to service its nighttime consumption.”
The theoretical maximum coverage level that each business can achieve using only embedded solar is provided below.
These results assume that each business is not structurally constrained by the size of its roof space and that each has an unlimited amount of capital to spend on the exorbitant number of solar panels required.
The sun will come out tomorrow
Another factor that damages businesses turning to solar is taking for granted that the sun will shine and the wind will blow as expected. The group found high degrees of variation on this month-to-month.
“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,” Nepgen said.
Nepgen said that the data suggests the go-to for risk mitigation—ie, diversification—holds true in procuring renewable energy as well.
Diversification, both in terms of energy generation and consumption, will create an “energy portfolio” that is more resilient to fluctuations in generation, he said.
“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,” Nepgen said.
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