By Larry Claasen
DISCOVERY Green, a division of the Discovery group says there is a risk of businesses over- investing in solar power generation.
It said in its white paper on renewable energy procurement that there were risks associated with an over-reliance on solar energy, particularly amidst South Africa’s rapidly expanding solar industry.
According to its findings, this trend could potentially increase businesses’ energy costs by more than 50% in the long term. Though South Africa’s abundant renewable resources present a ripe opportunity for such transitions, Andre Nepgen, Discovery Green, warns that current strategies may not be appropriate or scalable.
“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. This is why it is critical to optimise the mix of renewable energy and match it to a business’ consumption patterns up front,” says Nepgen.
“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.”
After replacing about 45% of their energy needs with solar, businesses face a 77% premium to fulfil the remaining 55% with renewable sources. This is because they 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, they 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 not spoken of during the sales process and decision makers do not know enough to understand all these dynamics.
Businesses also often underestimate the variability in renewable energy generation, such as solar and wind, as well as their own electricity consumption patterns.
Solar facilities can experience output fluctuations exceeding 14% between consecutive months, while wind plants can vary by up to 33%. This variability complicates financial planning and underscores the imperative for diversified energy portfolios to effectively mitigate risks.
Diversify the supply
Discovery Green advises businesses to follow traditional insurance principles of risk pooling and diversification to renewable energy strategies. By diversifying energy sources and consumption profiles, they can create more resilient energy portfolios. This approach minimises the impact of generation fluctuations and enhances the reliability of renewable energy supplies.
Nepgen says, “By pooling together renewable energy from various sources, you have the ability to 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.”
