Many companies, inclusive of commercial and industrial property owners, manufacturing companies and agricultural industry have been investigating the option of renewable energy over the last 18 months. With electrical bills over the years rising exponentially the option of installing a renewable energy system suddenly makes much more sense than it did 24-36 months ago.
Financially the equation is not that simple, and currently any company that utilises its own cash resources to substitute Eskom power with renewable energy can expect payback periods of more than 10 years. For many this is too long, and the required norm is less than 3-4 years.
Eskom recognised this and as part of their IDM programme, piloted a rebate tariff of R1.20/kWhr consumed on-site over a three year period. Seventy percent of this rebate is payable upfront and the rest in 10% tranches over three years based on energy consumed on-site by the company. The maximum allowable size per project was 1MW and a total of 20 MW could be installed under this incentive. This pilot programme incentive, introduced in July 2012, substantially reduced payback periods and increased the attractiveness of renewable energy installations for companies. Eskom recently announced that this pilot project has been suspended as the allotted quota of 20 MW has been filled up, and they are engaging NERSA to ask for approval to extend the programme and again start processing project applications. It is encouraging that there has been such a positive response, and underpins growth in the renewable energy sector but what are the short term implications of this suspension of a much needed rebate?
In the short term, the suspension of the rebate has impacted negatively on orders for renewable energy systems and in particular Solar PV systems as management and owners reconsider their options on renewable energy or investing in other energy efficiency technologies that still fits into the Eskom IDM programme. One of our clients (a recognised brand name in South Africa) that was about to install a 1MW Solar PV plant has seen their paybacks slip from 7 years to 12 years making the project not viable. There are many similar projects that will now stall as a result of this rebate suspension.
Whilst in general renewable energy project paybacks are fairly lengthy, there are numerous energy efficiency technologies that can be implemented where payback periods are less than three years and in some cases less than 18 months. These include light fittings, power factor correction, sensors and timers for HVAC, heat pumps, voltage optimization, installing building energy measurement and control, using exhaust gases to pre-heat etc. While we wait for renewable energy incentive schemes to emerge again it is recommended that a holistic approach is followed where all the energy consumers in a business is measured, analysed and the most appropriate technology installed to reduce energy consumption. A study of this kind can then be used as a future reference as the business maintains its existing capital base and/or installs new capacity for the future.
The Eskom IDM programme is only one of many financial solutions that exist in both the public and private sector whereby the risk to the business owner can be reduced and energy efficiency technology can be implemented at a reduced CAPEX cost. Various incentives and financing programmes exist from developmental financial institution such as the IDC and IFC whereby finance solution and grants can be accessed at favourable rates. In addition the banking sector also offer a variety of on and off-balance sheet financing which reduces the capital commitment from the business.
The rebate offered in the IDM was a substantial underpin to the renewable energy sector in South Africa, and the hope is that NERSA will consider the impact that this programme could have on encouraging investment in the renewable energy sector. That said its not all doom and gloom as it’s the right time to focus on energy efficiency where Eskom rebates continue to make a material impact on reducing CAPEX costs for companies.
Terra Firma Solutions is an expert energy efficiency company offering professional services to companies of all types across Sub-Saharan Africa. If you would like to reduce your energy bills please contact us on firstname.lastname@example.org.