AFRICA’S RENEWABLE ENERGY ARE INVESTORS KEEN?
There has been a strong investment case for renewable energy worldwide for a number of years now, and this case has significantly gained momentum in the last two years. Africa too, especially South Africa, has indicated a robust appetite for the uptake of
Much of the initial demand was driven by heightened interest following the widespread load-shedding that was experienced across South Africa in 2008, and continues due to the sharp increases in electricity tariffs. Consumers and businesses alike began to search for ways to become more energy independent in order to mitigate the risks of being caught without electricity and as well as find ways to initiate cost-cutting measures by hedging their electricity costs. While the actual solution, and costs thereof, may differ somewhat between households and businesses – be they small, medium or large – the underlying motivation remains the same: Being the ‘energy efficiency journey’, an energy journey that has the additional benefit of cutting down on the environmental footprint.
Solar, in particular, has taken off as a viable and affordable way of delivering power both to households and enterprises. This is due to the abundant sunshine that Southern Africa receives: It has one of the highest solar radiation rates in the world, making investment into this form of energy a logical proposition and one that is not dependent on subsidies.
Within the solar landscape, there are a variety of options available and certain trends have emerged in the residential and commercial markets. Solar water heating is a popular option for households for its relative affordability and quick payback period, and it has seen bigger uptake than Solar PV residentially. Solar PV though is a growth area commercially, particularly for shopping centres, manufacturers, wholesalers and the agricultural industry.
There has been much interest and uptake from the agricultural sector, and the bank has approved funding for a number of dynamic deals in the past few months; with an olive and wine farm in the Western Cape area of South Africa investing in a Solar PV installation in order to provide the energy requirements for the wine harvesting, cellar and olive pressing activities. While businesses tend to look at investment indicators, such as Break Even, Internal Rate of Return and Net Present Value, they often take a view on their energy costs against the cost of loan repayments. If funding is structured correctly, customers have not only seen their Solar PV production in cost parity with the electricity they’re offsetting, but also realise a cash flow neutral position by lending to fund this investment. This investment case is further supported by the fact that installations less than 1 megawatt (MW) can be depreciated in one year for tax purposes.
This is only one of many examples of a Solar PV installation that is responding to energy demands and moving businesses – and individuals – from utility to own production. Growth of these renewable energy solutions will undoubtedly
spur on industries across Southern Africa and the continent, but current regulatory uncertainty and a negative news cycle in South Africa create an unnecessary uncertainty around the sector. However, once the draft regulations on Small-Scale Embedded Generation in South Africa is passed, renewable energy for installations less than 1 MW will gain traction thanks to the greater certainty on issues like licensing, banking, net metering, and wheeling.
Already, the industry itself is working to overcome the uncertainty through initiatives like the PV GreenCard, which was launched by the South African Photovoltaic Industry Association (SAPVIA) on 26 May and illustrates the commitment of the industry in introducing standards that will move the country forward on its clean energy journey by ensuring compliance of Solar PV installers.
With Tesla Powerwall 2 landing in South Africa soon, we are excited for the next stage in the renewable energy journey. What the solution marks is the rise of lithium ion battery storage, which allows the energy to be stored and used at a later stage. As we see the massive ramp up in manufacturing capacity globally, the outcome will be for prices to drop and in time, the investment case for these types of solutions will gain popularity.
We have seen greater interest from our customers in Solar PV, which is being driven by a strong investment case. As this move by households and businesses continues to ramp up in South Africa, we will see the implementation of more innovative and seamless solutions that enable households and businesses to unlock the potential of cleaner energy. As such, banks and financial services providers across the continent ultimately need to focus on building value propositions that allow their customers to harness the prospects that renewable energy provides by making household and business operations more cost-effective and energy efficient.
There has been much interest and uptake from the agricultural sector, and the bank has approved funding for a number of dynamic deals in the past few months; with an olive and wine farm in the Western Cape area of South Africa investing in a Solar PV installation.