Mechanical Technology June 2015

Mechanical Technology — June 2015

⎪

Sustainable energy and energy management

⎪

approach

plant would be to assess the building and

determine the space available for solar

energy collectors. “If we compare the ir-

radiance values (kWh per m

per year) in

South Africa to those of Germany, which

has the highest per capita penetration of

PV solar in the world, then our potential

for solar energy is significantly higher.

“Germany has a solar PV generation

capacity of between 30 and 35 GW,

which is almost equivalent to the total

available generation capacity of Eskom.

And our irradiance levels are, on aver-

age, nearly twice those experienced in

Germany. In practice this means that we

could produce the same amount of power

using half of the PV panel area as that

required for an installation in Germany,”

Smith estimates.

The business case

While the strongest argument in favour

of PV solar installations has been the

environmental one, Smith believes that

all installations have to make financial

sense. “There are a number of drivers

and customer motivations that could add

value to a commercial entity and these

need to be understood before deciding

on a solution package. Our model is

to complete a business case for every

customer that details all of the economic

consequences and benefits,” Smith tells

MechTech

. “In order to secure invest-

ment funding, it is the chief financial of-

ficer (CFO) that needs to be convinced,”

he reasons.

The primary concern for businesses in

the longer term is mitigating against the

rising costs of electricity from the utility.

Pointing to a chart showing electrify tariff

increase scenarios from 2015 to 2035,

Smith says, “we expect large structural

changes in pricing over the next five years

of between 13% and 16%, followed by

steadily falling rate rises, settling to a

minimum of 6% by 2029/2030. The

compound impact of these price rises

over the next 10 to 20 years makes grid-

tied solar PV solutions very attractive in

the long term,” Smith suggests.

Comparing PV generation costs to util-

ity tariffs, Smith argues that, because PV

costs fall with time and the utility price

increases, today’s unit price for PV “starts

at around R8.00 per kWh and falls to

parity with grid prices at around R2.00/

kWh by year six”. “From then on, the PV

system investment is creating value for

the company, and these systems have

a typical life in excess of 20 years,” he

assures. In the long term, PV unit costs

level out at R0.80 to R1.00 per kWh in

present value terms, while utility costs

are likely to be somewhere between

R3.50 and R10.50, depending on the

price trajectory actually followed.

In South Africa, a carbon tax has been

proposed for introduction in 2016. “The

first 60% of a company’s carbon emis-

sions will be tax free – and some energy

intensive users may benefit from a higher

threshold – but thereafter, all businesses

will be liable to pay R120/ton of CO

emissions in tax. In our business case,

we convert this liability into a benefit,

based on conservative assumptions, to

further strengthen the financial case for

adopting renewable solutions.

“On top of that, based on the costs

of investing in a renewable plant, there

are government incentives for companies

to adopt renewable energy solutions.

Adopters can claim, as a Section 12B

wear and tear tax allowance, 50% of the

investment in the first year, a further 30%

in the second year and the remaining

20% in the third,” reveals Smith.

A further energy efficiency tax benefit

is listed in Section 12L, “but we haven’t

yet found a customer that would benefit.

This is because of the precondition that

the taxpayer demonstrates a 35% reduc-

tion in energy consumption in the first

year of the installation. So if you had a

facility consuming 100 kWh per year,

you need to provide audited proof that

your consumption has dropped to below

65 kWh for the year to claim any benefit

at all,” he points out.

Why? “Because a solar system can-

not produce maximum power early in

the morning and late in the afternoon,

morning and evening demand depends

on the grid-based supply and these peaks

make it difficult to achieve average sav-

ings of more than 35% from a grid-tied

PV solution,” Smith responds.

“Hybrid solutions, on the other hand,

rely on a PV systems sized to exceed day-

time consumption so that extra energy

can be stored in batteries for later use.

The stored energy can then be released

to meet the evening and morning demand

while the sun’s energy has not yet built

up,” he continues. “With these systems it

is possible to get the full 12L benefit, but

the investment costs currently outweigh

the value of the benefit,” he adds.

While hybrid PV systems with energy

storage are not 100% off grid, they can

be used to significantly reduce a com-

pany’s dependence on the grid. Most

obviously, during load shedding events

these systems use the stored energy to

make up for the losses from the grid.

Also, though, during peak time of use

tariff periods, stored energy can be used

to mitigate against peak tariffs. “Fully

off grid systems, on the other hand,

almost always require standby fossil-

based generation, such as gas or diesel

generators or hydrogen fuel cells, which

tend to result in much weaker financial

arguments for the additional investment

required,” Smith suggests.

To cater for the environmental and

sustainability reasons for adopting

renewable energy technologies, Jasco

Renewable’s business case portfolios

also calculate the accurate CO

equiva-

lents and carbon footprints. This data is

needed for sustainability reporting, for

King III corporate governance compli-

ance and for listed companies on any of

the world’s stock exchanges, which are

required to produce integrated annual

reports to show investors that responsible

decisions are being made with respect to

the environment.

“Every single customer, no matter

what their motivation, gets a full financial

analysis for the renewable system they

have chosen,” Smith says. “While green

issues matter, it is the financial benefits

of these systems that will, undoubtedly,

drive growth in PV use. Generally, CFOs

make decisions based on 1-3 year time

frames, and some may stretch that to five

years. Mindset change is still required

towards thinking more long term, but

payback times are already close the

typical CFO’s horizon,” he concludes.