A lack of infrastructure is always a drag on growth. Poor roads, no reliable rail and/or ports increase costs and inefficiencies for businesses. Simply put, the opportunity cost of unreliable infrastructure is significant, which is why private and public sector investment is so important to ensure we have the base from which to achieve our growth potential.
Energy is no different. Energy security is crucial for businesses’ long-term planning and achieving their growth ambitions. In South Africa, businesses have felt the effects of unreliable energy first hand. Although we avoided load shedding in winter, we have just been left in the dark heading into summer, a season that sees lower demand for energy. The last round of load shedding had a severe negative impact on the manufacturing sector – the effects of a lack of energy were clear through the 8.8% decline in the Q1 GDP for this sector.
Unfortunately, a lack of reliable power impacts the entire value chain and the efficiency and confidence of businesses, and this has further knockon effects. Renewable energy plus batteries should play an increasingly important role across the continent, being a catalyst for investments where there was no energy infrastructure available or where infrastructure is not reliable.
Investment into solar solutions is on the rise
Increased investment into solar solutions enabled by green asset finance has been driven by:
• Decreasing costs of technologies;
• Increasing awareness and acceptance of solar as a technology (including strong skills and experience within the teams who design and build these installations);
• Substantially higher tariffs (the price you pay for units of grid-tied electricity) over the last decade; and
• The reduction in costs and increase in life spans of batteries (with the strong investment into lithium-ion technology).
Traditionally, our customers have looked at solar as purely an investment decision. They look at how long the system takes to pay itself off, what the returns on investment are, and whether the cost of power produced is cheaper than the power they are currently purchasing. Once customers see a viable investment case they look to us for funding, and whether this funding can be structured in a way that ensures they are paying less on their loan over time than they would have paid for energy (while aiming not to tie up their existing collateral). This then allows the investment into solar to positively impact their business cash flow over time.
Breaking down the business case
Although most solar installations are not integrated with batteries, the market is changing. Our renewable energy book suggests that adoption is being driven from a product
perspective (especially given that there has been a shift from lead-acid batteries to lithium-ion) due to:
• The reduction in lithium-ion battery prices (driven by investment globally in electric vehicle production);
• Warrantees of up to 10 years on lithium-ion batteries; and
• Useful lives of batteries, which could extend beyond 10 years.
How batteries plug into energy megatrends today
Mention is often made of the megatrends facing the energy sector: namely, decentralisation, democratisation, digitisation and decarbonisation. The traditional model of the energy sector globally is, therefore, coming under pressure and new solutions are found to address these trends. Batteries will play a role in supporting these as prices decline and they become a more mainstream solution (investment case becoming more viable). How do batteries play into these megatrends?
Where businesses and communities have no access to the grid, batteries have become a viable alternative to diesel generators, allowing investment into development.
Rooftop solar PV (photovoltaics) is increasingly cost-competitive when compared to customers’ existing electricity bills. Therefore, many businesses have started producing a good portion of their own power.
Batteries allow those producers to store the power they are not using, and ensure that if there is a power failure they are still able to power their operations, putting them in control of their power needs
Integrating solar PV with batteries allows for lower reliance on and use of diesel as a backup as well as less reliance on power produced from coal.
At Absa, we have therefore seen an increase in interest from customers looking at how they can integrate batteries with their solar installations rather than only with their diesel generators. Fuel costs and the cost of running generators have also been a worry to customers.
Battery integrated solutions should be an enabler for business growth into the future. As we move towards an inflection point where batteries plus solar become cost-competitive in the long run when compared to existing energy costs, the private sector will provide the energy infrastructure required to grow their own businesses.
Where customers feel solar as well as solar plus batteries is an expensive option (considering the upfront capex cost), it is our role at Absa to look at how we can work together to finance these installations and make it a more viable opportunity from a cash flow perspective. ESI
About the author
Justin Schmidt heads up New Sector Development at Absa Retail and Business Bank where renewable energy, tourism and manufacturing are focus sectors in this portfolio. He is responsible for the strategy, customer value proposition and growth targets in these sectors, which are also key growth sectors for the South African economy.