Mechanical Technology June 2015

⎪ Sustainable energy and energy management ⎪

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 2 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 2 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. q

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 2 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

Mechanical Technology — June 2015

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