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In the fourth episode of the Standard Bank PowerPulse podcast series, Alec Hogg is joined again by Deerosh Maharaj, Senior Manager for Natural Resources, Power, and Sustainable Solutions at Standard Bank, to take a deeper look into solar PV as a renewable energy source. Also joining the discussion is Ricky Huyser, Project Development Director of Clearwatt, an advisory service for projects with a focus on the renewable energy space. Maharaj says that one of the greatest benefits of the PowerPulse platform is that it saves clients time and (therefore) money. “With PowerPulse, it basically cuts through the fog and gets a client to the correct solution as quickly as possible. But it also ensures that the partners you’re dealing with are able to provide systems of suitable quality and that are competitive and market-related from a pricing perspective.” – Claire Badenhorst
Deerosh Maharaj on Ricky Huyser and Clearwatt:
We’ve been speaking a lot about PowerPulse over the past few episodes, and in this journey of developing the platform, we’ve had many partners, as you know. So alongside EPCs, we’ve had advisory firms work with us, and Ricky from Clearwatt has been instrumental in helping us navigate this journey. So Clearwatt is essentially on the panel of partners to assist clients where the needs are slightly more complex and the PowerPulse solution, which is a very standardised solution, doesn’t necessarily meet the requirements of the client.
On solar and alternative energy sources that are gaining traction:
There are a lot of technologies in the market currently. You’ve got hydro, you’ve got wind, you’ve got biogas and biomass solutions to a lesser extent. But when you look at the path or trajectory that solar’s been on, you know, I was reading recently around where the journey around solar started, and I think it was around 1965, and it was technology designed mainly for outer space, for the satellites. If you were to take the price of one of those panels in today’s terms, the 320-watt panel would probably cost you, adjusted for pricing, probably R500,000 today if prices remained constant, but we see a very different picture. So, you know, the reason that the technology has survived and progressed so well is because it was a winning concept from the outset. You know, the fact that it was using materials that have progressed so well from an efficiency perspective, but also utilising the power of the sun – the costs have plummeted. If you just talk about 2009 to 2019, it plummeted more than 90%. So, you know, it’s the strongest contender when compared to all of the other technologies at this point in time.
On how businesses decide whether they need solar power:
We always revert back to the three Ds. So it’s the decentralisation discussion – that’s one of the global drivers that we see filtering through to business operations when we look at how businesses decide to proceed. Decentralisation is a major driver. So clients reducing their reliance on centralised forms of energy, becoming more self-sufficient – that’s one of the key things that are considered. From an ESG perspective, you have the environmental social governance component that needs to be considered, especially if you’re a business that operates in the global arena of import and export.
But then, operationally, the cost of power is just something that you cannot ignore. You know, it’s a huge driver at an op-ex level, and with the increasing prices of grid power, currently, the renewable energy solutions or alternative energy solutions can’t be ignored. So, if you want to drive greater efficiency and improve your bottom line, that’s one of the low-hanging fruit that would automatically come into focus in any boardroom discussion.
Ricky Huyser on his considerations for clients:
I think for us, the most important thing is, what’s the client’s core business, you know, and what’s critical to him? Clients have different reasons for approaching energy projects. Some are power security, and that sometimes seems like an easy choice for him until he sees the price tag. Other times, it’s really sustainability, so we have customers where electric costs monthly is 5% of cost of sales, [so] it really becomes a socio-economical decision. Then you’ve got customers that you’ve got to support 35-40% of their costs of business, you know, and then it really becomes a strategic decision. And the decision is really around – how do we keep critical equipment alive? And secondly, how do we actually put a line in the sand as far as the portion of energy so we can actually know what it’s going to cost us over the next 25 years. Rather than being exposed to 100% of the energy fluctuation, they [are] only exposed to, let’s say, 40 or 50%.
On whether businesses have to make growth projections:
I don’t think [so] necessarily. The manufacturers in South Africa are quite standard, so there’s a blueprint as to how they use their electricity and it stays that size – it’s very conservative. The trouble starts when there are expansions – when clients expand and they don’t have access to the energy they need. And that’s where we find probably, I would say, 70% of our work. A client is extending his production, he’s requesting from the municipality or whatever the extension in power [is] and it’s not there in time. That becomes the interesting cases. How do you actually project that? And we use a lot of historical business cases to actually get some data around that to do a good prediction.
On knowing where the energy will come from:
It’s more critical than you would think. We [are] currently busy with two mines, for example. Both expansion needs can’t be done with the current infrastructure in the area. So the client has to then carry the bill for the infrastructure for the whole area to be able to expand himself. So we’ve got two cases – the mines – like that currently, and we’ve just finished also a big abattoir. Same thing, you know, he expanded with the presumption that the municipality is going to expand and when he was done, the municipality wasn’t ready. So he had to put an emergency plan in place. So it’s a reality that you see daily.
On how to know whether the company is getting the right power solution:
You must first understand that the level of entry to solar is a bakkie and a credit card to the Chinese mall and that makes it a very dangerous piece of equipment. I think what PowerPulse has done is formalised a very mature process that gives the client exact insight into that it’s actually a guaranteed process, if I can call it that way. So normally the client would have had to be an energy specialist to be able to [know] if he’s getting the right deal, where PowerPulse is actually coming in and having a look over his shoulder and saying, well, your need is really not met or your need is not understood correctly. And that’s where the biggest power of it comes in.
On the costs of solar power:
I think that is very important to understand because the guy that’s installing it, he’s making his money upfront. And [the] second thing to understand [is] that it’s not the client’s core business, especially if you’re in a factory environment. So it’s crucial that the equipment the client selects is what we call tier one so you ensure that the guys are still in business five years from now. Secondly, how do you actually monitor and make sure that the system is operating? What you don’t want is a situation where you get to a yearly reconsolidation of your budgets and then you realise it’s actually cost you more than the year before and there are faults in the system. So you really need to make sure that everything is in place with the relevant algorithms to support you to tell you there’s something wrong.
Through a product like PowerPulse, there are very few clients that can’t afford it. The issue is around, South Africans have very short memories, and the moment the problem is gone, they think the problem has gone, but it’s just not there right now. So from that perspective, my view is the access to money is easy enough for the correct clients to do it. It’s the willingness and decision for them to do it where the problem normally lies. PowerPulse can only go so far to tell the client it’s the right decision to make. At the end of the day, it’s still his decision and it’s a tougher decision than you think.
On the payback period:
Yeah, we’re finding most of the paybacks, anything from where it’s a funded solution – from two to five years, nothing really more than five years. Interestingly enough, if you apply the 12B tax concession, most of the clients are one to two years. We’ve had clients with seven months’ payback. So, it’s really worthwhile.
Deerosh Maharaj on selling excess power back to the grid:
It’s a bit of a mixed bag. So there are certain municipalities, and Eskom certainly has the banking arrangement where, you know, on a 12-month cycle, you can almost use the grid as your battery and store excess energy that you using on the grid and draw it out when you need it. Certain municipalities have subscribed to the SSCG and the renewable energy feed-in tariff protocols, and you may be able to, particularly in certain areas like the Western Cape and I know City of Johannesburg is looking at it, eThekwini in KZN, but it really depends on the municipality or the utility that you linked to. Many of them are not able to facilitate any purchasing of power fed back into the grid.
We are seeing the correct indicators and the correct signals from government when it comes to legislation and it comes to how it’s being opened up to accommodate and encourage an environment like that. So looking into the future, I have no doubt that that would become, you know, when we look at the complete value chain and we look at where utilities, Eskom, and all of the stakeholders in that value chain play, it’s something that’s going to be central, in my opinion.
On varying tariffs across South Africa:
So there isn’t a standard tariff. There is obviously a standard. I think the national average blended tariff that a client pays in South Africa is about R2.11, inclusive of that. But it really depends on where you are because there are different tariff structures across the country. What’s important to understand when you factoring in or looking at tariffs is to understand the escalations, to look at historically what we’ve incurred as an escalation, and take that into account when doing an assessment because those escalations are likely to remain the same or get worse. So at the bank, we model on 11% in the first year and 8% thereafter, but that’s for purposes of being conservative. We know that it’s been close to 15% annually over the past 10 years.
On how PowerPulse saves money for clients:
When you talk about money, time and money in many ways are interchangeable, right? So the biggest hurdle it gets clients over is ensuring that it saves them time because it can be a very time-consuming process. When we speak to clients that are not in the energy field and that’s not core to their business, and if they decide to be thorough about it, which is highly advisable, it could take them six to eight months to get to a solution. That’s six to eight months of savings that’s lost. All right. With PowerPulse, it basically cuts through the fog and gets a client to the correct solution as quickly as possible. But it also ensures that the partners that you’re dealing with are able to provide systems of a suitable quality and that are competitive and market-related from a pricing perspective. I think the efficiency that PowerPulse brings as a facilitation arm or a marketplace for these transactions will, in the medium-term, improve that efficiency as well, the pricing efficiency around systems.
On ensuring that everyone on the platform succeeds:
So it’s really about understanding what our role is and what the roles of each of the parties are that are part of this marketplace. It’s essentially bringing focus to each participant and understanding what they do best and allowing them to thrive in that environment. So as a facilitation arm, the banks launched this platform and it’s literally there to do that. We’re not looking to step into the shoes of the EPC or the advisors. That’s their area of expertise. But we creating an environment where there are credible buyers and credible suppliers and there’s a hand-holding process to ensure that those that don’t understand the environment are guided through it to the correct solution. So that’s the environment we’ve created. I think it’s a fertile environment for any partner or business that’s party to this journey to thriving.
The traditional bank still sits in the background and, you know, if there’s a funding requirement, it can be met because we do have bespoke funding solutions for these systems.
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