FAQ

Why would I invest in an energy generation system for my own operations?

An independent energy generation system offers a number of benefits over electricity sourced from the national grid through a local distributor, such as Eskom or the municipality. These include electricity cost savings, a hedge against volatile increases in future energy prices, improved security of supply in the event of load shedding during the day, and an active contribution towards a cleaner environment.


Which types of renewable energy generation sources are available to me?

The South African market has seen great interest in solar photovoltaic (PV) systems. Solar PV currently holds a number of benefits over other energy generation systems, particularly in the commercial and industrial (C&I) space. PV systems are modular, and can be scaled to suit different needs and levels of energy demand. They are relatively easy to install, be it on a rooftop or on a separate piece of land. Furthermore, they can provide significant cost savings depending on factors such as site location and existing electricity tariff. Other renewable energy sources available include biomass and wind energy, although these are not as widespread on a sub-utility scale.


My electricity bill contains kWhs and kVAs. What are they, and what is the difference?

Your electricity bill features a number of charges relating to your monthly consumption. Some of the charges are service related and hence largely independent of your total consumption. Your energy consumption is normally measured and charged in one of two ways. The first is a standard energy consumption charge, measured as the number of kilo-Watt hours (kWh) consumed each month. Standard energy consumption is based on real power, and represents the amount of real or useful work done over time. It is this type of energy consumption which energy systems installed on site are normally able to offset directly.

The second is a peak demand charge, measured in kilo-Volt Amperes (kVA). Peak demand, as the name suggests, is based on the highest level of energy consumption recorded during the billing period. It is a measure of apparent power, and represents the total power within a system, including all of the losses. As a system is often not 100% efficient, the real power (kW) is normally less than the apparent power (kVA). By reducing the level of energy consumed from your local distributor, an energy system located on your premises may be able to offset this charge indirectly, depending on the time of day of your highest levels of electricity consumption.

A useful analogy between the two types of charges is to think of your car. Standard electricity consumption is equivalent to the total distance travelled during a certain time interval, while peak demand is the maximum speed that was recorded during that time. If you drive at a constant speed over a long period of time, your fuel usage is likely to be less than if you are rapidly accelerating and decelerating over a shorter time period, thus saving you money. The same applies to your electricity bill.

Returning to the two types of power mentioned so far (real and apparent), there is a third type of power which is also associated with energy systems: reactive power. Reactive power is the difference between real and apparent power, and is measured in kilo-Volt-Ampere-Reactive (kVAR). This power is the power that is used by magnetic equipment, such as transformers, motors and relays.

A useful way to think of these three types of power is to consider a glass of beer. The portion of the beer which is able to quench your thirst represents real power (kWs). This is the liquid part of the beer. However, glasses of beer also come with a certain amount of foam at the top, which to be honest does little to quench your thirst. The foam is the same as reactive power. Lastly, the entire contents of the glass of beer, the liquid plus foam, is what is equivalent to apparent power (kVAs).


How do solar PV systems generate electricity from the sun?

As the sun shines on solar PV panels, photons (“packets” of light energy) are absorbed by the electrons of the panel on a molecular level. This causes the electrons to vibrate and move. The motion of electrons contributes to the generation of direct current (DC) electricity. As most electric machinery runs off alternating current (AC) electricity, inverters are needed to convert the DC electricity to AC electricity. The AC electricity is then used to power a building’s operations, or is exported to the national grid for use elsewhere.


Do energy systems have to be connected to the grid?

Current legislation allows for energy systems under 1MW to be connected to the national grid without a NERSA approved generation license. However, permission is still needed from the local distributor in the way of a registration license, as well as inspection from a certified energy professional, before an energy system can be connected to the grid. This process allows for all necessary checks to be made to ensure that the system is safe to operate and meets all technical and regulatory standards.


What do I need to consider before purchasing an energy generation system?

Purchasing an energy generation system is no simple decision. While it is recommended that professional advice be sought before such a decision is made, some of the factors that need to be considered are:

  • The current electricity tariff you are on i.e. whether purchasing an energy generation system is financially feasible for your needs
  • Your present electricity consumption. A preliminary view of your consumption can be determined from an analysis of your bills, while a metering campaign can provide the detailed hourly analysis needed to ensure that an energy generation system is optimized to your specific needs
  • The location of your site premises. If we take a solar PV system as an example, your site location has a significant influence on aspects such as whether enough solar energy will be generated on an annual basis to ensure the bankability of the project, and the amount of shading during the day/year that may affect total electricity production
  • The type of building in question. Not all buildings are able to accommodate the installation of an energy generation system, such as heritage buildings

I can’t afford to pay for an entire energy system upfront. What are my options?

There are various options available for those wishing to benefit from their own energy source without paying the large upfront costs for such systems. The first is a power purchase agreement (PPA), whereby you pay only for the electricity produced, and don’t have to worry about any of the risks, O&M, and other oversights required during the system’s lifespan.

The second is a fixed lease, a financial agreement with which many are more familiar. Fixed leases of varying time periods are available.  Leases normally involve shorter time periods than PPAs, yet the monthly expense is higher as you are paying directly for the cost of the system and not solely for the electricity produced.


What is a power purchase agreement?

A power purchase agreement (PPA) is a long-term contractual agreement to buy 100% of the electricity generated  by an energy system from the system owner, who is known as an independent power producer (IPP). The electricity is bought at a fixed price and escalation rate (usually CPI) for the duration of the PPA. In essence, a PPA forms a “third party” financing model, with a separate taxable entity to procure, install and operate the energy generating assets. This separate taxable entity is known as a “special purpose vehicle” (SPV). PPAs normally have a specific focus on sustainable and efficient technologies, such as solar photovoltaic (“PV”).

In the utility scale market, these energy systems are typically built near the energy source that they are designed to harness (e.g. near coal mines or areas with lots of sun or wind). In the commercial and industrial (C&I) space, the energy systems are typically located on the respective consumer’s premises.

The benefit of a PPA is that there is zero upfront capital required on behalf of the client, while also enabling the client to hedge a (significant) portion of their electricity bill for the duration of the PPA against unknown increases in their future electricity bills. In addition, all system performance and technology risk is undertaken by the IPP overseeing the project, leaving the client safe in the knowledge that they are making an active contribution towards a greener and more sustainable future.


Are there any energy generation options available for a short- or medium-term outlook?

Many individuals may feel uncomfortable signing a PPA for a span of 10-25 years, and understandably so given the difficult operating environment many firms find themselves in. However, for those still desiring to take advantage of the benefits of their own energy generation on site, there are fixed lease options available, as well as tax-efficient options for those considering purchasing an energy system up front with Capex. These types of agreements present individuals with a wide range of options from which to choose in order to finance their own energy generation systems on-site.


Who is responsible for the O&M of the energy system during its lifespan?

Responsibility for the O&M of an energy system differs depending on the type of financial agreement in place. With Capex solutions, the engineering, procurement, and construction (EPC) company who designed and installed the system typically take on O&M responsibilities for one year after system handover. At the end of this period, responsibility falls to the owner of the system to manage the O&M themselves, or contract it out to an experienced third party.

With longer term agreements such as PPAs, responsibility for the O&M falls to the independent power producer (IPP) overseeing the entire energy project. This forms another benefit of PPAs, whereby the client bears no responsibility for the O&M or performance of the system, with all the risk taken on by the IPP.


What happens if something goes wrong with the system and it no longer works? Do I have to pay to have it fixed? Will I still receive enough electricity to power my operations?

The answer to this question depends on the approach used to finance a given energy system. For Capex solutions, the responsibility to maintain the system lies with the client/system owner. For fixed lease and PPAs, responsibility for the O&M of the system typically lies with the respective EPC or IPP company. 

Many energy generation systems are grid tied. What this means is that any electricity produced by the system automatically offsets the electricity that would have been purchased from the grid. During times of zero electricity output from the energy system, the electricity needed for business operations is simply supplied from the grid instead.


What happens if I change my mind in the future and no longer want the energy system? Do I have to pay to have the whole thing removed myself? Am I stuck with it?

If an energy system has been procured through Capex, then the responsibility falls to the client (being the owner of the system) for its removal and disposal, including all of the costs involved. For fixed leases and PPAs, the allocation of the costs involved, and the process to be followed regarding it’s decommission, will typically have been finalised prior to signing of the contractual agreement between all parties involved. The standard procedure is for the client to provide notice a set time period before the desired date of system removal. This allows sufficient time to plan and manage the system’s safe removal and disposal in accordance with all relevant legislation.


What happens to the energy system if I sell my business or the building, move to new premises, or my business closes down?

Many energy contracts contain provisions for such a scenario which are agreed to beforehand by all parties involved, and which specify the process to be followed as well as how the costs of the system’s decommissioning are to be allocated. Typically, notification is required from the client a set time interval before the decommissioning is due to take place. This allows sufficient time for activities such as planning and management of the decommissioning process to take place, and for accurate scoping of all relevant costs involved.  For property sales, the building is normally sold with the energy system and contract attached, as these represent a value add-on to the site. However, removal of the system is also possible if so desired.


What happens to the energy system at the end of the contractual period? Who owns it?

For agreements such as fixed leases or PPAs, ownership of the energy system is transferred to the client at the end of the contractual period. The client then owns a free source of energy, given that energy from renewable sources is generally free and the whole system would have been paid off by then.


What happens if the sun is not shining? Will my business still be able operate?

If the energy generation system is grid tied, having no sunlight will not impact your operations at all. The electricity needed will simply be supplied entirely from the national grid as opposed to being partially offset by the electricity produced by the energy system. However, your electricity bill will differ, as you will now be paying only the tariff charged by your electricity distributor (Eskom or the local municipality), and not the tariff associated with your energy system.


My operations run 24/7. How can solar help my night time operations?

The use of a solar energy system is typically used to offset daily energy consumption, which would otherwise be sourced from the national grid. In order to use electricity generated on site for night time operations, one would have to incorporate battery backup storage. The bankability of a solar PV and battery system is subject to a range of different factors, such as the size of the system and size of the batteries.


My business does not run on the weekends. What happens to the electricity produced during those times?

Many energy systems are optimised to reduce as much of a client’s energy consumption as possible, offsetting electricity normally sourced from the national grid. In order to avoid curtailment, where the energy output from an energy system is purposefully restricted given that it is not needed at that point in time, two options are typically available. One, the system is designed taking into account the lower levels of electricity consumption on weekends, and is thus made smaller in size and energy output than what it could technically be. The second option is for battery storage to be incorporated with the system to store excess electricity not used at the time of generation. However, batteries increase the costs of an energy generation system significantly, and make it more difficult for energy project developers to offer clients a discount to their existing electricity tariff.


I have a very old / heritage building. Could I still install an energy system on it?

Regulation often prohibits altering the state of old buildings in any way given their historical significance. This provides a challenge with respect to the feasibility of energy systems for such buildings. For those old buildings which have not been granted heritage status, it is normal procedure to conduct a structural assessment to determine if it is able to support the weight of a potential energy system depending on the system’s physical size.


I heard that NERSA wants to have all energy generation devices registered. What is the potential impact of such a decision on self-generation energy plants?

The action being considered by NERSA is to be welcomed, as long as the registration process concerning energy generation systems is not onerous or excessively costly. In order to be able to accurately match electricity supply and demand on the national grid, NERSA and the Department of Energy (DoE) need to have accurate and reliable knowledge of all energy systems supplying electricity to the national grid, and the exact amount of energy supplied by each source. Conversations concerning the future of the national grid are likely to continue as the share of renewables grows, and other disruptive and innovative technologies reach greater mainstream use.

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