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Why solar energy is good for business

Cape Town - Every day the sun provides the earth with more than ten thousand times the energy required by the earth’s population, at no cost.

The Global Commission on the Economy and Climate recently enlisted some of the world’s top economists and business consultants to take a fresh look at the economic questions surrounding climate change.

The report found that “renewable energy (RE) sources have emerged with stunning and unexpected speed as large-scale, and increasingly economically viable, alternatives to fossil fuels”.

Until now, environmentalists have made "it’s good for the planet", the reason for turning to renewable energy (RE), but according to juwi Renewable Energies, first and foremost, it makes good financial sense.

Matthew Turner, business development manager at juwi, says solar electricity is becoming cheaper than local grid power in many instances.
 
“Even when competing against some of Eskom’s cheapest rates, we’re seeing that a well-engineered system with smart financial structuring can deliver immediate cash flow savings to clients, with substantial electricity cost reductions over the operating life of the plant”.

“That’s before you factor in security of supply and the positive sustainability message, which strengthens the business case for solar photovoltaics (PV),” he adds.

Turner says there are three major reasons that RE is becoming cheaper than conventional (coal) energy: The reduction in PV system costs, private sector efficiency and increasing operating and maintenance costs associated with coal fired generation.

Although PV has traditionally been viewed as an expensive source of electricity, recent technology improvements and increased production of PV components have driven system prices down significantly.

As RE growth has slowed slightly in European markets over the past few years, these lower prices have been passed on to emerging RE markets like South Africa.

Added to this, the local Renewable Energy Independent Power Producer (REIPP) programme has also raised the levels of skills, procurement and supply chain expertise in the local market.
 
RE projects are typically undertaken by private companies that tend are able to manage cost overruns better than parastatals can.

For example, Eskom originally budgeted R34bn to build Medupi Power Station - the latest estimates suggest it will cost more than R100bn .

Contrasting this, REIPP projects have all been delivered within budget – because committed tariffs were agreed upfront. Because of this, solar PV electricity from REIPP Round 3 is being sold into the grid at an average price of R0.88/kWh  against the latest predictions for “new coal” (Medupi and Kusile) at considerably more than R1.10/kWh.

Turner says that Eskom had long been regarded as one of the cheapest electricity providers in the world, but that “over the past few years, the country’s major power supplier has been forced to significantly increase tariffs as they build new generation capacity and attempt to meet rising operating and maintenance costs at existing plants – many of which are reaching the end of their design life".

“This has resulted in Eskom tariffs increasing at a Compound Average Growth Rate (CAGR) of 13.1% - far above the 9.5% CAGR for the Consumer Price Index or CPI (for the period 2004 – 2014)”, says Turner.

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