Inexpensive electricity is the foundation of a globally competitive manufacturing sector and healthy local manufacturing or industrial businesses. In South Africa, electricity prices have increased by an average of 16% per year for the past decade, squeezing an already fragile industrial sector and resulting in less than 1% annual growth in manufacturing output since 2010. Manufacturers in high-tariff areas such as Ekurhuleni and the City of Johannesburg have been particularly hard hit, and Eskom’s 5.23% increase for 2018 threatens to further undermine local industrial resilience.
Thankfully, however, local industry is no longer restricted to the central grid and expensive diesel generators for electricity. Solar PV and battery storage technologies can now reduce energy consumption, decrease peak demand, improve the reliability of electricity supply and give businesses an edge in local and global markets. Five points below demonstrate five ways in which solar PV can optimise industrial and manufacturing electricity usage.
1. Solar PV reduces energy consumption and utility electricity bills
An industrial solar PV system can reduce electricity consumption from the grid from 30% at a basic level, to 100% if combined with robust battery storage technologies. This reduction of the municipal or Eskom power means that savings are made directly through having to buy less electricity.
Solar systems generally consist of solar panels, inverters and distribution boards that seamlessly integrate solar electricity into a building or plant, combining it with the grid’s power when necessary.
As a plus, manufacturing and industrial plants often have large roof surfaces which are ideal for the deployment of solar panels.
How to understand solar PV cost savings
You might be thinking, “wait a minute, don’t solar PV systems also cost money?” Yes – solar PV systems are not without their own costs – particularly if one wishes to purchase one’s own system rather than going through a solar financing option. However, solar PV systems present several opportunities to save money. Firstly, one saves money directly by simply not buying electricity from the municipality or Eskom. Secondly, industrial plants with solar systems also save on demand charges. Depending on a business’s tariff area, these demand charge savings can be even more than the direct energy savings from reduced consumption.
The Internal Rate of Return (IRR) is a term used to annualise savings from the solar system over its lifetime, relative to the investment in the system. This number is helpful when comparing it to other investments.
Lets use a fictional example to demonstrate:
Siphesihle Dlamini runs a paper manufacturing plant in Spartan industrial area in Ekurhuleni, Gauteng. Usually, the plant requires energy during the day because the plant does not run for 24 hours. Their electricity bill is high as they use about 720 000 kWh of energy per month to run the plant.
Because of the electricity needs and the roof size of the plant, Siphesihle needs a system of about 1 MWp of supplied power. Because the plant has a large roof area, he is able to install a 1 MWp solar system on to the roof. On Ekurhuleni’s industrial tariff D, Siphesihle will save R1,786,621.23 in energy per annum by installing a solar plant. His expected internal rate of return (IRR) for will be 33%, and it would take him around 4 years to pay off the system. However, because the solar system lasts for 25 years, he will get 21 years of free energy from this 1 MW plant thereafter. A solar system will prove, for his paper manufacturing plant, to be a fantastic investment.
2. Solar PV and/or battery storage reduces industrial electricity demand charges
Demand charges are a way for utilities (such as Eskom), to reduce supply constraints on the grid during peak demand periods. In South Africa, these are generally most pronounced in the mornings and evenings. In order to work out demand charges, the electrical utility (in this case Eskom) measures customers’ demand on a continuous basis. The peak demand, measured over a month, is determined in units of kVA. The utility then calculates a demand charge by multiplying the measured peak demand (in kVA) by the applicable demand charge rate (in R/kVA).
Demand charges can account for more than half of an industrial businesses’ electricity costs. Solar PV can significantly reduce peak demand in these industrial plants, particularly when electricity consumption peaks at midday (for example where a building has lots of refrigeration or cooling). Where demand peaks in the early mornings or evenings, a solar PV system can be combined with battery storage to dispatch low-cost solar power at any time of day, reducing peaks and driving huge savings.
Another way that municipalities encourage businesses to limit their peak consumption is through Time of Use tariffs. These allow the electrical utility to charge clients more per unit of energy consumed at peak demand times than at other low demand periods.
Some areas in Gauteng that have high demand charges are:
- Ekurhuleni, where demand charges are as high as R130/kVA and peak Time of Use Tariffs are as high as R5.20/kWh.
- Johannesburg (City Power), where demand charges reach R170/kVA and peak time of use tariffs are as high as R2.90/kWh.
- Tshwane, with demand charges as high as R157/kVA and peak time of use tariffs of up to R3.14/kWh.
Another fantastic way to reduce demand charges with solar PV can be to combine a solar system with battery storage in order to enable “peak shaving”. This means that excess solar power during the day is stored in batteries, which is then deployed as the sun is rising or setting but the peak demand tariff comes into play. This enables industrial businesses to reduce their demand charges significantly.
Let’s take our earlier example of Siphesihle. Since his manufacturing plant has a large roof space, he is able to install a solar system that is larger than the requirements of his plant, meaning that during the day he produces more power than the plant requires. The excess power generated by the sun could be stored in batteries to be deployed as the sun goes down, reducing his time-of-use tariff dramatically. This could provide even more savings.
3. A combination of solar PV and batteries is more reliable than a centralised grid
Although South Africa is not currently experiencing load-shedding, reliable electricity supply is an essential component to industrial processes, and without it manufacturing businesses will struggle to make ends meet. When combined with generators and/or batteries, a solar PV microgrid can supply 100% of a building’s energy requirements, preventing the risk of load shedding.
A microgrid works like a “brain”, determining when power is needed and from what source. Usually with a combination of solar PV, batteries and a backup generator, a microgrid can successfully take an industrial plant off the grid entirely.
The main advantage of a microgrid is that it improves not only the consistency, but also the quality, of the energy supply. Where electrical surges could be harmful to industrial processes, these can be prevented through a carefully programmed microgrid.
Battery costs have reduced significantly in the last few years, meaning that going entirely off-grid is now becoming an affordable option.
4. Financing options mean that solar PV is affordable
Many industrial plants, whilst reliant on good quality, affordable energy, do not have a large capital budget to spend on developing a solar PV system, as electricity is considered an operating cost. This means that purchasing one’s own solar system – and perhaps combining this with batteries – can seem unfeasible for many industrial energy users. Thankfully, solar financing options exist, allowing industrial energy users to enter into a solar Power Purchase Agreement or PPA, paying only for the energy that their solar systems provide, rather than buying one outright.
These agreements include a financier who will foot the capital costs of the solar system, in exchange for selling the energy back to the end user. This means that the solar system is externally financed, and industrial businesses need only pay for the power that they use from their system.
5. Solar PV reduces carbon emissions
For all of the energy that is diverted from the coal-heavy national grid, carbon emissions are saved – enabling industrial users to reduce their total carbon footprint. This is particularly useful when keeping in line with international standards and in helping manufacturers to reach sustainability targets.
In industrial and chemical manufacturing, reducing one’s greenhouse gas emissions is important, particularly when trying to align with international standards. Although installing a solar PV system on an industrial building won’t reduce direct greenhouse gas emissions, it will reduce indirect greenhouse gas emissions from the energy saving (and, potentially, from the additional insulation provided by the panels on the roof, too). This can help an industrial company to reduce its overall carbon footprint and meet its sustainability targets.