FMCG industrial manufacturing has great potential for Africa

Solar for the FMCG Sector: Clean Energy Solutions that Work

FMCG players

FMCG is one of the largest drivers of the industrial sector in Africa, presenting a wealth of opportunity for manufacturers and distributors. The industry is comprised of non-durable goods that are produced, sold and consumed quickly. These products take the form of consumables such as beverages, packaged foods, toiletries and over-the-counter medication.

Fast-moving consumer goods (FMCG) are a market with tremendous potential to drive economic growth in the SADC region and further afield. However, the industry is heavily dependent on reliable power, secure and efficient transport routes and strong distribution networks. FMCG typically have a small profit margin but are lucrative when sold in large quantities, thus a reduction in energy costs goes a long way towards bolstering narrow profit margins.

FMCG industrial manufacturing has great potential for Africa

Brilliant technologies and brave entrepreneurs

‘Africa has nine times the solar potential of Europe and an annual equivalent to one hundred million tons of oil.’

In a recent article in the Journal of International Affairs Professor Wim Naudé reports that in a landscape of brilliant technologies and brave entrepreneurs the future is looking bright for African manufacturing. According to Naudé, renewable energy technologies like solar panels and batteries may be expected to improve the competitiveness of African manufacturing.

Peter Diamandis, founder and CEO of the X Prize Foundation, and journalist Steven Kotler note that ‘Africa has nine times the solar potential of Europe and an annual equivalent to one hundred million tons of oil.’

The resources are there and the benefits in terms of cost are undeniable. Notable FMCG industry leader Coca-Cola Beverages Africa (CCBA) recently installed a 574 kWp solar facility at the Coca-Cola Namibia Bottling Company (CCNBC). The project is expected to produce 1,016,760 kWh of energy in the first year of production, with appreciable Energy and Demand charge savings expected in the first year of production. In addition this project results in 901 tons of CO2 reduction per year of operation. Given that Namibia’s solar irradiation levels are the second highest levels in the World (at 3000 kWh/m² over a large part of the country) and NamPower tariff increases are inevitable, it makes considerable sense to look to industrial solar power for cost-savings and decentralised efficiency.

The environmental benefits for your brand

The Learning and Development Director at IRI, Marylee Townshend predicts that given considerable global and local societal shifts in the past year, FMCG brands which stand for something are likely to win out in a competitive environment. Staying neutral is no longer an option as more consumers than ever before are developing a preference for ethical and environmentally-friendly products. This is a double win for manufacturers and distributors who commit to clean energy solutions, in terms of having a stable, cost-cutting energy source and brand success. Notable industry leader Fair Cape Dairies has stepped up to the plate by procuring solar PV  energy to provide clean, noise-free electricity to the farm during the day, while reducing the farm’s total energy consumption by 16% per annum over its 25-year lifespan.

‘Businesses that commit to clean energy, such as Fair Cape Dairies, are helping to lead the way for South Africa’s sustainable development,’ explains Dr Chris Haw, chairperson of SOLA and head of the Solar Finance division.

Plattekloof Village Shopping centre, owned by industry heavy-weight Pick n Pay Retailers, has also embraced clean energy solutions with a 944 kWp solar system on its roof, which is expected to generate 1.4 million kWh of clean electricity per year. Plattekloof Village is part of a growing fleet of shopping centres electing to supplement their electricity supply with decentralized solar PV. Given the recent challenges to Eskom’s ability to supply uninterrupted electricity it is unsurprising that malls, factories and distribution centres are increasingly looking to independent energy solutions. The ample roof space available and considerable daily energy use typified by these organisations makes industrial solar power the ideal solution.

FMCG challenges

FMCG is a challenging arena with many considerations for facilities managers. These include product placement and competition. Townshend contends that big data is increasingly the driving force behind tactical decisions in FMCG. In addition loyalty card data provides unparalleled insight into consumer behaviour. Given the financial climate in the region, cutting costs and value-for-money is an immediate concern for consumers. Narrow profit-margins in the FMCG industry means that every expense matters; this is when cost-efficient energy management becomes imperative.

Breweries and other FMCG industries can benefit from solar PV

Simplifying Electricity Management

Conservative consumption and optimum production are key to the success of every industrial FMCG facility. A good place to start is a comprehensive look at electricity bills over the course of a year. Following this analysis, spikes in energy consumption will quickly emerge, and from there it will be easier to implement energy-saving regimens. Introducing solar has been proven to result in considerable energy and cost-saving benefits. Once one has identified the peak capacity charges, measures can be made to reduce overall energy costs even if total energy consumption remains constant.

Solar financing

‘Solar finance – through a power purchase agreement – allows these businesses to commit to their targets and reduce their carbon emissions through buying clean energy directly…’

There are two options when considering harnessing the cost-saving benefits of industrial solar.

Firstly there is the outright buy or EPC solution, such as the facility at CCBA Windhoek, which purchased the solar system upfront to save on energy costs. Industrial energy consumers can save significantly by altering their electricity load to peak during the day when the solar PV system is most productive, thus reducing demand charges significantly. In a facility such as the CCBA Windhoek, the cost of the solar PV system is insignificant compared to the amount that it will produce over its lifetime.

The second option is a solar PPA, or power purchase agreement. This arrangement allows businesses to purchase solar PV-generated electricity with no upfront costs, while enjoying the immediate cost-saving benefits, such as the demand charges described earlier. The benefits of solar PPAs for industrial facilities are fixed tariff increases and monthly payment amounts, rather than lump-sum capex investments. Similarly, the solar PV system is not registered as an asset on the facility’s books, but is rather owned and maintained by a solar finance provider such as SOLA. After a few years, the facility can opt to buy back the solar PV system, or take ownership of the system after a specified number of years.

Such an arrangement was entered into by SOLA and Fair Cape Dairies. As Dr Haw explains, ‘Companies such as Fair Cape Dairies that have committed to sustainability goals, may not want to purchase a solar system outright. Solar finance – through a power purchase agreement – allows these businesses to commit to their targets and reduce their carbon emissions through buying clean energy directly. During the day, Fair Cape Dairies will use the clean energy generated on their roof for their own consumption needs, without owning the solar system themselves.’

Dairies can benefit from financed solar PV solutions

As the costs of solar equipment continue to fall, industrial solar power systems in Southern Africa are more viable than ever. Given Eskom’s escalating tariffs, large-scale solar facilities are able to provide consistent power for industrial operations at costs lower than Eskom’s lowest bulk tariff. Solar PV is both a cost-effective and decentralised form of energy, making it perfect for large-scale energy users in the FMCG sector.


Is solar the green solution agribusiness needs?

Agribusiness contributes significantly to a country’s overall industry outlook, particularly because of its links to sectors such as chemical processing and manufacturing. Locally, SADC has identified agro processing as one of three regional priority value chains, along with mineral beneficiation and pharmaceuticals.

That being said, the economic challenge that farmers and agribusiness are facing is a tough one. Over the ten years up to 2017, electricity tariffs to state utility Eskom have risen by 356 percent – four times the rate of inflation over this period. The power utility has requested an additional 15% increase for the 2019/20 period, although the National Energy Regulator of South Africa (Nersa) seldom grants the full requested increase. The coal shortages this November that led to the shut-down of 11 power stations also highlight the uncertainty of the operating climate for South African industry.

In addition to soaring prices of electricity and uncertainty of supply, business in South Africa is affected by climate change. Agriculture is particularly affected by the cycles of rain and drought, as well as temperature, which are both affected by climate change. And because agriculture is, ironically, one of the leading causes of climate change, consumers are now demanding that farming practices meet stringent environmental and ethical standards.

Trade and Industry Minister in South Africa, Rob Davies, acknowledged that uncertainty in this arena is hampering economic growth, following his announcement in October that agro-processing is one of the sectors that government will be targeting with incentives to revive South Africa’s struggling economy.

Solar could give a growth spurt

Given this difficult context, it’s no wonder that Agro-processing is in need of bolstering in South Africa. Embedded generation, which is the small-scale production of power within the electricity distribution network, situated close to the place of consumption, is a great solution to counteract the explosive costs, and unreliability, of grid-tied energy. The cost, per kWh, of solar PV (the most common form of embedded generation)  has dropped dramatically in the past years due to increased uptake globally that has pushed down manufacturing prices. Adopting this cheaper source, close to the point of consumption, can lower the running costs of agro-processing plants significantly, giving them a leg-up in tough economic times.

Financed solar through PPAs

However, in order to purchase a solar PV system, businesses need to outlay capital, which might not be the most appealing option for agribusiness, whose capital budget is used for much-needed maintenance and plant upgrades. However, power purchase agreements (PPAs), which are a way of financing renewable energy systems such as solar, are an attractive alternative.

Renewable solutions are now at the point where they can provide a viable and cost-effective alternative for businesses in this sector.

Entering into a PPA in South Africa is a way for agribusiness to shield themselves from Eskom tariff increases, as it is possible to purchase renewable energy at a lower rate than what Eskom can provide, with a fixed tariff increase.

This is particularly pertinent due to Eskom’s recent 15% tariff increase application. Should a large portion of their energy come from solar, agribusinesses can use solar PPAs to shield themselves from the volatility of Eskom.

Renewable energy is also a significant mitigator of environmental harm, because it reduces industry’s reliance on coal-burning power generation, which releases greenhouse gases into the environment. Reducing greenhouse gas emissions is important for agribusiness, who often have sustainability targets.In fact, every industry should be concerned with addressing the realities of climate change – but none more so than agriculture, which is dependent on steady and predictable weather patterns.


Challenges and possibilities for agribusiness in South Africa

Solar PV power plants are also decentralised and can easily provide power in rural areas without having to erect new infrastructure, such as power lines. However, in South Africa, applying for a grid-tied solar PV system on Eskom infrastructure remains a challenge. Eskom’s independent power producer [IPP] connections do make provision certain for low- or medium-voltage connections, but they require a letter of exemption from Nersa, which is almost impossible to obtain without certainty around the IRP – which should be finalised in February, according to the Minister of Energy Jeff Radebe.

The energy landscape has changed significantly since that Eskom’s memo on low and medium voltage connections was released, and solar PV connections are now much more viable for companies and farms that are currently connected to Eskom infrastructure. Many more businesses would now like to opt for embedded power generation. The updated IRP restriction of only 200MW of embedded generation – which is where the low- and medium-voltage connections will be found – limits the generation capacity that the agro-processing industry urgently needs.

If more and more businesses lobby Eskom to allow low- and medium-voltage connections, they will be able to benefit from competitive electricity prices, while also reducing their carbon footprints. This will serve their stakeholders – and the environment they rely on – well into the future.