Posted in: Agribusiness

Three ways to future proof your business in light of COVID-19

We are now into our third month of lockdown, and are starting to see the widespread economic impact of the COVID 19 pandemic. In South Africa, lockdown restrictions have eased a little, with most sectors returning to work and strict health protocols in place. However, we are far from where we were at the beginning of March, when COVID 19 seemed only like a remote possibility. It now seems like we might be entering the worst economic recession since the Second World War. In light of this, how will businesses prepare for the already uncertain future?

A recession worse than last year

According to the South African Reserve Bank, the South African economy  is expected to contract by 7% in 2020. Many sectors have been hard hit, with sectors such as manufacturing being particularly affected. Manufacturing itself was already struggling before the pandemic hit:  in February it reported a 2.1% year-on-year decrease in production volumes. The loss of production during the lockdown has further slowed some manufacturing sectors, such as the automotive industry, making their future uncertain. 

The struggling sectors, combined with the the fact that many South African’s have lost their jobs and will be spending little in the economy. Initial research shows that up to 14% of South African consumers have lost their jobs, with a further 37% saying that their work hours have been reduced. Many of them will be forced to cut expenditures dramatically in order to make ends meet, further shrinking the economy.

Since a recession seems inevitable, how can businesses weather the storm? The following are three suggestions. 

  1. Look critically at your business strategy

Those businesses that are flexible in either their operations or their offering will be the most likely to survive economic recession. We’ve seen this first hand: the closure of businesses that were successful but unable to adapt to the lockdown situation, and the success of businesses that make the most of the opportunity. Because no one saw this coming, it is those businesses that quickly adapted that got this aspect right. 

During a recession, essential, basic-needs items remain, whilst luxury, non-essential items are prioritised less by consumers. Pivoting your business strategy in order to meet the needs of consumers is important. In a business that focuses on industrial manufacturing, see if there are opportunities for operational efficiencies, such as making a basic necessity from the by-product of an industrial process, such as South African Breweries changing their manufacturing processes during the nationwide alcohol ban to produce much-needed hand sanitizer.

Rethinking business strategy is important for remaining profitable during a recession
  1. Cut operational expenditure

Cash flow is an essential to surviving a recession, and the reason that even profitable companies go under: without the cash to pay off operating expenses or salaries, businesses can quickly become bankrupt. One way to cut expenses, before the difficult decisions to retrench staff members, is to start with operational costs. In manufacturing and other industries, the easiest way to cut these expenses is to look to utilities – electricity and water – to ensure they are not spending more than necessary on these items. 

Start by evaluating the business for any potential inefficiencies: is it possible to shift production slightly later, to avoid peak hours? Can you implement a staggered start up of the plant, to avoid kVA surges and the associated costs? Have you made sure that energy inefficient lighting and heating have been taken care of? Once these factors have been examined, it is easier to identify how to proceed with reducing operating costs. 

One way that is very helpful to cut operating costs is through procuring solar PV electricity through a Power Purchase Agreement or PPA. This allows your business to benefit from lower electricity tariffs during the sunlight hours, and can be particularly beneficial if you can shift the bulk of production to happen during the day when the sun is shining. The one great thing about solar PV is that, even in the context of a global recession, prices are predicted to continue rapidly dropping.  

  1. Make sure your staff are engaged

Although there has been much written about employee engagement over the last few years, this “buzzword” does translate to the bottom line. A study conducted globally found that companies with highly engaged staff members had 17 % returns than those with low engagement levels. Therefore, in a recession where the bottom line is under threat, ensuring that employees are engaged could have a significant financial impact. (This also translates to employee turnover, by the way – about 40% of employees at low-engagement firms were likely to be looking elsewhere for jobs).

So how do companies create high employee engagement? This goes beyond basic employee wellness interventions, and translates back to genuine employer-employee value. If your employees believe that you are genuine about investing in them, they will be more likely to invest themselves in their job, which will translate into financial returns.

Employee engagement for solar PV

SOLA starts 2020 by reaching 100 GWh target

SOLA has officially met its goal to generate over 100 000 000 kWh of clean energy by 2020 –  with a day to spare. 

The group set the target to reach 100 GWh of clean energy by 2020 as a goal when its C&I division started in 2014. And with just one day to spare, the target was met on 30 December 2019. 

100 000 000 kWh of clean energy in South Africa, where the carbon factor is quite high because of a coal-based electricity system, equates to saving around 92 590 tons of carbon emissions equivalents (CO2eq). This amount of CO2eq can be likened to taking 20 000 cars off the roads for a year, or avoiding 400 million litres of petrol, or powering 11 000 middle-class houses for a year, or planting 1.5 million trees, 10 years ago.

With wildfires currently raging across Australia, people dying of pollution-related causes in Mpumalanga, and our own Eskom struggling to keep the lights on, it is important to unpack the significance of this goal: we need to bolster the production of clean energy globally. And whilst 100 GWh is just a fraction of South Africa’s overall energy production, it is an important start in painting a better future for the country, and perhaps even the continent. 

Industrial solar installations – dos and don’ts for facilities managers

If you run an industrial facility you’ll be well aware of the benefits of grid-tied solar PV solutions. Running cheaper and more efficiently than utility-provided power (such as Eskom), solar PV provides substantial savings for industrial facilities as a source of reliable alternative power. However, there are many solar companies purporting the benefits of solar power, and not all facilities managers are able to discern the best option for their facility. The below guide highlights 5 dos and don’ts for facilities managers to ensure that the procurement of solar is an effortless one.

Do: Practice due diligence when procuring solar PV.

Procuring solar PV is a 25 year decision. If chosen correctly, solar PV can provide 25 years of affordable and clean energy to your industrial plant. As such, it is important that the procurement process is done thoroughly and due diligence is practiced. It can be easy to rush into buying solar – particularly when the savings look promising. However, practicing due diligence when procuring solar will pay off in the long run. Start by asking a few simple questions about the solar PV procurement.

  • What is the objective of the PV system? If you are using it to save money, are you looking to make operational savings through a Power Purchase Agreement, or add value to your building through acquiring a solar asset? Perhaps a bit of both?
  • If you are looking to buy a solar system outright, do you have sufficient finance to do this? Is a PPA a better option for your business?
  • What is your typical energy load, and how much of it occurs during the day? Setting up metering can really help in determining what the right sized solar PV system would look like. 
  • Where would you place the solar PV system? Although wheeling arrangements allow power to be generated in a remote solar PV facility, the majority of small-scale embedded generation (SSEG) occurs on site. Having either a stable roof or a suitable piece of land is an important consideration when writing up your request for solar quotation.

Do: Get a reputable company to carry out your industrial solar installation

The most important part of your decision will be based on getting a reputable company to build the industrial solar installation. This means choosing a company with a solid track record of solar projects, particularly in industrial facilities. The chosen company should be able to get good prices on high-quality solar components such as modules; design efficiently and thoroughly, and carry out construction safely and within the budget and timeline. 

If you’re opting for a solar PPA option – where you don’t own the solar PV facility but simply buy the energy that it generates – you’ll want to ensure that the company you choose has sufficient available finance to build and maintain the system. Making sure that the company has credentials to stick around for the full term of the PPA is important.  Make sure that the solar PV service provider can meet basic requirements, such as:

  • Design credentials. Does the company have the relevant design experience and credentials to effectively design a PV system for your site? 
  • Adherence to minimum standards. In South Africa, this includes adherence to all relevant SANS codes, and ensuring that items such as wind load calculations are carried out according to SANS standards
  • Compliance with Municipal and National electricity standards municipal/eskom standards, including carrying out the relevant application processes to ensure that the PV system is legally compliant (such as Small Scale Embedded Generation (SSEG) applications)
  • Ensuring that a Practicing Engineer (Pr. Eng) is able to sign off on the system design and construction, yield estimation accuracy, 
  • Qualified site supervision, and construction that complies with all Occupational Health and Safety standards
Industrial Solar Installations SOLA

Do: Compare Apples with Apples

Getting comparative quotes is always recommended: it helps you to compare different solar PV companies and pricing, which helps to make a better decision. However, make sure to compare apples with apples when comparing quotes. It is important to consider that different PV companies structure their pricing in different ways, so be sure you understand exactly what each company is offering before comparing their pricing. 

When comparing proposals from various companies, consider the following: 

  • Equipment selection: the selection of tier 1, quality equipment will likely push the price up slightly, but it will mean that the system is better able to perform over its 25 year lifespan.
  • Inverter and panel derating characteristics: the derating of inverters and panels will affect the ability of the PV system to produce power over time
  • The sizing of the PV system: Is is optimally sized in order to meet your load requirements? A system that is too large or too small won’t save you the optimal amount of money. A slightly higher AC-DC ration will also affect price.
  • Lifetime savings and guaranteed savings: make sure you compare these two metrics, as the initial EPC price might differ but offer more in the way of lifetime savings, etc.  
  • Total guarantee/warranty package, insurance and liability: what parts of the system are insured and have warranties? This will affect the costs of upkeep and maintenance of the system. 

If you are thinking of entering into a solar Power Purchase Agreement (eg. buying solar energy directly), consider the following when comparing quotes:

  • The length of the PPA. Generally, the longer the PPA, the more affordable the tariffs will be. The length of the PPA will need to suit your business’s needs over the long term, considering things like whether the business would like to take ownership of the PV system.
  • The tariff escalation. At a first glance, a PPA tariff might appear higher, but it will have a lower escalation throughout the length of the PPA. Understanding the escalation is important to consider
  • Any upfront payments – again, a lower tariff might be because of a large upfront payment, so it is important to consider when comparing quotes. This is also the case with any bullet payments during the term or at the end of the PPA. 
  • Whether insurance and part replacement is included in the tariff. Again, a lower tariff might have excluded these items, making the costs more over the long run.
  • Forex – how forex is calculated and included on the agreement will affect the price. 

Don’t: Delay the solar procurement process

As much as it is important to practice due diligence when procuring solar PV, delaying the process unnecessarily is also seriously detrimental to the solar PV process. Solar PV savings start from day 1 – meaning that delaying the process is also delaying the cost savings. If the process is delayed, there could be unnecessary complications and expenses, such as 

  • Availability of the construction team and build schedule – most companies have tight timelines and their availability could mean that the process is further delayed if your project is not booked into the build schedule timeously.
  • SSEG applications – delaying choosing a solar PV provider can result in a delayed SSEG application, which can result in delays to switching the PV system on (and thus benefiting from the clean energy that it provides!)
  • Structural assessments – delaying the procurement process can also affect the structural assessment process, which is an essential part of rooftop solar PV systems. This can result in an overall delay of constructing the project. 

Dont: forget to calculate your cost savings through solar – both monetary and environmental 

At the end of the day, the solar PV system will save your business significantly in terms of operational costs. However, there is also significant benefit in terms of environmental savings. Keeping track of the carbon emissions savings is an important way to acknowledge the value of the solar PV system. 

Making sure that you have a competent Operations and Maintenance Service Partner will ensure that you can keep track of the relevant cost savings on a monthly basis and ensure that the plant is performing optimally. This can help to diagnose and solve any issues early, saving money for your operations.

If you have opted for a solar PPA, ensure that your partner provides you with carbon emissions savings with your monthly invoice, so that you can use the data when calculating your overall carbon savings. Solar PV is a choice that not only saves money – it is a conscious choice that ultimately will sustain generations to come. It’s something to be proud of, and use in your marketing strategy.

In conclusion, solar installations are useful for industrial facilities. Saving costs and carbon, they are a surefire way to increase cost savings. Following the above dos and don’ts will ensure that your solar installation is ultimately the right fit for your business. 

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.