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.