South Africa’s shortfall of power generation capacity has reached beyond crisis levels this year. We’ve experienced more days and hours of load shedding in 2022 than in any other year, but we also saw the longest stretch of unbroken load shedding across September and October. It’s clear there will be no quick fixes for this long-standing challenge.
In crisis lies the opportunity for organisations of all sizes, including small and medium businesses (SMBs). The public conversation often focuses on the challenges and costs of load shedding for smaller businesses and how these can be mitigated. But a more empowering way to look at it is as a chance for SMBs to champion and lead the shift to a cleaner, more sustainable energy world.
SMBs can play a key role in the transition to cleaner energy
The SME Climate Impact Report commissioned by Sage and launched in partnership with Oxford Economics and the International Chamber of Commerce (ICC), shows SMEs’ footprint totalled 29% of non-household emissions in South Africa when greenhouse gases generated in their supply chains were considered.
As such, SMBs can play a key role in the transition to cleaner energy. Let’s start with the enormous demand we see in the market for renewables. From independent power producers (IPPs) building wind and solar farms to feed into the grid to large companies self-provisioning power to solar installations for SMBs and homes – there are plenty of growth opportunities.
In 2020, electricity generated from renewables amounted to a mere 10.5% of the South African national total. One researcher forecasts that South Africa’s renewable power capacity will increase at a compound annual growth rate of 10.7% from 2021 to 2035 to reach an estimate of 40.6GW by 2035, which will constitute 48.3% of total installed capacity.
Opening the floodgates
President Cyril Ramaphosa opened the floodgates for renewables investment, announcing a broad package of reforms. These include making it easier for large power users to self-provide up to 100MW of embedded power generation, launching an Eskom feed-in tariff for solar users to sell power to the grid, and acceleration of IPP rollouts.
This creates enormous opportunities for entrepreneurs and SMBs throughout the supply chain, from providing and installing systems to manufacturing components and playing a role in power storage and provision. The market is far from saturated, and skills are in short supply, creating compelling entrepreneurial prospects in an industry with a bright future.
The pace of innovation in renewables has been astonishing; we could envisage SMBs playing a leading role in driving further progress. One of the lessons we could take from the load shedding crisis is that avoiding another monopoly would be highly desirable. Instead, we could foster a renewables ecosystem with competition at every level – from installation to power provision.
In fact, driving entrepreneurship is essential for a just transition. Government, labour and communities are justifiably concerned about the loss of fossil fuel jobs and the poor getting left behind in the renewable energy revolution. An inclusive renewables industry would help address these challenges by potentially creating 250 000 new jobs over the next 25 years and off-grid power solutions for rural communities.
Harnessing renewables in your business
Of course, not every SMB will want to become directly involved in the renewables industry, but every SMB uses electricity. Herein lies an opportunity for SMBs to evaluate ways of harnessing alternative energy to improve business resilience, sustainability, and efficiency. Rapid renewables innovation means a strong business case for going solar.
For most businesses, barring those with heavy machinery or commercial fridges, solar panels and battery backup are excellent backup power sources. They’re cleaner, quiet, and don’t depend on expensive fuel. What’s more, solar offers small businesses the prospect of becoming increasingly independent from the grid and reducing their power bill over time.
Some municipalities, such as Cape Town, allow businesses to feed power back to the grid for a rebate. Over time, solar installations will pay for themselves, even if you don’t factor productivity through load shedding into the equation. Becoming more sustainable is also a good reputational move that enhances an SMB’s standing with customers and suppliers.
From a short-term perspective, it may be frustrating for SMBs to redirect their capital towards alternative energy sources rather than expanding their teams, opening new branches or undertaking other growth initiatives. However, the shift towards renewable energy should be viewed as a long-term investment in sustainability and cost reduction. Remember that the calculations will not be the same for any two businesses.
Some of the factors they need to consider include the following:
- Are they using cloud-based software to minimise power consumption in their business and ensure business continuity during power outages?
- Does their building have adequate rooftop space to support a solar installation?
- Do they operate from rented premises? Is it possible that their property owner will be willing to invest in solar?
- How energy-intensive is the business, and how much investment would it take to create a solar and battery installation that would enable it to keep operating through load shedding? Solar can offer those that don’t run commercial fridges or heavy machinery a relatively quick return on investment (ROI).
- Does the municipality buy excess power back from solar users in their metro?
- How will the business finance solar and how much budget does it have? Bear in mind that it’s possible to start small and incrementally add more batteries and solar panels to the system to achieve higher levels of grid independence over time.
Powering less intensive loads with renewables
On balance, many SMBs will find that renewables and battery backup costs are justified. It will enable them to keep running their most important processes during load shedding, so they don’t lose sales or production. In addition, even those that run heavy equipment or refrigeration may be able to save money on the diesel they currently pour into running their generators by powering less intensive loads with renewables.
Another factor to remember is that the National Energy Regulator of South Africa (NERSA) a has approved tariff increases for Eskom. With an investment in solar power, companies can insulate themselves against rising power costs by self-generating some of the time. The payback will take a few years, depending on the installation size, the number of batteries installed, financing costs etc.—but the investment will ultimately pay off.
The government has also proposed to provide solar-related bounce-back loans for SMBs on a 20% first-loss basis. Small businesses can secure loans from finance providers where the National Treasury will assume 20% of the initial loss. Hopefully, this will help make loans more accessible.
Tools such as Spherics, a carbon accounting solution from Sage, can help businesses easily understand and reduce their environmental impact. Though not yet available in South Africa, it will help SMBs manage their carbon footprint and the data shows where the low-hanging fruit is for SMBs in making the transition.
Renewable energy is key to securing energy future
Given that coal and nuclear plants are built on decade-plus timespans, solar and wind are the best options to address South Africa’s power shortfall rapidly. But the backstory is that we need to gradually wean ourselves from fossil fuels to meet our climate emission promise to the global community and play our part in addressing climate change.
It’s clear the future is renewable. Energy reform is an opportunity for businesses to increase growth and become more sustainable. SMBs need to take their rightful place at the energy reform table, so they don’t get left behind. Government and big business would be wise to tap into the resourcefulness and innovation of the SMB sector to help drive a faster and more successful transition.