South Africa has seen a more than 200% increase in electricity tariffs since 2008 and could be looking at more than a 1 000% increase between 2002 and 2020, prompting energy solutions provider Energy Partners head Manie de Waal to urge businesses to focus on both the demand and supply side of energy in order to reduce their exposure to price hikes.
“In the last five years, the cost of energy has become a growing concern for South African business and is especially troublesome for companies that are heavily dependent on State-owned utility Eskom’s electricity supply,” he notes.
Despite being aware that energy efficiency is critical for business survival, many businesses avoid following through on the implementation of energy efficient ways of running their businesses, owing to the misperception that it is too complicated or a costly process, De Waal states.
“Prior to the energy crisis of 2008, South Africa enjoyed abnormally low electricity tariffs and as such, both behavioural patterns and optimisation of energy intensive operations did not develop gradually towards cost-effective sustainability,” he explains.
Energy Partners believes that, in order to reach a 20% to 50% reduction in consumption, businesses must invest in their operational asset base, preferably partnering with a reputable energy solutions provider.
De Waal notes that, if a business partners with an energy provider, it can gain knowledge of the availability of multiple funding options to assist businesses with the transition to energy efficient ways of doing business.
“The least risky option is a Gain Share agreement whereby an energy solutions provider invests in an organisation and is rewarded only based on results achieved,” he indicates.
De Waal mentions that in Gain Share, or Performance Rental funding models, the energy solutions provider invests towards a client’s energy efficiency by funding the solution – be it solar photovoltaic, heating, cooling systems or outsourced steam generation – and is also responsible for the operation of the equipment.
“Only when savings are realised, is the solutions provider rewarded for its results. All these types of agreements should be structured in a way that means client is cash flow positive from day one, without carrying performance risk or investing any of its own capital.”
However, De Waal warns that businesses must be sure to partner with a reliable and experienced energy solutions provider, because even though the financial risk is mitigated, operational risk is involved in outsourcing critical business processes.
Having worked with a number of companies to help them save energy, De Waal points out that business owners should ensure that they understand the full cost implication of financing options, especially when the company invests its own capital.
Also, business owners must understand that bills may go up even while the company is saving, because energy costs are dependent on usage patterns, tariffs and climate. Therefore, it is imperative to measure energy consumption prior to the optimisation initiative in order to establish an agreed upon baseline against which savings can be determined.