Financing to build renewable-energy systems for use by businesses in South Africa is growing, with many projects showing good financial viability and return on investment, says financial institution Absa renewable-energy head Justin Schmidt.

The return on investment for well-designed energy projects is often between three years and five years, but most are grid-tied solutions that are designed around a specific, feasible business case, he emphasises.

Going entirely off-grid is not typically financially feasible, unless it is for specific needs, such as for a guest lodge or if there is no access to grid power, says Schmidt.

“The most compelling business cases currently are grid-tied solutions that companies use to attenuate their electricity costs and hedge their exposure to electricity price hikes.”

Demand for finance for renewable-energy systems is growing, but should be considered investment cases that balance the potential costs and reliability of the grid against the costs and reliability of self-generation.

“We are also seeing more investments made in on-premise renewable-energy generation, which we attribute to better business confidence [triggering] investments that had been deferred and delayed. There should be more demand for renewable-energy system financing than in 2017,” says Schmidt.

Industries and sectors that have business activities that synchronise with the movements of the sun and are medium-intensity electricity users, such as light manufacturing, retail, financial, commerce and services industries, are boosting demand for financing for renewable-energy systems.

Schmidt notes that registration of renewable systems with the local municipality or electricity supply operator is common practice and the fact that there is movement by government to regulate renewable-energy projects helps to improve confidence.

Solar photovoltaic projects and rooftop installations dominate funding demands currently, but Schmidt notes that the bank’s renewable-energy team is monitoring all renewable-energy technologies to serve clients with the correct financial instruments when these technologies are more mature or affordability improves.

Additionally, most companies will rely on more than one source of energy, which typically includes standalone backup generators.

“The costs of full redundancy and completely going off-grid are mostly prohibitive to the investment case, unless the project is already an off-grid project. Battery storage will typically increase the cost of a project by about 250%.

“In general, companies aiming to deploy renewable projects on site or use energy from renewable sources will use the grid to stabilise supply and as a battery during times of low production.”

Further, while current tax incentives, such as Section 12J of the Income Tax Act No 58 of 1962, and possible future feed-in tariffs will help to improve the financial metrics of a project, Absa focuses on projects that are financially viable in the current regulatory environment and on financing projects owned by the end-user. The bank also provides services for renewable-energy developers and projects that provide power for residential areas and complexes.

“The Absa renewable-energy team monitors the different technologies across the maturity spectrum. We can provide detailed financial assessments for biomass, biogas, biofuel, wind, solar, hydrogen and standalone generator projects,” Schmidt concludes.