SOLA Operations and Maintenance (O&M)

O&M service contracts 101: how to choose an O&M service provider

We’ve spoken previously about the value of obtaining O&M services for solar systems on commercial and industrial property. O&M is a key way of ensuring that solar plants perform optimally, reducing energy system downtime. Choosing the correct O&M service partner  will help to provide essential services and personnel for the ongoing operation of the solar PV plant. As such, it’s important to choose the right service partner who will make sure the system is running smoothly, maintained regularly, and monitored remotely to ensure that the expected financial savings are secured.

 

Why is appointing an O&M service partner important?

Financial: appointing an O&M service partner means that the financial returns of the system can be secured. The earlier that any issues within the solar system can be discovered, the quicker they can be resolved, reducing downtime and associated costs.

Safety: having an O&M service partner in place can ensure that safety hazards, such as fire and electrocution hazards, are avoided in advance. An O&M service partner should be able to see real-time system production and coordinate routine maintenance visits that will be able to prevent a host of safety hazards.

Component longevity: having an O&M strategy is also a good way to keep track of each component within a solar PV system. This becomes important as the system ages, as different components will have different warranties and replacement costs.

 

How to choose an O&M service partner

There are several points to consider when deciding on this. For example, does the service provider commit to performance guarantees, and what is their mechanism for ensuring your plant’s performance? In order to ensure service delivery, a performance guarantee will provide peace of mind that if the system underperforms, financial compensation will be provided.

Other points to consider include making sure that the promised Maintenance Schedule is comprehensive and can be adapted to the specific solar PV system. If your solar PV system is on a rooftop in an industrial area, for example, it may require more frequent cleaning; or if it is a carport structure, it might require other checks relevant to the structure. It’s important that the O&M partner understands these nuances.

Other important components of the O&M service are reporting tools and software. Having great maintenance but no way of accessing relevant reports, for example, would affect the overall value of the O&M service provided. Feel free to ask for a demonstration of the software, or an example of the monthly report that you will receive when you sign on with an O&M service partner, in order to understand if their methods of reporting are relevant to your system.

Do you know the warranty length and conditions for each of the different solar system components? Ensuring that your O&M provider is experienced in managing warranty claims, replacement of equipment, and arranging of logistics for repairs or replacements of components will be key to saving you money and reducing downtime. Understanding which components are under specific warranties will ensure cost savings, should they need to be replaced.  

What is included and excluded from a typical O&M contract

Once a relevant O&M service partner is chosen, it is important to sign an O&M service contract to ensure that both parties fulfil their duties on a regular basis. This is an essential component that will ensure that the system is maintained with consequences for the service partner, should they not provide adequate, timely services. It will also protect the performance guarantee of the solar PV system, ensuring that should the system underperform, the business will be financially compensated.

Make sure the contract includes the following clauses:

  • Duties of contractor
    • What exactly will the O&M service partner provide on a monthly, quarterly, bi annual and annual basis? What is excluded?
  • Liability and termination
    • Who is liable for various scenarios? When should the contract be terminated and under what circumstances?
  • Breach of contract clause
    • What constitutes a breach of contract for either party, and is there provision for relevant penalties?
  • Governance of relationship between employer and contractor
    • How will the relationship between yourself and the O&M partnership be governed and altered in the future, if necessary?
  • Site-specific details
    • Things such as the site performance guarantee, when payment should take place, the specifications of the solar plant and the outline of maintenance specific to the site should be detailed
  • Reasonable inclusion
    • What is reasonable to include in the contract, and what is not included in the contract?

Choosing the best O&M service partner and making sure that the contract governs a trusting, accountable relationship is an essential part of solar PV system ownership and management. If you would like a comprehensive guide to O&M strategy, download our free ebook.

Fair Cape Dairies 100 kWp solar system

When cost reduction is king: 3 sectors perfect for solar finance

If you’re in business in South Africa, you’re likely feeling the squeeze of a slow-growing economy. Whilst some sectors have been more affected than others, it is safe to say that cost reduction remains a top priority for most facilities managers in today’s economic environment. At significantly lower cost to coal-based power, solar PV is a perfect solution for reducing overall electricity costs. However, for those that do not have the capex to outlay for the purchase of a new system, solar finance options remain a good choice. In this post we’ll explore three sectors that lend themselves particularly well to solar finance.    

What is solar finance?

Solar finance usually involves a Power Purchase Agreement, or PPA, between a producer of electricity and an end-user of electricity. In the case of solar PV, this usually enables an electricity consumer, such as a building, to utilise solar energy at a cheaper rate to the existing utility. In addition, although the solar system may be installed on the user’s rooftop, the ownership of the system remains elsewhere, and the user pays for the electricity that they consume, rather than for the overall cost of the solar system.

  1. The Manufacturing Sector

Industrial processing, particularly the manufacturing sector, remains one of South Africa’s most important, given the potential to create and maintain jobs. However, in a weak economy, manufacturing is one of the first sectors to suffer: and South Africa is lagging behind its regional peers. Although South Africa needs support and policy certainty when it comes to manufacturing, it is also of chief importance that each individual facility maintains its profitability through slick and efficient and operations – and this should include using the cheapest energy.

At a much lower LCOE than grid-based power, solar is a great option for manufacturing businesses. Solar finance is especially relevant as manufacturers are not necessarily interested in owning and maintaining their own solar system – they just need to access affordable and reliable power. By entering into a solar finance option such as a solar PPA, they can maintain low operating costs and remain competitive in a struggling economy.

Dynachem Industrial manufacturing facility

Dynachem Industrial manufacturing facility, 60 kWp

  1. The Agro processing Sector

Agro processing is a subset of the manufacturing industry but focused on processing raw, agricultural materials. A key growth sector in South Africa, Agro processing has been emphasised by the Department of Trade and Industry, as well at the Eastern Cape’s Department of Economic Development, and for obvious reasons: it accounts for almost 14% of South Africa’s manufacturing sector.

Similar to the manufacturing sector, agro processing runs on a tight margin and reducing operating costs are welcome. Although the input material costs may fluctuate significantly depending on the seasons and weather, entering into a solar PPA will ensure consistently low electricity prices for the processing of the raw materials.

As an added bonus, agro processing plants are often situated in rural areas, where there is access to adequate land for ground-mounted PV solutions, or large agricultural buildings for  rooftop PV solutions.

Fair Cape Dairies 100 kWp solar system

Fair Cape Dairies 100 kWp solar system

  1. The Hospitality and conferencing sector

The hospitality sector is undeniably important to South Africa, with it contributing 9.3 % of the countries overall GDP in 2016. However, the sector is also facing challenges – as disruptive technology such as AirBnB continue to grow and tightened budgets mean less cause for business conference travel.

As any facilities manager of a hotel or conference centre will tell you, running a well-oiled ship is a key aspect of ensuring that their facility remains competitive. This means finding innovative ways to ensure costs are kept to a minimum. When budgeting, planning is very important, particularly because there are several variables year-on-year that can affect the overall cost of maintaining the facility.

This is why a solar finance option is perfect for the hospitality sector: entering into a solar PPA will ensure a fixed escalation on the cost of electricity for several years – meaning greater control when planning energy costs. Ensuring that the building management system is also optimised toward solar energy – for example, ramping up the aircon mid-morning rather than early morning – can ensure even greater savings. The bonus with a PPA, furthermore, is that the system will be operated and maintained externally – giving facilities managers one less thing to worry about.

Century City Conference Centre goes green through solar energy installed by SOLA Future Energy

Century City Conference Centre 260 kWp solar system

Solar finance options are fast-growing way of tapping in to the cost and environmental benefits of solar power. Although these three sectors here are ideal for a solar finance option such as a PPA, it is not only these sectors that can benefit. Contact us to get a sense if a solar finance option will work for you.

Solar finance options make solar PV available to large businesses in Africa

Finance options for rooftop solar PV in Southern Africa

If your business is considering a solar PV system, chances are that you have looked at the advantages of the system in terms of the reduction of electricity acquired from the national grid and reduced carbon emissions, but the most important question will remain: how will a solar system save money for your business?

Although many companies will choose to purchase their solar PV system outright – meaning that after paying a once-off amount for the system, they’ll be able to use the system’s free energy over the next 25+ years – this is not the only option available to go solar. As opposed to purchasing a solar system outright, there are several solar finance options requiring little to no upfront costs, allowing more flexibility for a company.

For companies that don’t want to outlay capex to acquire an embedded solar system for their building, a financed solar solution is a great way to enjoy the benefits of solar – including reduced electricity costs and carbon emissions – without the upfront capital. Solar financing options generally allow businesses to pay only for the solar energy they use, depending on the type of agreement that is entered in to. The following blog explores the various solar finance options for commercial and industrial businesses in Southern Africa.

Introduction to solar finance

Simply stated, solar finance is a way to enjoy benefits of solar PV without the upfront capital costs. Instead of owning the solar system from day 1, businesses can “rent” a custom solar system through various solar finance options. Businesses can therefore still enjoy a diversification of energy sources and reductions on energy costs, without acquiring the solar system themselves.

Solar finance could be a particularly appealing option if:

  • A business does not have capex budget for the cost of a solar PV system
  • A business has a portfolio of buildings and does not want to buy separate PV systems for each; removing the “hassle factor”
  • A business would like to achieve electricity cost savings without impacting the balance sheet
  • A business wants to plan accurately for costs of electricity and wants greater stability with regards to tariff increases

A solar finance option will still entail a custom built embedded solar system being installed on the client’s building, but instead of ownership for the system being with the building owner, it will belong to the finance provider. In this way it differs from wheeling green energy or buying renewable energy certificates. With an embedded solar system that doesn’t belong directly to the business, there is little reason to get very involved in your building’s electricity supply – as long as the power is efficient, reliable and cost effective. Furthermore, dependent on exact structure of the agreement, the solar asset remains off balance sheet, allowing for a greater return on assets.

In contrast, owning one’s own solar system means that the building will have its own embedded power generation that belongs to the business. If the business has a good Operations and Maintenance contract in place and wishes to spend Capex upfront, this is a good option.

However, business owners may want to have even less involvement: as long as the cheapest and most reliable form of electricity is available. In this case, it pays to enter into a solar Power Purchase Agreement with a company specialising in solar PV, who will concentrate on all aspects of the system’s design, operation and maintenance over the lifetime of the system. The business can thus maintain its independence, only paying for the electricity that it uses.

Market overview of solar finance options

There are three types of solar finance agreements which are generally used for commercial and industrial business owners in Southern Africa. They differ slightly in scope and objectives, but the outcomes are similar.

  1. The solar Power Purchase Agreement (PPA).

The first and most common solar financing option is the solar Power Purchase Agreement (PPA).

A business who enters into a PPA agreement will only pay for the electricity that the system generates on a monthly basis, similar to municipal or utility power. This tariff will increase gradually over the years, but dissimilar to utility tariffs, the increases are usually at a fixed escalation that is agreed upon upfront, shielding business from price volatility.

Often  included in this agreement is an “early purchase option”, or an option to purchase the solar PV system anytime after an initial period. This enables flexibility for the business, should they decide at a later stage to purchase the system rather than continuing to pay for the solar electricity through the PPA.

At the end of a PPA term, the client is usually offered the option to purchase the system for it’s residual value or the system ownership automatically transfers to the client for no value. This is an important matter that can affect the starting tariff of a PPA and potential clients must make sure they know who the system belongs to at the end of PPA before entering into it.

  1. A roof rental agreement

A roof rental agreement is the second type of solar finance commonly used. In this type of agreement, a business leases their rooftop to a solar provider who builds a solar system and enters into a PPA to sell the energy from the system. The company entering into the PPA does not necessarily need to be the same as the company leasing the rooftop, which allows for several possible arrangements.

For example, a building owner with tenants could earn rental income from having a solar system installed on their roof and then have their tenants enter into a PPA, who would benefit from cost savings of the PPA. Alternatively the building owner can be the lessor of the roof rental agreement as well as the offtaker of the PPA and decide how to pass on the PPA savings to his tenants.

This option provides commercial building owners a yield enhancement of their property, turning previously unused roof area into income-making asset.

  1. An equipment rental/lease agreement

The third common form of solar finance is an equipment rental or solar lease agreement which is very similar to a PPA, in that a client pays a monthly fee towards the use of a solar PV system. The major difference with this type of solar lease agreement is that the fee is not linked to the output of the system but is rather fixed. In other words, the client would pay a similar amount, agreed in advance, every month, rather than paying for the energy that is generated in a specific month based on an agreed-upon tariff.  

Fixed tariff escalations: risk or reward?

For conservative business owners, signing on to a fixed tariff escalation for energy costs might seem risky. After all, what happens if the costs of state power go down significantly in the coming years?

This is a fair question, and the best way of mitigating this risk is to ensure that the fixed escalation on a solar PPA will be significantly lower, on average, than the utility’s escalation. In general, tariff escalations for many Southern African state utilities are quite high and fluctuate significantly year on year. Generally PPA tariffs increases range between 5-10% per annum, whilst Eskom and NamPower have had 10-year average increases of 13.8% and 13.4% respectively.

The graph below demonstrates the average tariff increases for South Africa and Namibia’s utilities over the last 10 years. Whilst some years, the increase was lower than the 6% increase typical of a solar tariff, the average increase is much higher than 10% (the grey line demonstrates a typical PPA tariff increase of 6%).

PPA tariff increases in South Africa and Namibia

Furthermore the discount offered by the PPA in year one offers further buffer from the PPA tariff ever crossing the utility tariff.

Conclusion

Solar financing readily makes clean, renewable energy available to a range of energy users in the commercial or industrial property environment. Offering both flexibility and stability, they are a very helpful way of promoting the accessibility of solar PV solutions to business owners across Southern Africa.

Do you have a business that could benefit from a solar finance solution? Contact us for more information.

 

Operations and Maintenance ensures that solar systems perform optimally

How to save through solar: 3 tips for commercial and industrial property managers

It’s long been known that managing commercial and industrial properties sustainably is not only about environmental, but also economic, sustainability. The good news is that for many facilities managers, managing properties sustainably can also deliver on their bottom line. One of the key areas of this is building electricity consumption – one of the largest expenditure chunks in any facility manager’s budget. As we know that reducing electricity consumption is a sure-fire way to save money, using a solar PV system to offset energy consumption makes sense. In this post we’ll explore three ways to ensure the economic benefits of solar PV are guaranteed in managing commercial and industrial properties.

Electricity consumption: a key concern for facilities managers in South Africa

In South Africa, electricity tariffs have increased on average 9% per annum for the last 5 years – and we may be in store for a further tariff increase in September due to Eskom’s RCA approval. These increasing tariff costs mean that it electricity is likely one of the top concerns for facility managers.  In fact, both cost savings and sustainability were highlighted as two “game changing” aspects of Facilities management for the next few years, according to the Facilities Management South Africa Knowledge Executive Report. With increased pressures on facilities managers to deliver high quality service at a reduced cost, electricity savings are imperative for facilities managers.

Much of this pressure has lead the property sector to invest in solar PV. Grid-tied solar PV systems can save properties between 20 – 40 % of their total energy consumption, making them an attractive option for saving energy costs. Increasingly, property companies and Real Estate Investment Trusts (REITS) are rolling out portfolio-wide solar PV interventions. The reason that this is so attractive is because of the rapidly decreasing prices for PV technology over the past few years, causing the costs to fall by 80% since 2009.

However, in order to make sure that a solar PV intervention actually saves money, there are a variety of factors to consider. Below are our three tips to follow in order to maximise the cost-benefit of the solar PV investment.

Tip 1: Implement in-house energy efficiency measures first

The lowest hanging fruit when it comes to building cost saving is often implementing in-house energy efficiency measures. If you haven’t already implemented in-house energy efficiency, this is the place to start for any kind of cost-saving, but it will also help any investment in solar PV to be more cost effective. A typical solar PV system has an output which ramps up in the morning, reaches peak output at midday, and then slows in the evening, such as the red line in this graph demonstrates:

typical solar PV load

Implementing energy efficiency measures to shift some load to mid-day when solar PV is at its peak production will ensure that you will fully utilise the cheaper energy when it is abundant. As an added advantage, peak tariff times are generally in the mornings and evenings, meaning that there will be an added saving. In order to fully optimise energy efficiency, implementing electrical submetering is a helpful way to analyse the energy load and understand the main energy-guzzling activities – in a typical commercial building this will likely be HVAC (air conditioning), lighting and electrical appliances.

The benefit of analysing a building’s load and implementing energy efficiency measures before procuring solar PV it twofold: it can not only shift the load more optimally as highlighted above, but it can also ensure that the solar PV system that is procured is the optimal size.

Khayim Fredericks, National Technical manager for Old Mutual, recommends looking into energy efficiency as a first measure.

“[I recommend] looking at [your] building and asking, is my building operating as efficiently as it can be, so that the solar system can be sized as efficiently as possible? […] When we explored the solar option [at Old Mutual head office], we had already reduced our consumption from 30 – 35%”.

Old Mutual solar PV system

Tip 2: size the solar system correctly.

As mentioned above, sizing solar PV systems correctly is key to enhancing their cost-reducing benefits. When sizing a system correctly, there are several factors that need to be understood, including:

  • The required energy load. This includes a thorough knowledge about the amount of energy that the building uses on a daily basis, including seasonal variations and power required.
  • The tariffs that apply. It is important to understand the energy tariffs that apply to the building, including what their tariff structure is and if peak demand charges apply. This will help when designing the solar system to see if excess energy stored in batteries might be cheaper than peak-demand municipal electricity tariffs.
  • High-rise, large commercial office blocks typically have less rooftop space available than sprawling retail centres. Understanding what roof space or ground is available around the commercial property is an important aspect of designing the solar system and its size.

What is wheeling?

Wheeling is the process of using energy from a location where it is not produced. Due to the way in which cities are set up, wheeling has great potential as it will enable building energy users with more roof space but less energy requirements, such as distribution centres or warehouses, to transfer power into energy-intensive urban hubs.

Tip 3: Add Operations and Maintenance into your ongoing energy costs.

Like any asset, the operations and maintenance of an installed solar PV system is paramount. Monetary savings generated by solar PV systems will be consistent if and Operations and Maintenance plan is followed. Factoring in the costs for operations and maintenance in the overall IRR of the solar system is important, because it will allow diagnosis of any possible problems early and thus ensure that the system continues to produce the predicted savings.

Make sure that you scrutinise what is included in an O&M contract. A comprehensive plan should include:

  • Access to software that provides real-time data on the production of the solar system
  • Remote monitoring and corrective action, when required
  • Access to technical staff who are able to assist with problem solving
  • Collating, analysing, and reporting on monthly and annual data
  • Inspecting the site and/or replacing components
  • Cleaning of the modules

A comprehensive Operations and Maintenance arrangement for your solar PV system will ensure that the system is running smoothly without you spending time diagnosing and troubleshooting, should there be a problem.

Operations and Maintenance ensures that solar systems perform optimally

By implementing in-house energy efficiency measures before procuring a solar system, sizing the system correctly for your load, and employing a comprehensive operations and maintenance plan, you will ensure the economic savings of a solar PV system on a commercial property.

solar PV for commercial and industrial property

Installing solar on your commercial or industrial property? 6 questions you need to ask

Installing solar PV systems on commercial or industrial property has become a commonplace practice, given that property investors generally look at the long-term value of their assets. Since solar provides consistent, affordable and clean energy over a 25 year lifetime, it is not surprising that commercial and industrial properties are investing in solar. However, given the flurry of investment, there are many solar system providers – and even more opinions around what is important when installing a solar system. Investing in solar PV is an incredible investment, if it is done correctly, but as someone specialising in property development, you might not know how to judge if a solar system will be done in a way that ensures optimal ROI (Return on Investment). In the following blog post, we explore 6 different questions that are essential to commercial and industrial property owners when going out to procure a solar system.

A beginners buying guide to C&I solar PV – the essential components

At its most essential, a solar PV system harnesses the energy of the sun and converts it into electricity for use. However, in terms of how this energy is harvested and when and where it is deployed, there are a range of variables that can significantly impact both the cost and the output of the system. The first step to understanding if your commercial property would benefit from solar is to understand your energy tariff. By doing this, you’ll be able to see if a typical solar tariff will beat what you’re currently paying. In order to find out the detailed costs and expected returns on a solar project for a commercial or industrial building, you would then need to commission a feasibility study, or solar proposal, that will show some basic figures on the return for your property.

There are a few essential components that should be covered in a solar feasibility proposal:

  • The size of the system (DC) and the proposed output (kWh). This is a basic indication of how much power the solar system would output based on the size of your building. There are various different ways that this can be optimised – which will be explored later in the post.
  • What the system will cost, given a comparative option of upfront capital cost (capex/ EPC cost) or a financed solar solution (PPA). This would show what the ROI would look like on various options and help you decide what is most relevant to your building and business model.
  • If you have load data for your building or facility, a good feasibility study should include a load analysis. If no load data was provided, the study should explicitly say this, so that there is no confusion as to the accuracy of the figures in the proposal.    

Once you have received a feasibility study on your commercial or industrial property, it is important to make an informed decision on the procurement of the system – and that’s where this article aims to help. The following 6 questions to ask when buying solar for commercial and industrial property should guide your thinking:

1. What is the optimum size of the system?

It may seem obvious, but the size of a solar system is one of the most key aspects of ensuring that solar PV works for your business. This is because there are several factors – such as operational requirements, roof space, reliance on diesel, etc., that all factor in to the optimal size for a PV system. When assessing a solar feasibility study, it is important to check that there is optimal configuration of the system design: that all components deliver their maximum value and make the system more efficient.

For example, you can get optimal value from solar inverters by making sure that they are not overloaded or operated outside of the manufacturers instructions. Similarly, solar modules might perform more efficiently if surrounded by a cool breeze. When assessing the property’s energy load profile, it also might add value to slightly oversize the system, or incorporate a small battery, in order to reduce the property’s demand charges (more on this later). By paying a slightly higher fee for the added components, the saving on demand costs could be significant, depending on the tariff structure and the building’s operations.

Value engineering will ensure that environmental factors, energy load, building design and component functionality are all taken into account to ensure the most efficient system size for your property and budget.

value engineering ensures better cost effectiveness for solar PV on Commercial and industrial property

2. Will the system meet legal requirements?

This question is almost as obvious as the first question but it is one that is, surprisingly, often overlooked. There are a large amount of compliance and legal standards when it comes to installing a solar system, and in order to make sure they don’t have any legal hassles, commercial property owners need to make sure that the solar system provider will ensure compliance with all relevant requirements.

Compliance with legal perimeters changes in each country, so the service provider will need to be familiar with the requirements for each particular property location. In South Africa, the following basic compliance rules apply:

  • Solar PV systems under 1 MW in size must have embedded generator approval from the relevant municipality
  • In some municipalities you may be required to go through a building plan approval process, especially for carport or ground mounted installations
  • For solar PV systems over 1 MW, the current legislation stipulates that these systems must have an electricity generation licence  from Nersa (the National Energy Regulator of South Africa). However, it is expected that this process will become slightly easier for projects between 1  – 10 MW in the coming months
  • If it is a battery coupled or off-grid system, it currently does not have to be registered, however this might change in the future depending on how Nersa regulations are updated going forward
  • The system should also meet technical compliance standards. It is important, for example, that the system is compliant in terms of technical regulations for electricity connections – (NRS regulations 097-2-1 – grid connection of embedded systems). A qualified electrical engineer is needed to sign off on this.  
  • Structural compliance – ensure that the structural design of the system is signed off by a professional engineer (Pr Eng).
  • Some PV installations may require additional regulatory approvals such as environmental impact assessments, rezoning, etc.

3. What do good quality components look like?

From just a simple Google search for solar panels, one will realise that there are a range of manufacturers out there, and trying to find the best quality vs price components can be daunting. The most important thing to evaluate when looking at the type and quality of components used in a solar system proposal is that the warranties and guarantees meet the requirements of the length of the investment. In terms of investing in a solar PV system for a commercial property, this usually means 20 to 25 years.

  • Solar modules or solar panels form the basis of your investment. Generally, solar modules come with a 20 – 30 year performance guarantee. Mono-crystalline solar panels are typically more efficient than polycrystalline, but tend be be slightly more expensive. Also, make sure that you differentiate between performance guarantee (the guaranteed efficiency of the panel during its operational life) vs product guarantee (the manufacturing or workmanship guarantee on the panel itself).
  • Inverters convert the DC electricity to AC and integrate this into the building’s energy supply. Typically, inverters carry a 5 – 10 year guarantee, which can be extended.
  • Batteries are another component that you will want to ensure are of good quality, if they form part of your system. Remember that how batteries are managed will also ensure that they carry a longer life span. Battery technologies are advancing rapidly in terms of cost and robustness, and are now available with warranties in excess of 10 years.
  • Also make sure that the feasibility costing includes provision for the installation of weather and monitoring instrumentation that will allow you to track the performance of the system over time.

Solar PV module and mounting system

 

4. How has the performance of the system been guaranteed in the short, medium, long term?

In addition to component guarantees, it is also useful to take note of overall guarantees of the system for the long, medium and short term. A solar system installer may have an overall efficiency measurement or performance ratio by which they guarantee the system. For example, they may measure the ratio between the total amount of available insolation (solar power) on your property’s site, vs the usable power coming out of the system (DC).

The solar proposal should also include a Internal Rate of Return or IRR. As those in the commercial and industrial property industry will be well aware, IRR is the rate of return on investment that will be achieved by investing capital in a solar asset, over the lifetime of that asset. IRR can also be calculated during a specific timeframe, for example, the first 10 years of a solar system’s lifespan.

When it comes to signing a financed solar system or a Power Purchase Agreement (PPA) with a solar solutions provider, IRR would not be relevant. Instead, the savings from solar energy would be calculated as a monthly operational saving, based on the expected tariff increases.

5. How will you measure ongoing performance and ROI on your solar system?

Like any asset, solar PV systems need ongoing care and maintenance in order to retain their optimal performance. When evaluating  the purchase of a solar solution the provision and associated costs of Operations and Maintenance (O&M) is an essential component to consider.

Not only will investment in O&M diagnose any possible problems early through continual real-time monitoring, it will also ensure that the system continues to produce the predicted savings and ensure the overall financial case of the project.

When evaluating an O&M offering, make sure that there is regular reporting and site inspections and the option of accessing live data on the solar system, such as through a client portal. Keeping track of the solar system’s historical performance through regular reports will help you to look at the savings and ROI over time and to make more accurate predictions of future performance.

If your solar system is on a PPA, you will not be directly responsible for its ongoing maintenance and operations. However, you should still request ongoing reports to track your savings comparative to your alternative power options.

ongoing solar operations and maintenance is essential for Commercial and industrial property

6. Will energy storage improve your solar system?

Although batteries have historically been expensive additions to solar PV systems, it is now essential to ask about energy storage when thinking about a solar system for your commercial or industrial property. The prices of batteries have rapidly decreased and often can ensure a more efficient use of the abundant solar resource. Whether you originally planned to include batteries in the system or not, it is worth asking about when evaluating a new solar proposal.

How could combining solar PV with batteries and/or generators improve the overall business case? It depends on your specific building and load profile – for example, peak shaving can help to push overall tariffs significantly lower and change the business payback of the solar PV system significantly. Similarly, for retail centres and remote industrial or mining properties, batteries can allow a totally islanded or microgrid solution.

That concludes our list of 6 questions to ask when installing solar PV on commercial and industrial property. Like any large asset, investing in a solar PV system requires careful decision-making and evaluation. If you have a commercial or industrial property that you are interested in converting to solar power, try our online feasibility tool.

Solar PV offers several ways to optimise the industrial sector

5 ways solar PV can optimise your industrial electricity usage

Inexpensive electricity is the foundation of a globally competitive manufacturing sector and healthy local manufacturing or industrial businesses. In South Africa, electricity prices have increased by an average of 16% per year for the past decade, squeezing an already fragile industrial sector and resulting in less than 1% annual growth in manufacturing output since 2010. Manufacturers in high-tariff areas such as Ekurhuleni and the City of Johannesburg have been particularly hard hit, and Eskom’s  5.23% increase for 2018 threatens to further undermine local industrial resilience.

Thankfully, however, local industry is no longer restricted to the central grid and expensive diesel generators for electricity. Solar PV and battery storage technologies can now reduce  energy consumption, decrease peak demand, improve the reliability of electricity supply and give businesses an edge in local and global markets. Five points below demonstrate five ways in which solar PV can optimise industrial and manufacturing electricity usage.

1. Solar PV reduces energy consumption and utility electricity bills

An industrial solar PV system can reduce electricity consumption from the grid from 30% at a basic level, to 100% if combined with robust battery storage technologies. This reduction of the municipal or Eskom power means that savings are made directly through having to buy less electricity.

Solar systems generally consist of solar panels, inverters and distribution boards that seamlessly integrate solar electricity into a building or plant, combining it with the grid’s power when necessary.

As a plus, manufacturing and industrial plants often have large roof surfaces which are ideal for the deployment of solar panels.

How to understand solar PV cost savings

You might be thinking, “wait a minute, don’t solar PV systems also cost money?” Yes – solar PV systems are not without their own costs – particularly if one wishes to purchase one’s own system rather than going through a solar financing option. However, solar PV systems present several opportunities to save money. Firstly, one saves money directly by simply not buying electricity from the municipality or Eskom. Secondly, industrial plants with solar systems also save on demand charges. Depending on a business’s tariff area, these demand charge savings can be even more than the direct energy savings from reduced consumption.

The Internal Rate of Return (IRR) is a term used to annualise savings from the solar system over its lifetime, relative to the investment in the system. This number is helpful when comparing it to other investments. 

Lets use a fictional example to demonstrate:  

Siphesihle Dlamini runs a paper manufacturing plant in Spartan industrial area in Ekurhuleni, Gauteng. Usually, the plant requires energy during the day because the plant does not run for 24 hours. Their electricity bill is high as they use about 720 000 kWh of energy per month to run the plant.

Because of the electricity needs and the roof size of the plant, Siphesihle needs a system of about 1 MWp of supplied power. Because the plant has a large roof area, he is able to install a 1 MWp solar system on to the roof. On Ekurhuleni’s industrial tariff D, Siphesihle will save R1,786,621.23 in energy per annum by installing a solar plant. His expected internal rate of return (IRR) for will be 33%, and it would take him around 4 years to pay off the system. However, because the solar system lasts for 25 years, he will get 21 years of free energy from this 1 MW plant thereafter. A solar system will prove, for his paper manufacturing plant, to be a fantastic investment.

2. Solar PV and/or battery storage reduces industrial electricity demand charges

Demand charges are a way for utilities (such as Eskom), to reduce supply constraints on the grid during peak demand periods. In South Africa, these are generally most pronounced in the mornings and evenings. In order to work out demand charges, the electrical utility (in this case Eskom) measures customers’ demand on a continuous basis. The peak demand, measured over a month, is determined in units of kVA. The utility then calculates a demand charge by multiplying the measured peak demand (in kVA) by the applicable demand charge rate (in R/kVA).

Demand charges can account for more than half of an industrial businesses’ electricity costs. Solar PV can significantly reduce peak demand in these industrial plants, particularly when electricity consumption peaks at midday (for example where a building has lots of refrigeration or cooling). Where demand peaks in the early mornings or evenings, a solar PV system can be combined with battery storage to dispatch low-cost solar power at any time of day, reducing peaks and driving huge savings.  

Another way that municipalities encourage businesses to limit their peak consumption is through Time of Use tariffs. These allow the electrical utility to charge clients more per unit of energy consumed at peak demand times than at other low demand periods.

Some areas in Gauteng that have high demand charges are:

    • Ekurhuleni, where demand charges are as high as R130/kVA and peak Time of Use Tariffs are as high as R5.20/kWh.
    • Johannesburg (City Power), where demand charges reach R170/kVA and peak time of use tariffs are as high as R2.90/kWh.
    • Tshwane, with demand charges as high as R157/kVA and peak time of use tariffs of up to R3.14/kWh.  

Another fantastic way to reduce demand charges with solar PV can be to combine a solar system with battery storage in order to enable “peak shaving”. This means that excess solar power during the day is stored in batteries, which is then deployed as the sun is rising or setting but the peak demand tariff comes into play. This enables industrial businesses to reduce their demand charges significantly.

Let’s take our earlier example of Siphesihle. Since his manufacturing plant has a large roof space, he is able to install a solar system that is larger than the requirements of his plant, meaning that during the day he produces more power than the plant requires. The excess power generated by the sun could be stored in batteries to be deployed as the sun goes down, reducing his time-of-use tariff dramatically. This could provide even more savings.  

Monitoring energy consumption is key to making energy cost savings

3. A combination of solar PV and batteries is more reliable than a centralised grid

Although South Africa is not currently experiencing load-shedding, reliable electricity supply is an essential component to industrial processes, and without it manufacturing businesses will struggle to make ends meet. When combined with generators and/or batteries, a solar PV microgrid can supply 100% of a building’s energy requirements, preventing the risk of load shedding.

A microgrid works like a “brain”, determining when power is needed and from what source. Usually with a combination of solar PV, batteries and a backup generator, a microgrid can successfully take an industrial plant off the grid entirely.

The main advantage of a microgrid is that it improves not only the consistency, but also the quality, of the energy supply. Where electrical surges could be harmful to industrial processes, these can be prevented through a carefully programmed microgrid.

Battery costs have reduced significantly in the last few years, meaning that going entirely off-grid is now becoming an affordable option.

industrial and manufacturing industries rely on access to clean, cheap power

4. Financing options mean that solar PV is affordable

Many industrial plants, whilst reliant on good quality, affordable energy, do not have a large capital budget to spend on developing a solar PV system, as electricity is considered an operating cost. This means that purchasing one’s own solar system – and perhaps combining this with batteries – can seem unfeasible for many industrial energy users. Thankfully, solar financing options exist, allowing industrial energy users to enter into a solar Power Purchase Agreement or PPA, paying only for the energy that their solar systems provide, rather than buying one outright.

These agreements include a financier who will foot the capital costs of the solar system, in exchange for selling the energy back to the end user. This means that the solar system is externally financed, and industrial businesses need only pay for the power that they use from their system.

industrial PV helps to reduce electricity costs

5. Solar PV reduces carbon emissions

For all of the energy that is diverted from the coal-heavy national grid, carbon emissions are saved – enabling industrial users to reduce their total carbon footprint. This is particularly useful when keeping in line with international standards and in helping manufacturers to reach sustainability targets.

In industrial and chemical manufacturing, reducing one’s greenhouse gas emissions is important, particularly when trying to align with international standards. Although installing a solar PV system on an industrial building won’t reduce direct greenhouse gas emissions, it will reduce indirect greenhouse gas emissions from the energy saving (and, potentially, from the additional insulation provided by the panels on the roof, too). This can help an industrial company to reduce its overall carbon footprint and meet its sustainability targets.

Do you own or know of an industrial manufacturing plant that could benefit from solar energy? Contact us or try out our solar calculator.