Businesses are increasingly prioritising the procurement of renewable energy, and especially solar energy, owing to loadshedding, electricity cost increases and risks associated with high carbon footprints, but run the risk of increasing their total energy costs, including from variability challenges.

Analysis by renewable energy for business platform Discovery Green shows that the solution to these challenges lies in diversification, both in terms of energy generation and consumption, in line with traditional insurance principles of risk pooling and diversification.

While the immediate financial benefits of solar energy are clear, after replacing 45% of their energy needs with solar, businesses face a 77% premium to fulfil the remaining 55% with other renewable sources, says Discovery Green head André Nepgen.

“With renewables, you pay for what was generated, regardless of whether your business uses the energy or not. This is why it is critical to optimise the mix of renewable energy and match it to a business’ consumption patterns up front,” he states.

“The urgency for businesses to secure renewable energy from the market is notable, especially as South Africa possesses some of the finest renewable-energy resources globally.

“However, the critical question is whether the current strategies are appropriate and scalable. There is a tendency to overlook the long-term consequences. Businesses are procuring too much solar and could end up increasing their total energy costs by more than 50% in the long run,” he says.

Further, the extent of the variability in renewable-energy generation is often under-appreciated by businesses, as is the extent of variability in businesses’ electricity consumption, he notes.

“Our analysis shows that output from a single solar facility can fluctuate by more than 14% between consecutive months, and by up to 33% for wind plants. This can increase to as much as 72% when considering the potential variability within a single time-of-use billing period, which is what drives a business’s financial savings,” says Nepgen.

Additionally, in terms of variability in businesses’ consumption, the data shows a stark difference between the seven industries analysed, with as much as a 6.5-times difference in certain cases. Failing to consider consumption variability means that the perceived value of renewable energy may not materialise as expected, he adds.

The premium to cover the remaining 55% of businesses' nighttime energy needs is because businesses must find a supply of renewable energy only for their leftover night-time consumption, which is an extremely expensive product for any renewable-energy supplier to offer.

“As a result, businesses tend to settle for a low level of renewable-energy coverage after procuring solar, but there is a cost to this too,” Nepgen emphasises.

With only a small portion of their total energy demand covered by renewables, businesses remain heavily exposed to high utility-price increases in future years, which are projected to be well above inflation.

However, Discovery Green views renewables variability as a unique opportunity.

“By pooling together renewable energy from various sources, you have the ability to create a diversified energy portfolio that is more resilient to fluctuations in generation. This diversification helps to smooth out the variability inherent in renewable-energy sources, such as solar and wind power, ensuring a more stable and reliable energy supply and a less risky product proposition to businesses,” he says.

Further, in terms of consumption, the financial and risk benefits of a diversified business portfolio are more effective.

A portfolio of diverse business consumption profiles can create an ecosystem that achieves a higher percentage of renewable coverage, with a negligible risk of wasted generation, Nepgen notes.

The results of Discovery Green's analysis show that where a single business can achieve a 49% renewable energy coverage level before energy becomes wasted, a portfolio of five businesses from different industries acting together can increase this coverage level to 78%, he highlights.

“Businesses can use this model to replace at least 90% of their energy consumption with renewables in a single transaction, thereby eliminating the risks presented by low coverage, solar-focused strategies.

“The results show that, under this model of renewable-energy procurement, the financial savings for businesses were the highest for all but one industry of the seven analysed.”