Businesses are increasingly prioritising the procurement of renewable energy. Yet not all renewable energy approaches are equal. It is imperative to question whether the current approaches are appropriate and whether these strategies are scalable.
By Discovery Green
In South Africa, this trend has been catalysed by a year marked by unprecedented loadshedding, a surge in electricity costs that was double the rate of inflation and looming global penalties on imports with high carbon footprints. The urgency for businesses to secure renewable energy from the market is notable, especially as our country possesses some of the finest renewable energy resources in the world.
Optimising your renewable energy strategy starts with choosing the right model for your business. In South Africa, renewable energy options include embedded solar, wheeled solar, wheeled wind, trader through aggregation and trader through platform. Each model has distinct advantages and challenges in terms of coverage, cost and risk.
Electricity procurement and consumption
Organisations in South Africa are grappling with several pain points when it comes to electricity procurement and consumption. The energy environment is one characterised by a lack of security, price increases consistently exceeding CPI inflation and the threat of impending carbon taxes and global import duties interrupting established business processes. With the necessary regulatory frameworks now in place, organisations are increasingly looking to transition to renewable energy sources to not only immunise themselves against these risks, but also to unlock significant financial savings that are available through South Africa’s rich solar and wind resources.
What is the best starting point? Renewable energy models are like cars – while all share basic features like wheels and engines, their specifications, warranties and service plans vary significantly. Similarly, the renewable energy landscape offers diverse options, each with unique trade-offs. Here are some key features of these models to consider as you navigate the decision-making process:
What to consider when choosing a renewable energy model
Price is often the starting point for businesses exploring renewable energy options, but stopping there can lead to suboptimal outcomes. Below are five key factors to consider for an effective strategy:
1. Balancing price and coverage. Coverage plays a critical role in determining the overall financial benefits of renewable energy. Businesses remain vulnerable to escalating utility prices and carbon taxes for every kilowatt hour (kWh) not covered by renewable energy.
A low quoted price may seem appealing, but businesses may face higher long-term costs without sufficient coverage. Limited coverage leaves businesses exposed to utility price hikes and rising carbon taxes. For example, embedded and wheeled solar solutions often come with attractive per-kWh rates, but typically replace only 50% of a business’s total electricity consumption.
In contrast, higher-priced options, such as the platform model, provide up to 90% coverage. Although the upfront cost is higher than solar, the greater coverage reduces reliance on non-renewable electricity, offering significant long-term savings.
2. Protection against future high costs. Long-term financial protection is crucial when choosing a renewable energy model. Escalating utility prices and carbon taxes makes higher coverage strategies increasingly valuable. For example, Discovery Green’s platform may have a quoted price 60% higher than embedded solar, but its 90% coverage significantly shields businesses from future cost increases. Over time, the platform model can deliver nearly double the savings, especially when factoring in the growing impact of carbon taxes.
3. Managing volatility. Renewable energy is inherently volatile – solar depends on sunlight, and wind relies on consistent airflow. Businesses must assess which model best mitigates these risks. Solar energy is generally more stable than wind energy, making it a safer option for businesses concerned about weather related disruptions.
However, models like Discovery Green’s platform go further by addressing take-or-pay commitments, offering monthly banking and diversifying generation sources, providing greater stability and protection.
4. Procurement timelines. The time required to secure renewable energy varies significantly between models. Embedded solar solutions are generally quicker, with standardised processes that simplify contracting and installation. In contrast, wheeling models, particularly wind energy, involve complex construction projects and contracts, often taking years to finalise.
For example, wheeled wind projects may take three to four years from negotiation to delivery due to construction delays and other complexities. Discovery Green’s platform simplifies this process with standardised customer contracts, reducing timelines and risks.
5. Scalability for future growth. Businesses often need to expand renewable energy coverage over time. Some models, like wheeled solar, can leave businesses with residual demand that is difficult to address. For instance, if a business initially replaces 50% of its energy demand with solar, the remaining demand – concentrated in off-peak hours – may be challenging and expensive to cover later.
Discovery Green’s platform offers a scalable solution, allowing businesses to easily add renewable energy for additional sites or increase demand without restarting the procurement process.
The benefits of a platform-based model
In our experience, a platform-based model stands out for its simplicity, scalability and robust coverage. It protects businesses from take-or-pay obligations, offers a standardised customer contract and accommodates future energy needs. The platform model ensures immediate and long-term savings by focusing on high coverage and minimising risks.
The development of Discovery Green’s platform is grounded in two key principles:
1. Renewable energy is a custom solution, not a commodity. Price and risk must be considered together. With the market for privately procured renewable energy in its infancy in South Africa, it is important to appreciate the nature of the product being procured and the terms on which it is procured. Unlike in many developed economies around the world, the primary financiers of renewable energy projects in South Africa remain risk averse to funding renewable energy power plants without having secured a creditworthy offtaker on a long-term procurement basis.
As such, each project has a predefined client in place well before plant construction begins, and the nature of the purchasing agreements differ according to the risk appetite of the power producer, offtaker and lender to the project. Because of this, renewable energy does not exist as a commodity in South Africa. Instead, it is supplied and procured on a custom basis.
Energy price is as important as when it is generated. Most businesses understand the time-of-use (ToU) charging structure where a different tariff is charged for electricity depending on when it is consumed. However, an additional layer of complexity is added for renewable energy take-or-pay contracts where a single price of generation is charged for all times of the day, referred to as a blended tariff.
Under wheeled energy contracts, the business receives a wheeling credit from its utility provider that is applied on a time-of-use basis while the cost of wheeled energy is fixed across all time-of-use periods. This results in starkly different savings at different times of generation and the benefit of renewable energy wheeling is completely dependent on when the energy is generated and consumed.
2. Selecting a model with the highest financial savings and renewable energy coverage today, and in the long term, should be a key underpin of an organisation’s procurement strategy. The total savings available to a business when procuring renewable energy is a function of two factors: the price and level of renewable energy coverage. However, their interdependence needs to be appreciated as price should not be evaluated only as the price of renewables, but as a weighted average of the cost of renewables, the cost of wasted renewable energy generation and the cost of consumption not covered by renewables.
Furthermore, this calculation must consider different time-of-use periods and seasons, as well as the marginal cost to the business should it be required to increase its renewable energy coverage.
A renewable energy platform, underpinned by actuarial data, provides the ability to aggregate energy sources mitigates generation and consumption risks. This diversified approach allows organisations to achieve near-complete renewable energy coverage without the complexities of managing multiple suppliers or contracts.
Procure with the long term in mind
Selecting the right renewable energy model is a long-term decision with significant financial and environmental implications. To make the best choice, look beyond price to consider coverage, risk mitigation, scalability and procurement timelines. Partnering with a supplier like Discovery Green offers a seamless, future-proof solution that balances sustainability with financial resilience. By choosing a strategy that prioritises high renewable energy coverage, businesses can reduce costs, protect against future risks and contribute to a cleaner energy future.