The heavy impact of load shedding and the significant increases in electricity tariffs on the bottom lines of many businesses in South Africa, is driving business owners to consider investing capital in energy efficiency and security, which has always been viewed as a non-core business activity.
“Investing in energy, as well as effective energy usage may be just the solution for companies to overcome the energy crisis. Inevitably, because of load shedding and cost pressures, energy has moved to the top of the list of business challenges for many companies in South Africa,” says Berrie de Jager, Head of Natural Resources, Commercial Banking at Standard Bank.
Traditionally, business owners spent most of their time on expansion strategies, growth and tapping into opportunities in new markets amongst other focus areas. While this is still important, the focus has now shifted to also ensure that their businesses have consistent electricity supply, which is being facilitated through capital investment.
For example, you often find manufacturing companies using credit lines that were initially extended for their business operations, to fund their energy security needs. Consequently, investing in security of energy supply has proven to reduce long term electricity costs significantly for many companies. CEOs are realising the advantages of investing in electricity production capabilities within their companies. de Jager says companies that opt to fund electricity supply in a cash flow neutral basis often come to the bank to borrow money. They then effectively use the savings in their utility bill to repay their loans over a period of six to seven years or even less. However, scale matters, the larger the scale of utilisation, the shorter the loan payback period. It also depends on the type of renewable energy solutions that these companies put into the bucket.
He is of the view that companies need to consider a blend of different energy and energy efficient solutions, tailor-made for the requirements of each business. “Many companies aim to be self-sufficient in the long-term, but in most cases photovoltaic systems and modules are used as a viable supplemental alternative for electricity consumers” says de Jager. “We are finding that companies are not only proactively coming up with solutions to reduce their energy consumption, they are also looking for capital to increase capacity in order to produce their own electricity.”
Fortunately, South African banks support the notion of self-sufficient companies and are willing to engage companies on ideas and products to alleviate the energy crisis.
In the event of solar usage as an energy self-sufficient solution, banks are able to provide a finance solution that will add value to their property. For example, when solar is installed on the roof top of a building that is owned by a company, the loan is often bundled into their property finance solution. The economics makes sense when considering financing that property over a 10-year period. Since the company has invested in the property, and is actively reducing the utility bill, this directly adds value to the property. “As a bank, we are quite comfortable in financing solar usage solutions using this channel,” says de Jager.
However, in a situation where the company doesn’t own the building, banks look at business term loans that allow them to amortise the instalments over the repayment period of the loan. Generally, repayment periods of five to seven years aren’t suitable for most of these customers. Longer repayment periods are better suited in this instance.
Mr. de Jager believes that there is a bright future for energy servicing companies in the renewable energy space and that these companies can become the catalyst for accelerated economic growth.
“South Africa has a bit of a challenge economically given that the real growth rate currently sits at 2.1%, and inflation slightly higher at 4.6%. As a result, you are likely to see nominal growth of 6% to 7% in South Africa. If you want to create jobs you need to accelerate growth. You can only achieve that through backing those sectors that will give you double digit growth levels. The renewable energy sector is definitely one of those” he says.
“We want to bank this sector, and are keen to work with companies that want to find solutions to the energy crisis,” he adds.
The energy crisis is not going away anytime soon and banks understand that companies need to equip themselves effectively. “Companies need to actively manage their energy consumption. They need to understand their utilisation patterns and baseline demand. Once they understand all of that, they can address the spikes and build capacity to produce their own electricity so that more and more companies can become self-sufficient,” advises de Jager.
de Jager concludes that as more companies become self-sufficient, the less pressure there will be on the national grid and thereby decreasing the need for load shedding. He adds that there are a lot of affordable energy solutions that companies could use, which are convenient, available and most importantly, financeable.