Beyond loadshedding - why transitioning to renewable energy should still be a priority
Discovery Green
South Africa has finally turned the corner on loadshedding - a fantastic milestone. While the stability in power generation has been a relief, businesses should continue to plan for a resilient, sustainable energy future.
Although the country's power generation has stabilised, businesses should still be planning for their future energy needs. There is a misconception that loadshedding is the sole reason for adopting renewable energy, but transitioning remains a critical priority for broader, long-term benefits.
Let's review the factors that have contributed to the easing of loadshedding:
Firstly, we saw businesses rushing to purchase rooftop solar, with loadshedding in recent years gradually worsening and then reaching its peak in 2023. That rush was from an energy security point of view. Businesses wanted to ensure they had power, often regardless of the cost involved. With that rush to secure a stable energy supply, more than 5 gigawatts (GW) of rooftop solar capacity was installed in South Africa in recent years.
Typically, a stage of loadshedding equates to about 1 GW of electricity use. But we know that solar energy doesn't always produce that 1 GW because the sun must be firing perfectly throughout the day to produce that much power. Only at peak solar production time, if the sun is firing optimally, can we take off that 1 GW stage of loadshedding.
Next, Eskom's energy availability factor (EAF) improved from 2023 to 2024 due to decreased unplanned outages and improved plant maintenance. This EAF is a percentage measure Eskom uses to report on how well power stations perform and how much electricity they generate relative to their maximum capacity. Eskom was free of loadshedding for 200 consecutive days by 13 October 2024. The company's projected zero loadshedding days until the end of March 2025 is another positive development.
Third, large-scale renewable energy power plants have come online. Through both public and private sector procurement, South Africa has more than 11 GW of installed solar and wind generation capacity across the country.
With those three factors contributing to the easing of loadshedding, there's been a shift in the rationale behind any business embracing renewable energy. The reasons should move from ensuring energy security to safeguarding price security and financial savings.
Why you should switch to renewable energy
- Above-inflation utility price hikes
As long as you remain reliant on utility power for all or some of your energy needs, your business will be subject to high price increases. Eskom has asked the National Energy Regulator of South Africa (NERSA) for a 36% electricity price increase for 2025 - the final increase will be steep. Renewables provide energy security in dealing with annual utility price increases yearly.
- Local and European carbon taxes
From January 2026, South African businesses will likely begin to pay a local carbon tax on their electricity consumption. SA has the dirtiest electricity in the world - your business will face increasing utility prices plus a double whammy of carbon taxes on that dirty electricity.
Businesses exporting to the European Union (EU) will also have hefty carbon taxes from its Carbon Border Adjustment Mechanism (CBAM). South African manufacturers and exporters will effectively have to pay the difference between our relatively low carbon taxes and those of Europe. By 2026, the EU's carbon price is expected to reach €85 per tonne of CO2e, compared to SA's expected €5.5 per tonne, after tax allowances are considered.
Let's say you've got two EU manufacturing and goods importing businesses. Business A manufactures within the EU, and business B imports products from SA and then manufactures them. Assuming that the raw materials are the same, business A will pay a higher carbon tax as it's subject to the EU's €85 per tonne. Business B, importing products from SA, will be using products in its manufacturing process subject to a lower carbon tax.
To level the playing field, the business importing will now have to pay the difference in the carbon price to the EU as a tax. This is a serious threat to our export industry. EU manufacturers will start looking elsewhere because of exorbitant price increases. Achieving published carbon emissions goals within a timeline also puts many local businesses under the pressure of reporting obligations to disclose their emissions.
The narrative shifts from energy security to long-term price security - this is where renewable energy comes in. Green energy can help mitigate these rising energy costs for your business. The narrative has shifted from "Give me energy so I can operate" to "How can I get renewable energy to protect me from these price increases and carbon taxes?"
- Renewables are cheaper
Renewable energy is cheaper than utility-supplied power. You'll typically get a 20% to 40% discount on utility generation costs. Your business will realise savings from day one, but more importantly, renewable energy prices are usually fixed to increase only at consumer price index (CPI) inflation. Generally, CPI moves from 4% to 6% a year. With utility prices rapidly increasing, your business gets a savings wedge that opens over time as the utility price pulls further away from the renewable energy price. That protection from future utility price increases is the long-term price security offered by renewables. In addition, for every renewable kWh purchased, your business also won't pay carbon tax and is not subject to other countries' CBAM penalties.
When assessing renewable energy procurement strategies, you can't just compare the price of electricity from your utility provider to the cost of renewables because renewables probably only cover a percentage of your total electricity consumption. Let's say your business gets 40% coverage with renewables, you'll still pay your utility provider the remaining 60%. That 60% will grow at the price increase determined by your utility, not at CPI because you'll pay your utility power costs. The 60% will also be subject to SA carbon tax and CBAM if you're exporting to the EU and are part of the industries falling within the scope of CBAM.
When looking at different renewable energy options, your business can't only consider the price of renewables and nothing else. Businesses need to assess the total energy cost coming from renewable and non-renewable sources, as well as the tax cost on your electricity consumption. Choosing which renewable energy supplier in South Africa to partner with requires a long-term projection. All businesses are battling high emissions because we're subject to a dirty power supply. There's very little your business can do about it unless you replace a significant portion of your electricity consumption with renewable energy.