Business energy resilience: diversification strategies for SA corporates

By Andre Nepgen, CEO, Discovery Green

Over the past few years, South African businesses have had every reason to rethink how they buy electricity. Loadshedding, utility price increases of around CPI + 8% a year over the past five years, and looming carbon taxes and import duties have all pushed renewable energy up the boardroom agenda. With the current pause in loadshedding, businesses have an opportunity to step back and ask a harder question: does their renewable energy strategy make their energy costs more resilient over the long term, or only in the short term?

The answer depends less on the price quoted per kilowatt-hour than on how supply is structured. Most renewable energy is sold on a take-or-pay basis, which means businesses pay for energy when that is generated, whether or not they use it. A contract with a single plant using a single technology ties a business to that plant's generation profile, and to its good and bad months. Discovery Green's technical review, Renewable Energy Strategies for Businesses in South Africa, found that output from a single solar plant can deviate from expectations by as much as 31% within a monthly time-of-use period, and output from a single wind farm by as much as 72%. And generation is only half the equation. A business's own consumption shifts with production cycles, seasons and growth, so the real challenge is matching two moving targets, every month, for the life of the contract.

This guide explains the renewable energy procurement models available to South African businesses, where traditional models fall short, how a diversified renewable energy platform addresses those limits, how to compare the options, and what the next step looks like.

What renewable energy strategies are available to South African businesses?

Businesses looking to buy renewable energy, or simply to reduce emissions, typically choose between five procurement models. Each offers a different balance of price, coverage and risk.

Embedded solar uses rooftop panels or an on-site solar plant, bought outright or through a power purchase agreement. It avoids some utility charges, but energy must be used as soon as it is generated or it is wasted. This gives embedded solar the lowest coverage of any model, and multi-storey businesses are often limited by roof space to less than 10% of their annual demand.

Wheeled solar and/or wind are contracts with an independent power producer (IPP) whose plant feeds energy into the national grid, with the business credited for that energy against its own consumption. Generation and consumption are reconciled monthly within each time-of-use period, so coverage is higher than with embedded solar. Contracts are usually take-or-pay, and the business takes on the generation profile of that specific plant.

The trader/aggregator model uses an intermediary that buys solar and wind energy from IPPs and resells it at a trading margin. Traders pass most IPP contract terms and risks through to the business, while aggregators offer a blended profile from several plants and absorb slightly more risk. Both are typically take-or-pay, with limits.

The product model is offered by a renewable energy platform. Platforms buy energy at scale from many IPPs and use their own balance sheet, scale and diversification to sell energy as a product: a set percentage replacement of a business's consumption across all time-of-use periods, at a discount to its utility price. Risk is shared between the IPP, the platform and the business, and the model is take-and-pay, with limits.

The key difference is who carries the risk. In the first three models, the business/customer carries the risk of variable generation and variable consumption. In the product model, the platform pools, manages and mitigates it.

Why do traditional procurement models concentrate risk rather than reduce it?

The weakness of traditional models lies in their design, not in poor procurement decisions. When a business contracts with a single plant or a single technology, its savings depend on how closely that plant's generation matches its own consumption, month by month and hour by hour. Three risks follow.

Coverage is capped by the generation profile. Solar generates only during the day, while most businesses use the largest share of their electricity in off-peak hours. Typically, no more than 40% to 60% of a business's consumption can be met with solar before generation starts to be wasted, which leaves the rest of its bill exposed to future utility price increases.

Topping up later is expensive. Starting with solar and adding wind later leaves a residual demand that is heavily skewed towards off-peak hours. In Discovery Green's analysis, a business that covers 45% of its needs with solar typically faces a 1.8x premium to cover the remaining 55% with renewable energy.

Variability is passed to the business. Under take-or-pay contracts, a month of high generation or low consumption means paying for energy that cannot be used, while a month of low generation means falling back on the utility. Tariff changes add a further layer of risk: if more solar on the grid pushes daytime utility prices down, businesses locked into long-term solar contracts could end up paying more than the utility price for their daytime power.

Adding a second contract with a similar plant increases capacity, but it does not remove these risks. The energy aggregator model blends solar and wind, which can improve matching for some businesses, but a fixed 50/50 blend does not always outperform solar or wind alone, and variability risk still sits with the business. Structural resilience requires pooling both supply and demand, and continuously managing the match between them.

How does platform diversification provide structural energy resilience?

A renewable energy platform spreads supply across multiple generators, locations, technologies and operators, and pools demand across businesses in different industries. Energy wheeling makes this possible: renewable energy fed into the national grid at the generation site is credited against the business's consumption, so businesses gain geographic diversity without building new infrastructure at their own sites.

Discovery Green's platform currently comprises three projects, all under construction: the Overberg Wind Farm in the Western Cape, the Tournée Solar Park in Mpumalanga and the Notsi Solar Farm in the Free State. Combining wind and solar across different regions smooths out the variability of any single source, because the two technologies generate at different times of the day and year, and weather varies from region to region. No renewable portfolio is immune to the weather, but a diversified one is far more resilient to fluctuations in generation than a single plant.

The platform diversifies demand as well as supply. Consumption patterns differ widely between industries: in Discovery Green's data, consumption in mining is 6.5 times as volatile as in financial services, the most stable sector. Pooling businesses from different industries smooths out these swings. If one business uses less energy than usual, the platform can reallocate that generation to other businesses rather than letting it go to waste. As a result, pooling raises the coverage that can be achieved before generation is wasted, from 49% for a single business to 78% for a portfolio of five businesses from different industries.

Diversification creates the potential for resilience, but a diversified portfolio only delivers if generation and consumption are matched continuously, for every business, in every time-of-use period, every month. This is where EnergyOS, Discovery Green's renewable energy operating system, takes diversification a step further. EnergyOS forecasts generation and consumption, allocates energy across the portfolio, and learns continuously as conditions change. The more diverse the platform becomes, the more EnergyOS has to work with, turning a spread of assets and customers into consistent outcomes for each business.

Discovery Green combines Discovery's actuarial expertise with energy wheeling to give businesses access to this diversified platform in a single, simple transaction, with products to meet a range of needs. Green Flex offers 30% coverage, helping businesses take their first step on their renewable wheeling journey. Green Saver offers the highest savings in the market, replacing 90% of existing demand with renewable energy. Green Guarantee offers the highest coverage in the market at 100%, giving businesses the ability to run fully on renewable energy. All three are built on the same diversified platform and managed by EnergyOS.

Because Discovery Green carries the risk of variable generation and consumption, and EnergyOS actively manages it, businesses are not left paying for energy they cannot use, and their savings are more consistent. This is the benefit of energy as a product: the proposition is closer to taking out a home loan or signing a mobile phone contract than to negotiating a traditional renewable energy contract.

For sustainability teams, higher coverage also means deeper emissions reductions. South Africa has the most carbon-intensive electricity of any major economy, and as the local carbon tax rises and the EU's Carbon Border Adjustment Mechanism (CBAM) takes effect, businesses with low renewable coverage remain exposed. Prices include renewable credentials, giving businesses a credible basis for reporting reductions in their electricity-related emissions.

How should businesses compare renewable energy procurement models?

The quoted price per kilowatt-hour describes what a unit of renewable energy costs. It does not answer the question executives most need answered: how much will this option actually save the business, today and over the life of the contract?

Because renewable energy is usually paid for when it is generated rather than when it is consumed, the cheapest quoted price often does not deliver the highest savings. Low prices tend to come with low coverage, and low coverage leaves more of the energy bill exposed to future utility price increases. The reverse is also true. A high-coverage offer can look attractive on paper, but if it is sold on a take-or-pay basis, the business pays for every unit generated, whether or not it can use it. The higher the coverage, the more energy is likely to go unused in months of high generation or low demand, and the more that wasted energy eats into the savings the contract was meant to deliver.

Discovery Green's actuarial framework compares options on the total savings they deliver, today and over the long term, by weighing five factors together:

• Coverage: the share of consumption that can be met with renewable energy before generation starts to be wasted
• Effective price: what the business really pays per unit of renewable energy used, once the cost of wasted generation is included
• Weighted price: the blended cost of renewable energy and the utility electricity still needed for the rest of the business's consumption
• Variability: how savings hold up when generation, consumption or market prices differ from what was expected
• Risk allocation: who holds the risk when things do not go to plan, the business or the provider. This is often the most important factor of all, because it determines whether projected savings are actually realised.

Applying this framework can change the answer. In Discovery Green's analysis, before variability is considered, wheeled solar delivers the highest ten-year savings for three of the seven industries analysed. Once generation and consumption variability are accounted for, the product model delivers the highest savings for six of the seven.

This is the principle behind EnergyOS. Rather than optimising for a single expected scenario, EnergyOS manages risk to maximise savings across all potential futures, whatever happens to a business's consumption, to generation across the portfolio or to market prices. Because Discovery Green holds that risk, the business does not carry the cost when things do not go to plan.

For finance and ESG directors, this approach provides audit-ready documentation of how energy decisions were made, shifting governance reporting from a list of contracts to a documented approach to managing energy risk, including a clear view of where that risk sits.

Before signing a power purchase agreement, ask for this analysis based on your own consumption data, so that proposals can be compared on the savings they are likely to deliver across a range of futures rather than the price they quote. And ask the question that matters most: who holds the risk when things do not go to plan?

What is the ROI framework for renewable energy investment?

The return on a renewable energy investment depends on three things: the discount to the utility price, how much of the business's consumption that discount applies to, and how reliably those savings hold up when generation, consumption or market prices change. Price comparisons often overlook the last two, and time magnifies the difference.

Renewable energy prices typically increase at CPI each year, while utility prices have risen much faster. The more consumption a business covers, the more of its bill is protected from future increases. In Discovery Green's analysis, which assumes utility prices rise at CPI + 3% a year, the 90% product model delivered savings of 17% to 18% in year one, rising to 33% to 34% by year ten.

Pushing a single-technology contract to higher coverage has the opposite effect. At 90% coverage, a business wheeling only solar energy would waste between 22% and 49% of the energy it pays for, depending on its industry, and for four of the seven industries analysed the effective price of that solar energy would exceed the utility price. High coverage only pays off when the risk of unused energy is actively managed, rather than passed to the business.

For a business spending R1 million or more a month on electricity, a complete ROI assessment should account for:

• Utility price increases: future escalation on consumption not covered by renewable energy
• Wasted generation: payments for energy generated but not used under take-or-pay terms
• Variability: savings lost in months of low generation, high generation or reduced demand
• Tariff changes: the risk of time-of-use prices being rebalanced as more solar comes onto the grid
• Emissions costs: a rising local carbon tax and, for exporters, exposure under CBAM
• Risk allocation: whether the business or the provider bears the cost of wasted generation, variability and tariff changes when things do not go to plan

Delay has a cost too. Deferring procurement in the hope of lower prices means forgoing savings in the meantime. For example, a business that waits three years to sign a five-year contract, instead of signing an eight-year contract today, needs renewable energy prices to fall by 9.6% just to break even. With renewable energy prices levelling off and grid capacity for new projects increasingly constrained, particularly in the Cape provinces, reductions of this size are possible but difficult to achieve.

Discovery Green's actuarial assessment includes an ROI model based on each facility's actual consumption data, tested across a range of generation, consumption and price scenarios. Contact Discovery Green to request an assessment for your business.

What does the implementation process look like for platform-based procurement?

Moving to a renewable energy platform follows a five-stage process that typically takes twelve to eighteen weeks, depending on the complexity of the consumption profile and the technical requirements at each facility.

Because the platform contracts with generation facilities that are operational or have reached financial close, implementation connects the business's consumption to available supply through existing wheeling infrastructure, rather than installing new equipment on site. This can compare favourably with on-site alternatives once procurement, installation, approvals and commissioning are taken into account. Once supply begins, EnergyOS manages the ongoing match between generation and consumption, so the business is not left managing variability itself.

FAQs

What renewable energy options do South African businesses have?

There are five main models: embedded solar, wheeled solar, wheeled wind, the trader/aggregator model and the product model offered by renewable energy platforms. They differ in price, in coverage and in who carries the risk of variable generation and consumption.

Why do traditional procurement models concentrate risk?

Contracting with a single plant or technology ties savings to one generation profile. Coverage is capped, and the business pays for wasted generation when output or its own consumption varies. Under take-or-pay terms, the business, not the provider, carries that risk.

How does platform diversification provide resilience?

A platform pools supply from multiple wind and solar farms, and demand from businesses across different industries. If one business uses less energy than usual, generation can be reallocated to others, which reduces waste and allows higher coverage. EnergyOS, Discovery Green's renewable energy operating system, takes this further by continuously forecasting and allocating energy across the portfolio as conditions change.

How should businesses compare renewable energy options?

On total savings over the contract term, not on quoted price. That means weighing price and coverage together, testing savings against generation variability, consumption variability and future utility price increases, and asking who holds the risk when things do not go to plan.

Does Discovery Green offer a renewable energy platform?

Yes. Discovery Green combines Discovery's actuarial expertise with energy wheeling to supply businesses with renewable energy from a diversified portfolio of wind and solar farms, through its Green Flex, Green Saver and Green Guarantee products. The portfolio is managed by EnergyOS, and Discovery Green, not the business, carries the risk of variable generation and consumption.

Key Takeaways

• The cheapest quoted price rarely delivers the highest long-term savings, and high coverage on take-or-pay terms can erode savings through wasted energy; price and coverage must be assessed together.
• Single-plant and single-technology contracts cap coverage and pass generation and consumption variability to the business.
• A renewable energy platform pools diverse supply and demand, and EnergyOS takes this further by continuously forecasting and allocating energy between businesses to reduce waste.
• Once variability is accounted for, the product model delivered the highest ten-year savings for six of the seven industries analysed.
• The most important question to ask any provider is who holds the risk when things do not go to plan; it determines whether projected savings are actually realised.

Required Disc laimers

Discovery Green is a division of Discovery Limited. Registration number: 2023/647514/07. Advisory services provided via Ernst & Young Advisory Services. Energy supply contracts subject to NERSA regulations and applicable municipal frameworks.

Discovery Limited is the licensed controlling company of the designated Discovery Insurance Group. Registration number: 1999/007789/06. Companies in the Group are licensed insurers and authorised financial services providers.

Generation cost savings are based on the difference between CPI-linked wheeling tariffs and projected utility generation cost escalation. Savings apply to the generation component of electricity costs only. Transmission and distribution charges are excluded.

Figures quoted are drawn from Discovery Green's technical review, Renewable Energy Strategies for Businesses in South Africa (June 2024), and are based on the assumptions set out in that paper, including utility price increases of CPI + 3% a year unless otherwise stated.

Renewable energy procurement decisions involve business judgement regarding operational requirements, risk tolerance and investment capacity. Consult qualified energy advisors for specific requirements.

Terms, conditions and limits apply.

Info.DiscoveryGreen@discovery.co.za | www.discoverygreen.co.za

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