SolarAfrica Energy’s Brandon Horn on avoiding rising electricity prices through wheeling

It's a great pleasure to welcome back to what's next, solar Africa energy and the brand and horn is the head of commercial at solar Africa energy, brand and how are you doing? Yeah, good thanks in yourself, Aki. Very good, thank you. We're in an interesting phase, aren't we, you know, just the head of elections and the no load shedding going from, you know, I don't know what stage we were at to nothing at the moment, but many say that load shedding will be back very shortly after elections, I guess. But, you know, at the end of the day, energy is caught to what everything that we do, right? Businesses need that energy to operate. And of course, energy and electricity plays a major factor in the costing and profitability of a business. And we often hear about the tariffs that are going on and, you know, trying to work out how to work out tariffs. I must tell you, you need a PhD to work out the electricity tariffs in this country because they've got different tariffs. So this hour, that hour peak load, offload, demand this, that. And of course, it is the battle of the tariffs. And whether it's power, petrol, rates, taxes, businesses are in a constant battle against tariff increases. And we've seen this over the last few years, they need a sure fire way to win the particular fight. We've seen all the numbers brand and the numbers have been floating around the media, but quickly take us through exactly what the tariff hike situation is in 2024. Where are we? Can you explain it to me so that I can understand it, please? Yeah, sure. So we've seen, probably another, maybe it's to get to where we are today, it'll give you a little bit of history in the past. So we've seen about a 450% increase since 2008. And that's four times the amount of when you look at it over a period of inflation. And you know, that's, you made mention of all these different contributing factors that lead up to where we are today. You've had load shedding, you've got increase in diesel, etc. All of these things are contributing factors to where we are currently in today's present time. And unfortunately, those tariffs have a direct implication on businesses. They have a direct implication on the consumer itself. And we all bear the brand of every single time there is an increase. And it's come increases in 2023, where at 18.65%, and in 2024, they're sitting at 12.74% percent. So it's a thing according to inflation, right? Annual inflation rate. Yeah, so so so the inflation, unfortunately, you would expect an increase in cost of goods and increase in kind of living expenses, etc. To have an impact. But unfortunately, what's happening with ESCOM is you've seen, they've obviously got a standard overhead. So so so they need to to make sure that they able to pay salaries and keep a business afloat. Now with solar, what you're seeing is behind the meter and IPPs, they're helping the consumer. But in the opposite end, you've got ESCOM who's now got less of a revenue coming in from their side, okay? And still need to make the same margins in terms of profits on their side. So what you are seeing is ESCOM is escalating a lot more than what you're seeing inflation. And so if you look at it as a direct link to inflation, we're probably four times what you've seen inflation increase over the last sort of 10 years or so. And just this year, in April, we've seen a 12.74% increase on ESCOM rates, which businesses over the last two years are paying 34% more for their power than they did two years ago, which has an not going effect. Businesses now need just looking for alternatives to keep their doors open. And how do you do that? What do you do to, if you have to pay your electricity, how do you, how do you stay afloat? How do you make sure that you're your consumers, that you're not passing all of these costs onto the consumer itself? Because the end of the day, consumer can only pay X amount based on the increase that they're seeing in salaries, inflation, etc. So yeah, that's in a nutshell kind of where we are in the situation with ESCOM, tariff increases. Yeah, so that's a very interesting way of looking at it, because I was trying to figure out there's been a massive adoption to solar, right? I mean, I'm seeing a lot more solar this year and last year than I did say, you know, five years ago, or even, you know, before COVID started. And you hear of stories like some businesses and some of the malls that are generating, you know, that installed solar, you know, almost a decade ago, even five years ago, that the amount of electricity they're generating every month, you know, sometimes can go into millions of runs worth of electricity, which is millions of runs that's not going into ESCOM's account. So you're saying that ESCOM is pushing up those tariff hikes because they need to meet the costs that they've got, because they're not getting that money from those suppliers. And what happens at the end of the day, those people who don't have alternative energy like solar, for example, are at a distinct disadvantage because those businesses now are forking a lot higher amount for electricity per wattage hour, whatever you want to call it, then those who've got a hybrid system of solar and ESCOM, for example. So it does make complete sense what you're saying. And, you know, considering that tough operating environment that businesses are faced with, it all feels like a bit of doom and gloom when you look at that scenario. But you say that there is something you can do to combat these hikes. So I'm looking forward to your solution. So what can businesses do to combat this, this, well, this expense that is really killing a lot of businesses? Yeah. So I think South African's by nature are very resilient. And I think what we've seen is companies over the past couple of years are looking at alternatives. And probably the most common alternatives is what you do to is behind the meter, what we refer to behind the meter, solar. So this would be on your physical premises of your business. So you'll either have a rooftop installation, a ground mount installation, or even a cardboard type installation. And this is one of probably the most popular forms of reducing your electricity. So you're getting daytime usage and it really does go back to how you use your electricity. And if you're a 24 hour operator and you have to try and shift around your operation to try and get the best benefits out of your solar, that's, it only can produce during the day. And it produces in a bulk curve. So as the sun rises and as it gets to midday, you're kind of getting a better yield from your system and you're generating more out of that system as the sun shines. So businesses have looked at changing the way they operate to try and get the benefit of what they've put down and behind the meter in terms of solar. And this has kind of been a gradual approach. I think over the last couple of years we've seen this increase significantly in the industry. You made mention of, I think we're currently sitting at about seven gigawatts of solar or renewable energies, so to speak, that are helping SCOM in that situation. So you mentioned a bit of the elections and why we haven't seen it, et cetera. But if you dig deeper, it's not necessarily, I know there's a lot of hyper-armed elections, et cetera. But if you dig a little bit deeper, SCOMs kind of haven't done anything differently to what they did last year. But last year we had massive amounts of low cheating. This year, it's almost disappeared and we're probably going to see it fluctuate maybe around stage two going forward. But it's because the solar generation itself has alleviated daytime pressure or congestion off of SCOM. With that said, businesses, the first step is what refer to as behind the meter solar. Then you've got other alternatives and it's becoming quite a hot word at the moment, which we refer to as wheeling. You limited, and I'll give you an example, the business has a certain footprint. So they've got a square midrige where they've got their business operating and they've got spare space to put solar. It could be a roof, cardboard, ground mount. This doesn't always supply them with all of their electricity needs. So they've got a shortfall. I can't actually do anything more with what they've currently got on site because they limited by space. And as a result of that, we then look at an alternative solution, which we refer to as wheeling. And that, like I mentioned, is becoming a hot topic. And we've seen regulations being opened up, we've seen banks become more lenient, etc. The behind the meter, and this all goes to also about how businesses can afford a solution. What's been around for quite a while, which is part of that rooftop solar as a PPA and a power purchase agreement where it's a capex free solution where you only pay for on our side, you only pay for the electricity that you use out of the system, so out of the solar system, which gives you the benefit of cost savings and so forth. But you're still limited to what you can put down on site. And I think when you start unpacking all of this, customers soon realize, hang on, I've got space constraints, I need to fix my roof, I need to do EIAs, I need to look at a lot of, I think, knock on specific to their sites where you've got a roof that you need to fix, you've got grounds, you've got EIAs that you need to do on site, which limit or have additional costs. And with wheeling, the nice thing about wheeling is you don't really need to worry about any of that. It's just from a generation site and can maybe talk a little bit more about how wheeling works, but wheeling is the next step to, I think, where the market is moving towards. Well, look, that does make a lot of sense, because, you know, if you look at some businesses and their power consumption, there is no way is that they could put enough solar panels on their roof to, you know, to help them, you know, with their power consumption. So that's where wheeling comes in. And we've spoken about wheeling before, just, can you explain to us briefly what wheeling is? Because I remember talking to you about this and I absolutely found it fascinating. So what is, what is wheeling branded? So, if you look at the concept, okay, the concept being is a business, uses electricity, okay, and that electricity conventionally has always come from ESCOM or from your municipality. Okay. Now, what we've done is we, and the solar Africa being an IPP, but other IPPs as well, we've got as an independent power producer, we have these solar farms. These solar farms are basically generating masses of amount of renewable energy and we're basically putting it into the grid, okay. So, how that works is we basically recognize whatever we're producing over a course of a month in different times of use and you refer to peak standard and off peak earlier. As we produce that solar energy, it's banked into different times of use and we recognize that, okay. And we're then able to say, right, on a customer's bill, okay, you also use your electricity in different times of use and we're able to offset what we produce, okay, versus what the customer's consuming and through a transaction on the bill basically, okay. So we, we produce this electricity, we push it into the grid, okay, and then that electricity is recognized, we then on a financial transaction on the bill, we then recognize and we basically offset a certain amount, okay, on the customer's bill, based on those different times of use, based on the generation site's production in times of use. If I simplify it and probably the easiest sort of analogy to use is, if I had 100 grand note, okay. So I worked down in Cape Town and I was to take that 100 grand note that I've owned and I put it into the bank, okay. That 100 grand note is recognized within the banking institute, okay, and their infrastructure, okay. I then physically, I'm not going to use that exact 100 grand note. I now, on holiday and I come up to Jobig, unusual analogy, normally it's the other way around. I come up to Jobig and I want to use that 100 grand note, okay. I'm not using the exact 100 grand note that I put into the bank, but because I've recognized that transaction, I have, in my bank account, I'm recognized that I have 100 grand note. Right. And I can withdraw that 100 grand note in Johannesburg or Rumpentine, KZN, Free State, wherever it might be, cutting, and I can then use that 100 grand note pretty much anywhere. And that's kind of the principles, obviously, is a bit of a season between, but that's the overarching principles about how Wheeling works, okay. Okay. Also, generating a far cheaper form of electricity, so it's generally a lot cheaper than your current time of use electricity charge in terms of kilowatt hours. And I think that's probably the easiest way of explaining how Wheeling works. Okay. Now, that's a good analogy, and it explains it pretty well. But how does this help a business save money? Okay. So, if we look at a couple of different scenarios, and bear in mind, every business runs, the operation runs slightly differently, and it's how they use the electricity versus how we are able to produce the electricity in a given environment. Okay. And let me unpack a little bit more in terms of sort of a savings analogy. Wheeling, generally, is a lot cheaper than your current electricity usage, okay. If we take an eight-hour user of electricity, okay, so this is a daytime user of electricity, okay. We could occasionally penetrate their bull up to 90% cheaper, okay, than what their current be, sorry, we could penetrate 90% of their bull with a cheaper electricity charge in terms of kilowatt hours, okay. And we could replace that set between 70 to 90% of their bull, okay. And if we look at that in terms of a 24-hour user, our 24-hour user, they're using electricity outside of, generally, our generation times of use, okay, they're we looking at a penetration in terms of what we can offset of anything up to about 60 to 70%, depending on how they use their electricity through the 24 hours. This obviously all depends, and it's brought back into an agreement that we have. So we have an agreement with the customer, and these agreements are becoming more flexible as the industry changes. So a lot of them are dictated by how bankable these agreements are. So somebody needs to finance them. And as we see the market sort of opening up, as we see progression through Wheeling, through municipal, through ESCOM, et cetera, the conventional sort of agreements, it's anything from 10 to 20 years that we sign up a customer on a Wheeling contract. But these are becoming more flexible, and as time progresses, we're going to see more leniency in terms of those agreements probably coming down to a five-year agreement, and that's more flexible as well. Okay. No, that sounds very interesting, and it's a different way of really saving costs to your business. It's a real practical way of looking at your costs, electricity is X amount, how much do you use a month, how much can we save, where can we change the tariff, because it's all about the tariff at the end of the day. Can you give us a practical example of how business could save money with Wheeling? Yeah. So the analogy that I used with a 24 hour operator, okay, if their bull is anything between sort of $192 million, $200 million, this is a course of a year, so an annual bull, okay. There you're looking at on first-year savings, a load, by introducing Wheeling, okay, and this is sort of with a 60% penetration into their profile, okay. Yes. You're looking at anything up to between 40 to 55 million ran saving just in year one, by introducing Wheeling on to let's say 190 million ran bull, okay, which is astronomical, that's a massive amount of savings, and it's probably, you're not likely to be able to get that savings anywhere else in the business, by still running the current operation, okay. If we unpack that a little further, and we look at a lifetime's value, okay, of what Wheeling would enable that company over a period of time, okay. And the terms, obviously there is price implications, so the longer the term, the agreement, the cheaper the price, the shorter the term, the more expensive. So if we look at it 10 year, okay, typical client that's on a 10 year agreement, the lifetime savings that they would get is anything up to about $131 million ran that they would see over that 10 year period, okay. If we look at a 20 year agreement, there you're looking at up to 435 million ran, okay, that they would see as a result of applying Wheeling into the electricity charges, et cetera. And look, there's a couple of T's and C's, this is obviously assuming that our escalations are working at a 7%, and you've got an escalation on SCOM side at let's say 10%. But I mean, these are the numbers, we don't know where SCOM's going, so we have to make assumptions and we can look at what SCOMs over the past sort of 10 years, what SCOMs increases have been to kind of forecast what they would be going forward to give the customer sort of a better savings analogy. And I think the ability to have a flexible contract and the way the market is going is only but going to provide a lot more benefit to the customer by going for a Wheeling solution on site, or Wheeling solution for their business. And look, the reality is I'm going to throw a curve ball at you, which I think I know the answer to, but you're smarter than me with these kind of things. But the reality is that the current cost of electricity that we're paying is not going to come down from SCOM, right? I mean, when you look at the current tariffs, is there ever a chance that they will come down or not? It doesn't seem that way. Look, and I think this is it's if we look a year and a half, two years ago, and everybody is predicting that low cheating is going to be around for many years, still to come, etc. But I mentioned South Africans are very resilient. So as a result of that, we've seen a lot of businesses taking on site solutions, so putting solar down, looking at different ways that they can reduce electricity charges, etc. Which as alleviated the grid, SCOMs also started unbundling as you're aware. So there's a lot of businesses unbundling in three separate departments, and how the next couple of years play out will obviously dictate, I think, from an SCOM stance, how those entities that have been unbundled actually before, but if we look at it, and we're saying if private users are generating more electricity, and they're paying independent power producers for that. There's a loss of revenue coming in from SCOM site, and ultimately, if you're a generator or you've got transmission, etc. There's the different business entities through that unbundling are going to either have to increase their prices to try and cover their overheads, or ultimately they're going to fall by the wayside, and a private institute is going to have to take over the generation site potential. So I don't think we're going to see SCOM prices or utility prices decrease any times. And I think what you mentioned earlier where a lot of businesses have started over the past five years, started investing in solutions, businesses are resilient, they've invested because they've foreseen sort of, in order to stay competitive, I need to reduce costs. Again, if I do, and my competitors don't, chances are I'm going to be able to employ all my staff continuously. So going back to your question, I don't think we're going to see a decrease in the prices in any time soon. If anything, we're going to see an increase in price, which is obviously going to result in customers looking for alternatives, which kind of brings us back to that group where the conversation starts it again. What can businesses do now? Yeah, and listen, I'm also an optimist and I think that when you look at our current economy, we know that the economy is in trouble, but it's going to turn and the growth rate will increase. And when growth rate increases, so does the demand for electricity increase as well. So we're going to supply more electricity into the system and we're going to have to build more power stations and more alternatives to generate that power because as the economy increases, so we're using more electricity to fuel that economy going forward. Coming back to wheeling, it's really quite a fascinating way of looking at electricity and paying for electricity that makes a complete sense. But is it for every business and what kind of business is it for and what does a business need to do to see if wheeling is going to work for them because I get a sense that wheeling is for high industrial users or where am I wrong? So on the most part, so obviously, we don't deal with sort of the residential sign, wheeling doesn't at the moment, doesn't make sense for a wheeling for a residential type customer. On the commercial industrial side and going up, genuinely your ball needs to be around two million round a month. Okay, and that's just the electricity side of the ball. It's not a huge with one of the municipalities, you're seeing rates in taxes, water, all the rest, that's going to be levied on there. So your actual electricity bill should genuinely be from a two million round mark upwards and it can go up to whatever figure. And in order to get a proposal from us, we would ideally need 12 months worth of bills or we would need load profile data. This gives us an understanding of how that business operates in terms of the electricity usage. So during peak period, what are they consumed during off peak and standard, what are they consumed? Because hard works isn't how we offset it is, we've got a generation side generating in different times of use. We met that profile to the customers profile, okay, which then we're able to offset those generation times of use kilowatt hours with the customers consumption time of use kilowatt hours. And that's our wheeling tool allows us to basically map an overlay our generation profile on our customers consumption profile and gives us the best sort of returns based on time of use throughout the time of the year, okay, making sure we don't over allocate, making sure that we're always staying within the parameters. That's genuinely the basis of how business will go about it. And you normally need to be, and like I mentioned, I think the landscape is changing, okay, so what we're talking today, you need to be on envy connection, so a medium voltage connection, okay, and a time of use tariff, okay, that's kind of the main entry points to being able to wheel, okay. You can obviously apply to change that so you can move your tariff to different tariff structure time of use. And obviously on the envy side, we'd likely to see as the market sort of progresses and as industry opens up, et cetera, legislation, we likely to see that slightly change, but for the time being, you would ideally need envy connection and be on a time of use tariff structure. And then that would be your entry point into two weeks. Okay, it's interesting, and I think that businesses that have got that kind of tariff there, if you're business and you're watching this is using two million random month or more of electricity, is that your bill every single month, you need to talk to the guys at Solar Africa Energy, and how does somebody get hold of you guys brand and how does somebody start this conversation with yourselves? So the easiest way is to go to our website, solarafrica, so www.solarafrica.ca. That's probably the easiest way of getting in contact with us. We've got an entry form that's on the website so you can complete the contact form, sorry. And all of our contact details, et cetera, on there we've got a team that's available to talk you through the entire wheeling process, give you a better understanding, looking at your utility bills, seeing what's available, what's not available. And I think that the benefit, obviously, is we've been doing this for quite a long time, so we are quite advanced in the stages of wheeling. We carried the oil wheeling, so we have the capabilities, the software tools to implement wheeling, as well as the proposal mechanisms to assess your bill or set it to one of our many generation sites and to see what the best savings is for you based on your consumption profile. Fantastic. Brandon Horn, head of commercial at solarafrica energy, thank you for chatting to us about this. And I mean, it's a very, very important topic and the cost of electricity and you look at your current tariffs and look at wheeling as an alternative to bringing down the costs and no brainer to have that conversation with the guys at solarafrica energy. Thank you for your time, Brandon. Thank you very much, Iki.