SIMON BROWN: I’m chatting now with Kyle Durham, head of alternative energy solutions at FNB Commercial. Kyle, I appreciate the early morning, talking [about] energy in farming. I said in my intro intuitively we non-farmers – and that’s me and probably most of my listeners – kind of think farming is water and sunshine. But actually farms – and depending on the farms I suppose – can be moderately energy-intensive and the Eskom price increases, which have hurt everyone, and [its] inability to supply [electricity] can really impact and harm a successful farmer.
KYLE DURHAM: Definitely, Simon, and thanks for giving us a call and having a bit of a chatter about energy. Look, farmers are, I think, no strangers to energy issues. They are sometimes forgotten about, and I think a lot of the solutions that are out there for you and me and the general business, manufacturer or property owner or whatever the case might be, are quite a good fit also for the farming community.
[One of] three broad issues that the farming industry or farming sectors in South Africa are really facing is the energy cost, the runaway out-of-control energy cost. The above-inflationary cost increases have really come home to roost and are eating into the margins of these businesses.
The second issue is really energy certainty, not just load shedding but that outlying rural areas’ power interruptions are now coming to the fore as a key business issue for continuity’s sake.
And then the third one is really this rise of global climate change and the focus of the world on that and the need to instead shift your operation to a greener one and [one] more sustainable at that.
Those are really the broad issues that farmers are facing and alternative energy solutions fit that profile really well as a way to address many of those problems.
SIMON BROWN: Is the alternative as simple – and again, I’m no farming expert – as some wind and solar? How big is an individual farm’s requirement? We’ve had the gazetting of 100 megawatt self-generation [that companies can produce], and we’re certainly seeing a lot of the property companies, the mining companies, all going down that route. Their needs are quite massive. A farmer’s need is bigger than that of my household, but is it as big as some of those commercial operations?
KYLE DURHAM: Farmers’ operations go from almost residential size. So taking a household off-grid is the one scale. Then we’ve got some of our mega-farmers in the likes of the citrus regions who operate large packhouses. We’ve got the large dairies that have significant energy requirements. They are not at the scale of a mine, for example; they would be looking at 30 or 40 megawatts.
But some of our larger farmers are implementing two- or three-megawatt projects with internal transmission infrastructure and so on. Each of these projects can easily run to R30 million or R50 million without blinking an eye.
SIMON BROWN: Obviously this happens. Is there a trend where farmers are starting to embrace alternative energy solutions? I would imagine that they would to a fair degree be fairly at the cutting edge of this.
KYLE DURHAM: Definitely. We’ve seen a big uptake in the last 18 months of farmers really starting to explore alternative energy solutions from simple grid-tied solar plants, where they’re not looking to address your kind of power interruptions, which would not include batteries. Those would simply be to start making some headway into the energy costs.
Then we’ve recently started seeing a move towards storage, including batteries and other storage mechanisms, be they pump storage or otherwise in their operations. Then they’ve gone through the Eskom process of banking, which means they can address a lot of the seasonality.
A lot of the regulatory hurdles have also opened up and technology hurdles have opened up, so this has led to farmers looking at alternative energy solutions that are core to their business expansion.
SIMON BROWN: Is there funding available? I imagine certainly there might be a large upfront cost, but invariably [there is] security of power, [often] cheaper than Eskom, and then of course avoiding the well-ahead-of-inflation increases from Eskom. Is there funding available to essentially bridge it for that farmer who doesn’t perhaps have the initial outlay?
KYLE DURHAM: Definitely. So that’s where we really are quite passionate as FNB Alternative Energy Solutions; it’s really being able to take a look at that project on its metrics, really take a look from an end-to-end point of view to say, listen, your R30 million or R50 million investment or R10 million investment, or whatever the case might be, we can understand the upside from an energy-cost perspective, from an energy-certainty perspective, and start factoring that into our own credit assessment and give you that benefit upfront before the first solar panel has been put on the ground mounts on your property.
SIMON BROWN: Do we have the skills and the capacity? I remember a long time ago, maybe as much as a decade ago, [I was] looking at taking my house off grid – the numbers didn’t add up. They probably do now, but now I’m in an apartment. The numbers didn’t work, but also it was a struggle for me – and perhaps just me – of actually finding providers and the like. Do we have the capacity? Do we have the skills locally in South Africa, because the demand is growing? It’s not just farming. It’s mining, it’s private households.
KYLE DURHAM: Yes. At our last estimate we have about 800 to 1 200 alternative energy providers involved in solar or battery inverters and like. There is a definite growth, particularly in the smaller scale of accreditation, the likes of Sapvia, the PV GreenCard, the P4 platform from the Association of Renewable Energy Practitioners. Those go some way to giving us a little bit of quality assurance.
As a bank we actually have our own accreditation parameters that we apply to suppliers and we can communicate that clearly with our customers and say, listen, the supply that you’ve chosen has gone through our accreditation and we’d be comfortable to provide finance, and they’ve met your tender requirements. So we can then go ahead.
It’s a little bit of a play on both. We look at your quality assurance, externally but also internally, within the bank’s processes to give a customer a little bit of comfort in this investment that they are making.
But certainly in South Africa, we’ve very qualified suppliers that have significant experience – in excess of 100 megawatts in rooftop and ground mount. These are numerous now, so I’d be quite comfortable to use a South African supplier.
SIMON BROWN: At this point in the equation it is almost a no-brainer for the farmer. From chatting with you and thinking through it and being a little bit smarter around what these requirements are, it’s going to increase productivity almost certainly. It’s going to reduce costs. It helps him become more self-sufficient. I almost suspect that pretty much most farmers out there are queuing up to go with alternative energy.
KYLE DURHAM: It’s funny. Sometimes alternative energy is almost too good to be true, particularly if you look at the potential yields, etc. So often South Africans [have a] kind of a mindset of ‘what’s the catch?’. But what we’ve noticed is that certain farmers in an area will go for alternative energy, and then suddenly four or five farms in that region would join the queue. We normally just wait for one person to be bitten before we go and take our chances.
SIMON BROWN: I see that. If my neighbour puts solar on the roof, I certainly am in that queue. It’s kind of like if someone’s doing it, then you realise that the maths does add up – and that’s a key component. … [from] 10 years ago when I was looking that pricing has markedly moved in the last decade.
KYLE DURHAM: Definitely. Solar modules, the modules themselves, are really now governed by supply and demand globally. It’s dollar-commoditisation now. With batteries we are still a little in that cycle of the 4K TV, which was R40 000 two years ago, and now you can get one for R10 000.
But we are starting to see some significant inroads in the storage pricing. We are probably a year or two away before supply and demand really drives lithium-ion battery storage pricing.
And then we’ll start seeing prices where it financially makes sense to implement storage….
SIMON BROWN: We’ll leave that there. We were talking energy and farming with Kyle Durham, head of alternative energy solutions at FNB Commercial. Kyle, I appreciate the early morning. Thank you.
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