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Uncertain, Costly Power Supply: How to Mitigate Your Risk

 In Business, News, Tax

“The more that energy costs, the less economic activity there can be” (Robert Zubrin)

It has been 13 long years since we first experienced load shedding in 2007. Since then, businesses have lost thousands of hours of productivity and significant amounts of money to these “rolling blackouts”. 

The situation is not going to improve – more load shedding is predicted, by Eskom itself, for the next five years together with even higher electricity tariffs. Given the impact of load shedding and the high cost of electricity, business owners are well-advised to understand and assess the risks faced in terms of electricity supply and to implement strategies to mitigate this risk. 

Impact on companies  

In addition to its devastating impact on the economic environment in which companies operate, all businesses that use electricity for machinery, technology and light, experience a loss of production during power outages – even those with backup batteries or generators. 

Smaller and medium sized businesses that cannot afford alternative energy solutions are disproportionately disadvantaged. Unable to provide any service, they lose customers too. 

Companies also suffer physical damages from load shedding, for example, to computers and other electronic equipment, perishables damaged in refrigerators and raw materials wasted as production cycles are interrupted, and the inability to deliver to clients as load shedding affects traffic flow.  

During load shedding, companies are also exposed to a greater security risk, as well as a theft and burglary risk, as security systems and processes are compromised, which, in addition, could affect their insurance cover. 

Six ways to mitigate your electricity risk 

  1. Stay abreast. Task a team member to stay up-to-date with, for example, a load shedding notification app. This will ensure better planning, so the time when there is power can be maximised. It will also enable staff to minimise damage to equipment by switching off correctly before load shedding commences and to reduce stress by ensuring data is backed up.  
  2. What is measured is managed. A professional energy audit for your business will allow you to understand your energy needs and usage patterns. This is the first step to finding the right alternative that may simplify and optimise power usage, lower costs and improve business performance.
  3. Consider alternative energy solutions, ranging from simple uninterruptible power source (UPS) units and back-up solutions to small or large battery-based and generator solutions, to a variety of solar PV (photovoltaic) solutions. While the initial cost of converting to solar power or purchasing a generator may seem high, the consequential costs of Eskom’s uncertain supply and fast-rising tariffs are also mounting. The cost of solar power equipment, for example, has decreased significantly, making it possible to generate power at a cost lower than the national grid. (This may well be a viable solution particularly if your business operates mainly during daylight/sunlight hours). 
  4. Explore financing options for funding. The impact of the initial capital outlay for alternative energy solutions can be reduced with the right finance. The alternative energy solutions division at FNB Business for example says it has seen a significant increase in demand for funding for renewable energy solutions, with solar PV being the most popular, and are projecting a significant increase in alternative energy funded solutions by the end of the year.  
  5. Find out what incentives your company might benefit from. For example, Eskom is planning to test a “critical peak pricing” pilot tariff with qualifying large customers. 
  6. Another example is Section 12B of the Income Tax Act, which provides for a capital allowance for movable assets used in the production of renewable energy and incentivises the development of smaller solar PV energy projects with an accelerated capital allowance of 100% in the first year for solar PV energy of less than 1MW.     

    The companies tax rate in South-Africa is 28%. With this incentive, the value of a new solar power system may be deducted as a depreciation expense from the company’s profits. This means that the company’s income tax liability will be decreased by the same value as the value of the installed solar system. This reduction can also be carried over to the next financial year as a deferred tax asset. This is a direct saving of 28% on the purchase price from day one on the solar system!

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

© CA(SA)DotNews

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