23 AUGUST 2024
FINANCIAL PROPOSAL FOR SOLAR PROJECT
Dear Members,
As you all know, South Africa has been going through an energy crisis over the past 16 years. While load shedding remains suspended for the moment, electricity is by far Arnhem’s biggest collective expense – in the 2023/2024 financial year, OSRO paid the City of Cape Town a staggering R710 447.18 for electricity alone. Although most of this amount is recovered from owners, it nevertheless comes out of our own pockets each month.
In addition, when looking at what has happened with electricity costs over the past 5 years, an alarming upward trend is visible:
| Electricity Cost 2019 to 2024 | Annual increase: | ||
|
2019 |
R 1.88 | per kWh | |
|
2020 |
R 1.97 | per kWh |
4.79% |
|
2021 |
R 1.97 | per kWh |
0.00% |
|
2022 |
R 2.24 | per kWh |
13.71% |
|
2023 |
R 2.45 | per kWh |
9.38% |
|
2024 |
R 2.89 | per kWh |
17.96% |
Since 2019, electricity has therefore effectively gone up with well over 50%. Even though load shedding seems to be under control for the moment, the upward trend of energy costs is not expected to change, since substantial investment will be required to modernise and upgrade South Africa’s generation and distribution capacity.
While self-sustainability is out of reach for now due to limited roof space at Arnhem, by investing in a photovoltaic installation, we can at least reduce the amount of electricity purchased from the City each month, and even sell the surplus back.
In short – this would mean that Arnhem has a solar system installed which is connected to the grid and generates energy – some of it is used on site, and the surplus is sold back to the City. There will be no batteries (as this is not a sustainable long-term solution) – only solar panels and inverters, which will be installed on common property. The Body Corporate would purchase the system outright and there would be no long-term commitments with service providers who make money from us.
Although this will not directly reduce the electricity costs on your levy account each month, it means that some the money that OSRO recovers from owners and pays to the City each month will instead go back to the Body Corporate. This money can then be spent on maintaining the building or saving for future exterior refurbishment projects, which keeps levies down.
The Trustees have therefore investigated various options, service providers and types of technologies. We do not believe it is necessary to burden members with all the technical details, but the Trustees welcome questions and member involvement in the project.
The proposed installation for the 2024/2025 financial year is summarised as follows:
| PHOTOVOLTAIC PROJECT PROPOSAL | |
| Service Provider | Red Engineering (see technical proposal enclosed) |
| Capital Cost (once-off, excl. 14% contingency): | R 350 000.00 |
| Operational Cost (annually) | R 12 000.00 |
| Annual Production (est.) | 30 400 kWh |
| Annual Consumption (est.) | 240 000 kWh |
| Rate – purchased (2024) | R 2.89 |
| Rate – sold (2024) | R 1.24 |
The rate at which the system generates revenue will depend on how much electricity is consumed, versus how much of the excess is sold back to the City. Typically, the system will generate the most energy during the day (when the demand from Arnhem’s residents is expected to be low) – meaning that we may consume as low as 30%, and sell as much as 70% of the energy generated back to the City. Notably, the rate at which the City buys back electricity is much lower than when we buy it.
However, it is estimated that the system will generate an income of between R50 000 and R70 000 per year – meaning that it will therefore pay for itself after between 5 and 6 years (but possibly much sooner, depending on how rapidly the cost of electricity increases and how much (or preferably little) is consumed by Arnhem’s residents).
This is equal to an excellent internal rate of return of between 16% and 22%, which you can see in the spreadsheet calculations enclosed to this proposal. There will be no need for a special levy as the project can be completed using existing reserves.
We trust that this proposal will be met favourably at the AGM, considering the substantial financial benefits it will provide, especially in the long term.
Yours faithfully,
The Trustees of the Arnhem Body Corporate