PROFILE: Meet the head of renewable energy at Absa
The business case for renewable sources of power — especially solar — has improved, says Absa’s Justin Schmidt
As SA recovers from its longest bout of stage 4 load-shedding, Absa is betting on a future in which electric power generation will be a routine entry on a company’s balance sheet, just like sales, revenue, labour and interest.
Justin Schmidt, head of Absa’s renewable energy business unit, is a banker-cum-energy consultant who is tasked with providing long-term financing products for the power needs of retail clients in the commercial and industrial sectors.
Renewable energy has traditionally been the preserve of entities with large cash balances because the cost has priced ordinary people and small to medium businesses out of the market.
But Schmidt says the tide is turning. "The business case has improved over the years."
He says solar energy is now a viable, cost-effective alternative to Eskom electricity from the grid.
Diesel generators and wind are yet to reach that point for the mass market.
Absa has worked with businesses like Morgenster Wine & Olive Estate in Somerset West to switch to solar energy.
An energy plan is fast becoming a normal part of doing business or developing a business model and "all businesses should consider [such a plan]".
"I don’t think load-shedding will be gone for the next year," Schmidt says.
In addition to Eskom’s problems, he says recent electricity tariff hikes have spurred interest in renewable energy and off-the-grid power generation as individuals and businesses look for ways to ensure they have a reliable energy supply.
Schmidt believes a blended approach is probably best in most cases, because relying on one form of power may be too risky. "In some cases, getting power from Eskom is better," he acknowledges.
As a bank, Absa has to assess risk before financing a project. Where renewable energy is concerned, Schmidt says there are a number of unique concerns.
First among these is aligning the payback period to the amount of funding sought; clients often miscalculate this, he says. An example is a retail outlet that looks for five-year funding for assets that will take seven years to pay back.
A second risk is messing up installation of the alternative power system. "You can install all the best technology, but if it’s not installed correctly, it’s not going to perform as required. It’s an electrical system after all. It can fail," Schmidt warns.
A strong focus for Absa is power purchase agreements, in terms of which an independent power producer "leases" equipment such as solar panels and generators to a business for its off-the-grid power needs for a set period at an agreed price.
Schmidt began his career in renewable energy at Absa by creating financial models for biofuels. "I didn’t expect to go into commercial banking," he says. "I enjoy learning new things." He says his job is about "understanding customer needs, what the bank’s role is, doing financial modelling and finding ways to assist our customers".
"There’s always been a lot of reading and analysis as well as building new things in the roles I have taken."
Having held a number of research roles, Schmidt has in the past helped Absa to create analytics models that can gauge the performance of a business by assessing data such as financial statements and the market sector it serves.
He has had to build this new energy focus for Absa and create a team from the ground up.
"The principles carried over are the same. How do you look at cash flows and lend against that, for example?"
Looking to the future, one of the main issues facing the sector is the effective storage of wind and solar power, Schmidt says. He believes that the industry is two years away from a breakthrough in battery technology for sustainable power storage.