How solar energy is transforming the auto industry
November 8, 2022
Solar energy is becoming increasingly popular - here is a look at how solar energy is transforming the auto industry
Solar energy is becoming increasingly popular–here is a look at how solar energy is transforming the auto industry.
Solar energy has many benefits, especially for the automotive sector.
South Africa is an exporter of locally manufactured vehicles, making it a part of the global vehicle market. The local manufacturing industry has car brands such as Ford, Isuzu, Mercedes-Benz, Volkswagen, Toyota, and Tata, to mention a few, along with over 500 automotive components suppliers supporting the industry. In 2019 (the last normal year), automotive exports reached a record R201.7 billion.
Each international brand has a global presence meaning they have to deal with multiple regulatory frameworks worldwide. That includes the advanced nations which are becoming more environmentally conscious. To comply with these requirements, Ford South Africa, had to adopt clean technology as it built its Ranger assembly plant in Pretoria.
The need for change in the auto industry
Governments, business clients, and consumers are demanding environmentally friendly products. To remain relevant, auto industry players are adopting net-zero carbon emissions targets to comply with regulations and customer demands. In that regard, global automaker Ford launched its Project Blue Oval, to become completely energy self-sufficient and 100-percent carbon neutral by 2035.
It isn't just the big car brands that need to go green; their suppliers need to as well. Vehicles are significant polluters. They need to reduce emissions during the drive as well as during the manufacturing and repairs processes. To achieve this, manufacturers are going green and insisting that their Tier 1, Tier 2, and Tier 3 suppliers do too. Because for a car to be greener, its entire supply chain must be green.
Solar energy in the South African auto industry
Some OEMs purchased solar systems years ago. But the solar systems are probably outdated because they were first to market and were likely a proof of concept project. Therefore, their system doesn't do much for carbon footprint reduction.
There is a misunderstanding that solar is expensive, which comes from old solar systems purchased in cash because there wasn't a case study offering a PPA. A PPA gives the company immediate green credentials, lowers electricity rates, and achieves this without capital outlay.
Ford saw the potential in solar energy PPA and chose the arrangement to power its Silverton assembly. Through its partnership with SolarAfrica, it was able to build a 200 000 vehicles per year assembly plant that uses greener and cheaper energy.
David McDonald, CEO of SolarAfrica, had praise for Ford’s leadership in the market. “We applaud Ford South Africa for being industry leaders and committing to a sustainability project of this stature. The first of its kind in South Africa to focus on the large-scale integration of renewables in the automotive sector, we are proud to see the financial and environmental benefits this landmark project addresses. We hope that this project encourages many more original equipment manufacturers and suppliers in the automotive sector to aggressively adopt renewables and become more sustainable operations.”
The key drivers of the change to solar energy
Manufacturers usually give instructions to suppliers regarding their component requirements; it's a top-down approach to setting standards. As suppliers are receiving zero-emission mandates, they have to shift their operations to comply or lose business. But buying new machinery, acquiring new skills, and changing processes can result in colossal capital outlays or expenditures that the supplier didn't plan for.
Additionally, suppliers often offset their emissions through the carbon credits or renewable energy credits system. That's money out of their pockets, an increase in costs, and a squeeze on margins. But to stay in the game, they must comply.
Adopting renewable energy sources is one way businesses can cut their carbon footprint. Out of all the renewable energy systems, solar is the only one that provides a quick, less regulated, and low maintainance solution at a low cost. For example, hydroelectricity and wind turbines are capital intensive and require heavy environmental compliance.
Fortunately for the industry, SolarAfrica offers energy as a service, an option that eliminates capital expenditure and adds to the bottom line. Under a PPA agreement, Ford had a R157 million solar installation at its plant, without a negative impact on its cash flow or balance sheet. Ford only pays for the solar energy power that it consumes. It saved money because it didn’t have to spend CAPEX or take a loan to pay for the solar energy system. Ford also pays a rate that is cheaper than national grid prices and gets to keep the carbon credits.
“Through the long-term power purchase agreement with SolarAfrica, this project will also significantly reduce our energy costs, thus improving the efficiency and cost competitiveness of the plant,” said Ockert Berry, VP Operations, Ford South Africa.
The problem that solar is solving in the auto industry
A PPA solar energy system has multiple benefits for the automotive industry; both for OEMs and suppliers, namely:
- Using solar energy is a viable, quick, and cost-effective way to reduce carbon footprint.
- Solar energy is a credible green strategy that governments, business partners, and consumers accept.
- Solar energy is cheaper than Eskom's rate. A PPA solution can be 30 per cent cheaper than market rates. Although the energy bill isn't a huge cost centre for automotive manufacturers, every cent counts.
- OEMs can be aggressive when negotiating contracts, so Tier 1 suppliers need to cut costs wherever they can. Tier 1 suppliers can use a PPA solar deal to control yearly pricing as OEMs push requirements onto the suppliers.
- Building any energy solution is capital intensive, including solar. But a PPA solar solution has no capital outlay, so automotive supply companies can reduce costs and meet OEM targets.
- A solar PPA is a risk-free service. Automotive companies have their hands full making cars and car parts; they don't need to add solar panel maintenance to their tasks or overheads. Under a PPA, the service company will provide installation and maintenance of the solar energy system; the automotive company only pays for what it uses (at a cheaper rate than Eskom).
Why solar energy is the best solution for the auto industry
Solar panels consistently produce electricity, so it is very economical for high-power consuming companies like the auto industry. As high power consumers, auto industry players can run operations 6-7 days a week. Their constant operations make them a massive benefactor of South Africa's great solar resource–long sunny days.
A solar energy system can supply 80 - 100 per cent of the power any auto company needs, whether it is a manufacturer or supplier. If an auto company builds a 10MW solar energy system, it can easily save more than 50 per cent on electricity rates. A grid-tied system can supplement the energy needs for the night shifts or cloudy days.
SolarAfrica built a solar energy system for Ford that can generate 13.5MW and meet its peak demand with the help of battery storage and other renewables. The system can power the assembly plant, equipment, offices, and staff canteen through solar energy and SolarAfrica's power wheeling platforms can draw renewable energy from external sources should there be a need. Ford is now able to reduce its carbon footprint by 0.97 tonnes per MW; all in all the solar installation will eliminate 20 072 tons of CO2 generated per annum. Ford will therefore earn and keep the carbon credits for reducing its carbon footprint.
Car assembly and car part manufacturer facilities take up a lot of space, including ample parking and roof areas. The large rooftops and carports can mount solar panels, generate electricity, and add protection to the vehicles.
The Ford solar solution was 100% carport mounted. SolarAfrica was able to mount panels on 3 610 of its 4 000 parking bays and give the additional benefit of reducing their insurance premiums on the cars underneath. SolarAfrica was able to use newer, slightly larger and higher efficiency solar panels to reduce the surface area needed for the solar panels.
As Eskom mulls a 20 per cent rate increase, it will improve the business case for fitting batteries to solar energy systems. A solar energy system fitted with batteries will be able to handle everything from downtime security, power security, voltage stabilisation, frequency shifting, and time of use shifting.
In time, most manufacturers are likely to turn to PPA as a risk-free solution that can meet their energy needs and lower their carbon footprint. Currently, Ford is the only OEM on a PPA solution in South Africa.
If you purchase a solar energy system using your cash or balance sheet, your resources will limit what you can achieve. If you buy your energy through a PPA, you don't need to take out any money, only pay for the energy you use, which will be cheaper than the market rate.