Rising electricity tariffs and unpredictable peak charges are putting increasing pressure on energy intensive businesses across South Africa, prompting companies to explore new ways of managing their energy costs without disrupting operations.
One option gaining traction is tariff arbitrage, which allows businesses to shift when they draw electricity from the grid so that more consumption takes place during lower priced periods and less during expensive peak periods.
The approach does not necessarily require businesses to reduce their overall electricity consumption.
Instead, battery storage and intelligent energy management systems can allow companies to store electricity when it is cheaper and use that stored energy when tariffs are at their highest.
Charles Neethling, Senior Business Developer at SPS, said tariffs during early morning and late evening periods could be substantially higher than standard rates.
“Tariffs during early morning and late evening periods can be four to five times higher than standard rates, or even seven times higher than off peak rates,” Neethling said.
“Solar generation covers some of the peak hours, but with Eskom’s recent changes, moving one morning peak hour to the evening, solar alone is no longer enough. The solution is to combine a battery with smart controls, charging from off peak or solar and discharging during expensive peak hours.”
How tariff arbitrage works
For businesses that cannot simply change their operating hours to avoid expensive electricity periods, battery storage provides a way to manage consumption without changing normal operations.
“A properly sized battery can discharge energy during peak periods while the company continues using equipment as normal, without any operational disruption,” Neethling said.
This makes battery energy storage an important component of tariff arbitrage, allowing businesses to shift their energy usage while continuing to operate as usual.
However, the financial case depends heavily on where a business operates and the difference between peak and off peak electricity tariffs.
“Currently, tariff arbitrage is only viable in certain municipalities, like Ekurhuleni, where summer peak tariffs can reach between R9 and R12 per kilowatt-hour,” Neethling said.
“There are also opportunities in parts of Gauteng and the Western Cape, but feasibility depends heavily on local tariff structures and the differential between peak and off peak rates.”
Anja Visagie, Chief Growth and Marketing Officer at SPS, said the way a business finances its battery system also plays an important role in determining the potential return.
“The financial viability also depends on whether a business funds the system outright or uses a funded solution,” Visagie said.
“With a self funded purchase, savings start from day one, although the payback period may still be lengthy. With a funded solution, the savings must be sufficient to offset the monthly payments for the battery.”
She said businesses should carefully assess the difference between peak and off peak tariffs, with a differential ideally exceeding R3 per kilowatt hour.
Making projects financially viable
For tariff arbitrage to work effectively, the technical solution needs to align with both the business’s energy requirements and its financial objectives.
Visagie said funded models such as equipment rental agreements could allow businesses to pay a fixed monthly fee while the energy provider guarantees battery availability.
“In many cases, these agreements are structured over periods of around 10 years,” she said.
“Outright purchase is an option for those with available capital, but owning a system comes with operational and maintenance responsibilities that many businesses prefer to outsource.”
Neethling said ownership also meant that businesses would be responsible for managing warranties and dealing with potential component failures.
“If companies purchase a battery outright, they handle warranties and potential component failures themselves. With a funded solution, the operational and maintenance responsibilities typically sit with the provider,” he said.
Working with specialist energy providers can therefore help businesses manage battery maintenance, optimisation and performance monitoring while allowing internal teams to concentrate on their core operations.
The importance of the right load profile
Not every business is equally suited to tariff arbitrage.
Neethling said companies with consistent electricity consumption throughout the year were generally better candidates.
“The ideal business has a consistent load profile, typically operating from around 6 or 7 a.m. until 6 or 7 pm,” he said.
“Flat profiles can work, but consistency throughout the year is critical. Seasonal fluctuations can limit potential savings if high consumption periods do not align with peak tariffs.”
This can be particularly important for seasonal industries such as agriculture, where lower activity during winter can reduce the potential savings available during high tariff periods.
Businesses also need to establish what they want the battery system to achieve before investing.
“Businesses need to define whether their priority is cost savings, backup power, or both. Batteries designed for tariff arbitrage are optimised for cost reduction, not necessarily for backup,” Visagie said.
Avoiding costly mistakes
One of the risks facing businesses is attempting to use one battery system to address every energy challenge.
“Some businesses want a system for backup, tariff arbitrage, and load shedding all in one,” Visagie said.
“This requires a more sophisticated and expensive solution that may not provide the best return on investment.”
Trying to combine multiple objectives can result in a larger and more expensive system, potentially reducing its financial attractiveness.
Correct sizing is therefore critical. Businesses need to understand their electricity consumption patterns, tariff structures and operational requirements before selecting a battery system.
Long term performance also depends on monitoring, predictive maintenance and the ability to adapt as tariffs, regulations and business requirements change.
Specialist energy providers can assist businesses in managing these factors and adjusting their energy strategies as circumstances evolve.
A growing opportunity for South African businesses
Tariff arbitrage is emerging as an increasingly viable option for businesses facing rising electricity costs and volatile peak tariffs.
For companies with suitable load profiles and favourable tariff structures, combining battery storage with intelligent energy management can reduce exposure to expensive peak periods while allowing operations to continue normally.
As electricity tariffs increase and battery technology becomes more commercially accessible, businesses that previously considered battery backed tariff arbitrage too expensive may find that the economics have changed.
“Tariff arbitrage works,” Neethling said. “With the right battery, controls, and design, companies can stabilise costs without disrupting operations.”
ashley.lechman@nationalmg.co.za