Definition
A Power Purchase Agreement (PPA) is an agreement between an Independent Power Producer (IPP) and a
client to sell and buy power, respectively. The high-profile renewable energy PPAs in South Africa are typically
large wind and solar farms supplying energy directly to Eskom (the REIPP Programme). At the commercial
and industrial scale, there is substantial opportunity for Solar PV PPAs installed on a clients site to supply
energy that will directly offset their municipal consumption.
Typical PPA structure
A PPA gives the client the option to benefit from renewable energy without having to invest any capital. Under a PPA, the IPP will purchase, install and operate an energy generating facility on the client’s premises. The IPP will then sell the system’s energy to the client at an agreed-upon rate (Rand per kWh) for a defined duration. Contract lengths typically range between 10 and 20 years, with this duration governing the rate (shorter contracts mean higher tariffs and vice versa). The IPP can provide immediate savings by delivering a rate lower than the municipal tariff. During the entire contract period, the IPP will own the system, performing all Operations and Maintenance thereby taking on all performance and technology risk. Additional structural complexities can include external funders or financiers taking a stake in the project, or the client themselves can take a stake in the project.
Why PPA?
Solar energy is becoming one of the most affordable and accessible forms of energy generation in South Africa and worldwide. From a Levelised Cost of Energy study conducted by Lazard in 2019, rooftop solar in the C&I space can cost between R0.736 and R2.077 in South Africa. The graph depicts the possible savings of an indicative 1MW plant in Gauteng, which can provide over R50M saved over 20 years.
For many companies, the large amount of capital required for a PV project is not available up-front and could be better spent on core business. Additionally, large Solar PV plants require maintenance and operation capabilities to achieve the investment’s expected returns. Companies could often get greater benefits by outsourcing solar energy projects and focusing on their core business. In this case, a PPA through an IPP is the best way to achieve solar energy savings.
Key points of a PPA
Ideal PPA client
Contact us for a PPA proposal
Next Renewable Generation (NrG) can offer clients an all-inclusive service of financing, technical oversight, insurance and ongoing maintenance for renewable energy PPA projects.
Power Purchase Agreements allow our clients to reap the benefits of renewable energy without putting forward Capex for the project. A secondary benefit to this is that our team of qualified engineers manages and oversees the system’s design, procurement, and construction.
We utilise our expertise in all projects for optimal plant performance; maximizing yield, investment returns, and total project value add.