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How businesses and environment benefit from renewable energy and power purchase agreements

Jan Fourie is the executive vice-president for Scatec in Sub-Saharan Africa. Photo: Supplied

Jan Fourie is the executive vice-president for Scatec in Sub-Saharan Africa. Photo: Supplied

Published Jun 8, 2023


By Jan Fourie

South Africa's energy market is witnessing a remarkable transformation as it shifts towards renewable energy to combat the persistent load shedding crisis, which resulted in 208 days of blackouts in 2022.

As the world confronts the detrimental effects of human activities on the environment, renewable energy offers a way to address climate change challenges without halting industry and development.

The National Renewable Energy Independent Power Producer Procurement Programme has played a significant role in accelerating the growth of Independent Power Producers (IPPs) and expanding the role of private providers in the energy market.

Additionally, recent key legislative changes and the allowance of wheeling for private companies have further contributed to the adoption of renewable energy solutions and expanded the role of private providers in the energy market.

Big businesses that have signed Power Purchase Agreements (PPAs) with renewables-oriented IPPs have significantly improved their environmental impact by reducing their carbon footprints and becoming less reliant on fossil fuels.

Electricity generated from renewable resources like solar and wind emits little to no greenhouse gases.

Around the world, countries are increasingly ushering in conducive regulatory environments: moving away from vertically integrated power utilities in favour of private providers and PPAs, which often prove more reliable than state-owned providers. Climate change concerns are driving this transition.

Current legislation enables businesses to sign PPAs with IPPs, offering stable and often low-cost electricity without upfront expenses – a strategy that can relieve the pressure on Eskom and aid South Africa in reducing our historic over-reliance on fossil fuels.

The national grid's infrastructure allows for wheeling: the transmission of independently produced renewable power through the grid. Wheeling enables private sector entities - even those based in areas with unfavourable environmental conditions - to access affordable, reliable renewable energy.

I envision a future with nuanced, multilateral PPAs that allow agnostic energy mixes and flexible financing and contracting models. Private sector PPAs could potentially create a new ecosystem of interconnected projects with innovative methodologies and delivery systems.

Entering a PPA for the first time can be complex, however, and requires some careful planning and negotiation. Businesses need to collaborate with experienced professionals who can guide them through the process and help them overcome any challenges.

Navigating not only the business of power generation but also the regulatory environment, including environmental, social, and land permitting requirements, is critical for businesses establishing energy generation facilities.

PPAs in South Africa adhere to the Electricity Regulation Act No.4 of 2006: Electricity Regulations on New Generation Capacity.

Private power generators must register with the National Energy Regulator of South Africa, and the IPP-generated power is sold either directly to a customer or through a trader. PPAs are typically long-term contracts, but recent changes in regulation, technology, and industry enable shorter agreements and shared risk, allowing more tailored PPAs for private consumers.

Market education is crucial, as businesses may have limited knowledge of the energy market and potential cost-effective participation.

Managing operational risks is equally essential as renewable energy projects can face challenges such as equipment maintenance, vegetation control, and power system management. A risk management plan is a must for businesses planning to own and operate independent facilities.

It's important for private entities to understand the regulations and policies applicable to their specific situation, obtaining the necessary licenses and approvals before engaging in a PPA.

As South Africa's renewable energy market progressively aligns with those of other nations, it is driven by the demand for dependable power and a commitment to minimising the country's environmental impact. The growth of renewable energy in South Africa's energy market signifies a pivotal moment in the nation's pursuit of a greener, more sustainable future.

Jan Fourie is the executive vice-president for Scatec in Sub-Saharan Africa.