Power purchasing agreements – the way forward for commercial and industrial organisations to access reliable energy
Driven by the need to address the climate crisis, a reset of the entire energy sector is currently underway as the world lessens its dependence on traditional coal-based power and shifts towards renewable energy. However, access to capital has been delaying this transition in many parts of Africa. Now, a new financing model is removing the financial barrier that previously prevented many from producing their own power and lighting the way to energy independence.
Africa faces highly complex energy problems with approximately 600 million people (approximately 48%) living without electricity. It is estimated that Africa has 60% of the planet’s solar radiation, but less than 1% of the world’s installed solar power generation capacity. Fortunately, this is fast changing as organisations across the continent are reaping the benefits that this sun-generated energy yields including predictable costing models, reliability, independence from shaky national grids and lower carbon emissions.
Prime conditions for solar
The fact that most countries in Africa are well primed to leverage solar energy with sunny climates and excellent irradiation levels provides a win-win situation. For instance, South Africa receives an average of 2,500 hours of sunshine per year. The average solar-radiation level ranges between 4.5 and 6.5kWh/m2 per day, which is roughly 40% more than Central Europe.
Alongside this shift, a vibrant, entrepreneurial and competitive industry is emerging to unlock the potential of renewable energy. Solar energy provides a long-term saving to commercial and industrial (C&I) players. Most solar plants amortize themselves within 5 – 7 years and produce power for 20 – 25 years if built and managed properly.
The sheer growth of the solar industry and broad adoption across so many different sectors is testimony to the fact that the numbers work. However, there are certain companies that seek the benefits of solar without wanting to invest the capital that is required to build a plant. While solar provides a long-term saving, the Covid-19 pandemic placed many industries under strain and it is understandable that many organizations may prefer to invest in operational growth at this point.
Power Purchasing Agreements
This has given rise to the Power Purchasing Agreement (PPA) model in which the development of the solar plant is financed / owned / operated and managed by a third party. This approach enables companies to provide the space to build a plant (on a roof or land) and commit to purchasing the resulting power output, while the plant itself belongs to the PPA counter-party. In this way, companies can access higher volumes of solar power without the capital investment.
An additional benefit is that the operations and maintenance of the plant also rests with the investor, which provides an easy operational solution. Various versions of this model are anticipated to enter the market as financing solar is fast becoming a trend. New Southern Energy provides the power purchasing agreement option to C & I clients, subject to a feasibility study achieving certain requirements.
“Solving our energy challenges is key to enabling the continent to reach its full potential and improving quality of life”, said David Masureik, CEO, New Southern Energy. “Elsewhere in the world, the solar-revolution is sweeping across entire nations with empty land and primed placed roofs being leveraged for self-generation. It’s time for Africa to enjoy the many benefits of solar energy too,” he added.