At a time when electricity tariffs are increasing and the shift towards greener energy is gaining momentum, law firm Baker McKenzie says Africa is starting to see a surge in the signing of corporate power purchase agreements (PPAs).
The firm on Friday hosted a seminar to update stakeholders on where corporate PPA activity is happening and what benefits they offer.
A corporate PPA is a long-term contract under which a business agrees to buy electricity directly from an energy generator. This differs from the traditional approach of simply buying electricity from licensed electricity suppliers, often known as utility PPAs.
Such structured agreements provide financial certainty for the utility companies and the developers, which removes a significant roadblock to financing and building new renewable facilities. PPAs are, therefore, helping to deliver more renewable energy onto the grid.
In a world where some countries are reducing or withdrawing subsidies for renewable energy, a corporate PPA with a financially strong counterparty is seen by many developers, equity investors and funders as an essential component for achieving a “bankable” project.
Baker McKenzie associate Mike Webb quoted a Bloomberg energy report, stating that 32 MW of corporate PPAs have been signed since 2008, globally, of which 40% were signed in 2018 alone, indicating a clear uptick in recent years.
He added that companies are increasingly making commitments to procure renewable energy, since it results in a reduced carbon footprint and cost savings.
Other factors will further drive companies towards using greener energy, such as the introduction of a carbon tax, and the Paris Agreement with its respective targets set to mitigate climate change.
Along with wind and solar renewable energy advancements, most corporations are particularly interested in advancing metering and energy management software, while others are also interested in energy storage.
Africa Power Ventures director Maree Roos said that while corporate PPAs may threaten the old model of the utility supplying electricity to a municipality, which then supplies the user, it provides other opportunities for all stakeholders to benefit, if companies generate their own power.
For example, mines operating in remote areas often procure energy solutions to power their operations, but because they have the social imperative to look after communities, they often connect communities to their microgrids; communities that did not have national grid connection and might have never had.
Additionally, companies buying their own power from independent providers can relieve some of the demand on national grids that are struggling to keep up in peak periods, for example South Africa where load-shedding, owing to insufficient capacity to supply the national demand, occurs.
Other benefits that corporate PPAs could bring is the opportunity to sell excess power back to the municipality, creating a competitive energy supply environment and a mutually beneficial transaction, as well as less need for governments to make financial guarantees for foreign investment on behalf of power utilities.