Big industry: Power purchase agreements light the way to renewable energy implementation

Author: John Taylor, head of large commercial & industrial, and mergers & acquisitions at Yellow Door Energy South Africa

Although nearly 300 days without load shedding may have reduced perceptions of solar as being critical to securing consistent power, decarbonising, in order to avoid looming carbon border taxes, is growing as a driver to transition.

Companies in the commercial and industrial sector account for around two-thirds of the world’s demand for electricity. This heavy usage will expose companies in this sector to high export-related taxation, unless they significantly decarbonise.

In the past few months, we have engaged with several stakeholders considering their transition, and the outlook for the year ahead is both promising and challenging.

The key obstacle to solar power implementation

The lack of available grid connections for grid-tied solar power systems, and uncertainty around this challenge, remains a critical issue for the solar energy sector and its customers. Given uncertainty over the timeline to connect, there is frustration from industrial customers about the pace of renewable energy project roll-outs from developers.

For both developers and their customers, the ideal outcome in the next two years will be to see government and Eskom focusing on procuring additional grid capacity, finalising curtailment rules, bringing certainty to the grid connection process (IGCAR), and introducing a short-term physical market for renewable power.

With news that government is now taking encouraging steps towards private sector participation in grid development, it is hoped that the issue will be resolved as briskly as possible, so that more industrial concerns can unlock a smooth transition to renewable energy implementation.

What are the options for transitioning to solar power?

Various procurement options exist including wheeling (in front of the meter), onsite (behind the meter), energy as a service, EPC only and, from a Yellow Door Energy perspective, power purchase agreements (PPAs).

Let’s examine why a PPA is often the simplest and most suitable solution:

How a power purchase agreement (PPA) works

Independent power producers (IPPs) like Yellow Door Energy work mainly with large companies that have a high demand for energy. The IPP finances, designs, procures, builds, commissions, operates and maintains its customers’ solar power renewable energy systems, usually comprising a solar power plant combined with a battery energy storage system (BESS).

There is increasing realisation of the critical role of BESS in terms of stabilising load and grid/tariff arbitrage, with general acceptance of the additional costs required.

For customers, a PPA offers three key benefits from day one:

• Significant energy cost savings, with the means to lock in long-term energy costs - a reassuring business fundamental as Eskom continues to push for its unpopular tariff hikes.

• Zero capital expenditure for implementation: Customers pay only a monthly solar bill once their solar plant starts generating electricity. The PPA undergoes a Build-Operate-Own-Transfer (BOOT) arrangement; also called an energy performance contract (EPC) in some countries. Think of a PPA as a kind of “rent to buy” arrangement; once the term of the PPA concludes, the customer owns their solar power plant in full.

• The reassurance of an ongoing partnership with experienced solar energy experts: Today, Yellow Door Energy has over 350 megawatts of awarded solar projects in the Middle East and Africa. Together with a team of 120+ dedicated solar and energy storage experts, we are well positioned to help businesses reach their Net Zero targets.

When deciding between different options of going solar, business leaders should consider the following factors:

• The ROI on your own business operations vs investing in solar: Should you invest your own money in a non-core business activity when, with that same amount of money, you can generate higher ROI when investing in your business operations?

• Debt: Should your business get into debt to finance a solar energy plant, or can someone else do this on your behalf?

• Internal resources: do you have the internal expertise and time required to supervise and manage multiple contractors?

These are important considerations for business leaders, and a PPA may be the solution for your business.

In South Africa, Yellow Door Energy’s customers are energy-intensive, Eskom-connected users, across all industries, requiring a minimum of 5 MWp capacity with a regular operational schedule. These customers can typically enjoy significant savings in comparison to a grid-connected-only solution.

With government and Eskom now looking to resolve grid congestion, with the assistance of the private sector, many more industrial consumers should soon be able to implement a hassle-free transition to cleaner and cheaper solar power.

A PPA can provide the most practical springboard to do so.