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).

In February, the firm hosted a seminar to update stakeholders on where corporate PPA activity is happening and the 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 utility companies and developers, which removes a significant roadblock to financing and building new renewables 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 had been signed globally since 2008, of which 40% were signed in 2018 alone, indicating a clear uptick in recent years.

He added that companies were increasingly making commitments to procure renewable energy, since it resulted in a reduced carbon footprint and reduced cost savings.

Other factors would 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 advances, most corporations were particularly interested in advancing metering and energy management software, while others were also interested in energy storage.

Africa Power Ventures director Maree Roos said that, while corporate PPAs might threaten the old model of the utility supplying electricity to a municipality, which then supplied the user, it provided other opportunities for all stakeholders to benefit, if companies generated their own power.

For example, mines operating in remote areas often procured energy solutions to power their operations, but, because they had the social obligation to look after communities, they often connected communities to their microgrids – these were communities that did not have national grid connection and might never have had.

Additionally, companies buying their own power from independent providers could relieve some of the demand on the national grids that were struggling to keep up in peak periods – for example, in South Africa, where load-shedding, owing to insufficient capacity to meet the national demand, occurred.