(By Luther-Jones Natasha/Daily Monitor, 26 March 2018)
- Regional attention . Discussing solutions. Recently at the East Africa Energy and Infrastructure Summit that took place in Kampala, PPAs, and potential off-grid solutions, took centre stage, attracting delegates from international equity investors and debt providers, leading international utility and regulatory companies, as well as a variety of African organisations from Uganda, Kenya, Tanzania, Rwanda and Ethiopia.
Systemic power outages have stunted economic growth in sub-Saharan Africa for decades. There is an urgent need for sustainable energy solutions that can provide consistent, clean, and affordable power to keep the engine-rooms of industry running.
As South Africa’s successful Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) has proven, a well thought out programme can bring expertise, and investment to grid-connected power systems.
Across the globe, renewable energy generators are increasingly entering into corporate power purchase agreements (PPAs) - a long-term contract under which a business agrees to purchase electricity directly from a renewable energy generator – with locally operating businesses.
PPAs ensure that these off-takers have access to consistent power and price certainty, while providing stable revenue streams for the renewable energy generators. Corporate PPAs are a solution that can potentially lead to more off-grid energy developments in Africa, as long as the agreements are carefully drawn up.
Discussing solutions. Recently at the East Africa Energy and Infrastructure Summit that took place in Kampala, PPAs, and potential off-grid solutions, took centre stage, attracting delegates from international equity investors and debt providers, leading international utility and regulatory companies, as well as a variety of African organisations from Uganda, Kenya, Tanzania, Rwanda and Ethiopia.
I led a panel discussion that addressed the opportunities that will be present when more off-grid solutions are put into place across sub-Saharan Africa. Expert panelists included Nicholas Ecimu, DLA Piper Africa Partner - Sebalu & Lule; Jussi Alaputto, Director & Business Development Africa – Nocart (an environmentally conscious energy company); Wilson Kirwa, Founder - Wilson Coffee; and Varsani Tulsidas, Chairman - Tulsi Group of Companies.
The panel agreed that off-grid systems will be of particular benefit for rural development. Taking Uganda as an example, only 20 per cent of the population currently has access to electricity and this is, therefore, a priority area.
Private wire corporate PPAs (ie those off-grid) provide a revenue stream and bankable structure for off-grid renewable energy projects to get off the ground.
For investors, they provide certainty of income over the long-term (usually a fixed term of 15 years). Meanwhile, for the anchor tenant businesses, there are two major benefits. Firstly, they gain certainty of cost of electricity over the term, and secondly they gain certainty of supply, in regions that see frequent power outages.
The panel also agreed, however, that for private wire PPAs and, more generally, off-grid renewable energy projects to work, wider factors such as government regulations, need to be considered on a project by project basis, along with local land and permitting issues.
Some of the many issues to be considered in a corporate PPA include the electricity output or contracted capacity; changes in law; subsidies and new benefits, which are dependent on renewable energy regimes in the different countries; the interface with financing parties and caps on liabilities.
Given the size, scope and duration of many of the PPAs now being entered into, it is imperative for all parties involved to understand the importance and value of the contracts, and this is where DLA Piper Africa’s expertise and insights prove to be invaluable to our clients.
Opportunities in Africa. Numerous large, well-known corporates have already entered into PPAs and invested in renewable energy generation assets of their own. For businesses operating in multiple countries and across continents, there are many opportunities to invest in renewable technologies.
But there are also opportunities for smaller companies. Despite the relatively demanding and complex nature of corporate PPAs, there are many examples of successful private wire PPAs undertaken with smaller companies. Smaller companies also have the opportunity to form consortia with other similar sized businesses in order to create a viable economic position to negotiate an agreement.
In Africa in particular, the possibility of creating consortia is appealing and will benefit many start-ups, and local corporates. Consortia will help to spread the credit risk for the generator, as there will be less impact from one of the companies going bankrupt.
By using global legal advisers well-positioned to assist with complex international negotiations, who can draw on sector-specific and local knowledge, green-minded corporates will be able to realise their ambitions.
Properly implemented, PPAs bridge the gap between the private sector, government, electricity regulators and entrepreneurs, ensuring that long-term solutions can be implemented and people’s lives can be improved via investment and energy.