Is the traditional PPA dying in Southern Africa?

Type: News Repost

The latest in a series of articles on energy markets in Southern Africa looks at how the region is transitioning away from the traditional power purchase agreements (PPA) that have long driven renewable energy deployment. The post Is the traditional PPA dying in Southern…

> Republished by AIC Engineering. All rights belong to the original publisher; see Source below.

Merchant markets, trading, batteries and supply-demand dynamics are shifting renewable energy investment in Southern African away from traditional power purchase agreements (PPAs). Dominic Goncalves, Advisory Partner for Energy Strategy at Cresco Project Finance and Founder & Director of Naviara Energy, told pv magazine that for the last fifteen years, PPAs have been the central business contract that underpins renewable energy projects in Southern Africa. “Traditional PPAs helped mobilize the first major waves of independent power investment across Africa, by reducing market risk and creating predictable cash flows,” Goncalves explained. “But the structure also concentrated risk in a single buyer and treated renewable electricity largely as a uniform block of energy.”

A shifting market Goncalves said a series of market shifts are beginning to cause a fundamental reinvention of the PPA for a new era. He cited corporate procurements, open access, wheeling, regional trading and the deployment of battery storage as creating more routes to market. “This means developers and independent power producers (IPPs) are beginning to consider not only who will buy the electricity, but how the project’s output can be divided, shaped, firmed, traded and allocated across different customers and markets over its operating life,” he said. As a result, Goncalves expects the next generation of renewable projects may have several revenue components rather than a single PPA. He suggested future projects could combine a corporate PPA with trader sales, short-term market exposure, a merchant tail and storage-related revenues, while a price floor or contract-for-difference structure could protect downside risk while still preserving some market upside. He also suggested a solar-plus-storage project could sell a shaped evening product rather than undifferentiated daytime energy. “Multiple industrial consumers could be aggregated to reduce reliance on one offtaker,” Goncalves said. Goncalves emphasized that this shift does not mean that projects will be completely merchant. “Banks will still require predictable cash flow, downside protection, credit support and clear allocation of market and operational risk,” he said. “The difference is that predictability may increasingly come from a portfolio of contracts and hedges rather than one take-or-pay agreement.”

Beyond the megawatts Goncalves told pv magazine Africa’s renewable energy market is “moving beyond selling megawatt-hours” and is instead “beginning to sell firmness, flexibility, timing and energy security.” For developers and IPPs, Goncalves says this shift means projects will be designed around products rather than just megawatts, with a focus on the generation profile, storage duration, grid location, curtailment exposure and access to trading counterparties. “The bankability question is increasingly shifting from reliance on a single long-term contracted revenue stream towards assessing whether a broader portfolio of contracts, counterparties and market revenues can generate sufficiently predictable and resilient cash flows,” Goncalves said. Battery storage is poised to accelerate this evolution, Goncalves continued, as it separates time of generation from the time of delivery. “Storage can firm renewable output, manage imbalance, reduce peak purchases and support trading strategies,” he explained. “As ancillary and flexibility markets mature, batteries may also earn revenues for services that a conventional energy-only PPA does not recognize.”

Risk management Goncalves said significant risks remain, as many Southern African markets remain illiquid, transmission constrained and institutionally immature. However, the evolution of PPAs is also helping to reshape the risk landscape. While traditional PPAs have long been viewed as a cornerstone of project bankability by securing a single buyer for a project’s output, grid congestion and curtailment are becoming increasingly important considerations. Goncalves explained that by pooling generation from multiple assets and serving multiple buyers, developers can move away from a single project-offtaker relationship. Such models can help mitigate the impact of curtailment at individual sites while providing greater flexibility if a buyer is unable or unwilling to take power. While this shift is already underway, Goncalves added that traditional PPAs are likely to remain prevalent in Southern African markets with limited liberalization, or where there are no immediate signs of market reform. However, he did not rule out these countries eventually following a similar trajectory. Even in more liberalized markets, government-led procurement schemes such as South Africa’s Renewable Energy IPP Procurement Programme (REIPPPP), are also expected to remain an open route for renewable energy deployment for the foreseeable future. Goncalves concluded that while the traditional PPA is not necessarily dying, it is being unbundled, supplemented and redesigned. “The traditional PPA will remain an important risk allocation instrument, but it may become one layer within a broader commercial revenue stack, and it’s largely being superseded by more fit-for-purpose solutions that effectively match different supply profiles with different demand profiles,” he said. “The winners of this shift will be participants capable of combining contracted revenues, market access, storage and risk management into products that meet customers’ real requirements.”

Source

• PV Magazine (2026-08-07)
• Original article: Is the traditional PPA dying in Southern Africa?