Offsetting the offtaker – corporate PPAs in South Africa

eThala Power Systems is in the early stages of a project it believes will be a "pathfinder" for the South African power market. The 10MW Harding biomass project will not be the country's first to utilise a corporate PPA but it could set a precedent for developers looking to bypass state utility Eskom.

eThala moved the Harding project forward at the end of November with the appointment of Grant Thornton’s South African branch SNG-GT as its financial adviser, having already enlisted TKN as legal adviser.

The latest version of the South African government's long-term energy strategy could now be set to move forward other power projects based on corporate PPAs.

Kieran Whyte, partner and Johannesburg Head of Energy, Mining and Infrastructure, and Amanda Scribante, Associate at Baker McKenzie, told IJGlobal that they “suspect that once the Integrated Resource Plan (IRP) has been finalised, there will be a regeneration of corporate PPAs in South Africa”.

The IRP’s first draft was released by the government in August (2018) and already shows a positive indication for corporate PPAs, due to the possible revision to the existing embedded generation limit of 200MW. 

One local view from Business Unity South Africa (BUSA) is that there is “no rational basis for the IRP allocating only 200MW a year” and that it “will be looked at in the final plan”.

The limit is one reason corporate PPAs are exceedingly rare in South Africa. eThala’s chief operating officer Pita Jabulani Mbatha has told IJGlobal: “We know of only one other [corporate PPA in South Africa]”.

That PPA was signed for Bio2Watt’s 4.6MW Bronkhorstspruit biogas power plant. Bio2Watt’s founder, Sean Thomas, confirmed to IJGlobal: “we may be the only one in the country at this point in time”.

Bronkhorstspruit was brought to financial close in March 2014 and the waste-to-energy plant is three years into a 10-year PPA under which a BMW factory as offtaker.

The utility offtake

South Africa’s state-owned energy utility Eskom is the predominant offtaker of power in the country. It is no secret however that Eskom has delayed connecting projects to the grid, most prominently during round 4 of the renewable energy IPP programme (REIPPP).

All 27 projects under this round are understood to have reached financial close in July (2018), but the process was slowed by persistent delays relating to the signing of PPAs.

Mbatha makes reference to bidder fatigue: “Eskom buys power from IPPs via a long bidding process” but, “there is no guarantee for IPPs of getting the PPAs from Eskom”. During round 4 of REIPPP, the utility made a public refutation in July 2016 of the agreed tariffs for the 27 IPPs. At the time local critics were suggesting that Eskom wanted to protect a monopoly over the country’s power market, although it had no say on the tariff prices.

Eventually Eskom agreed to the PPAs for the 27 projects in April (2018), after concerns about currency fluctuations, costs, and feared job losses in the coal mining sector. There are further signs also that Eskom may be too focused on coal as a source of energy, by relying on the development of coal-fired projects.

The obstructive role Eskom played in round 4 was underlined by financial close being achieved on the 27 projects within just three months of the PPAs signings.

An alternative offtake

In March 2014, Bio2Watt reached financial close on the R150 million ($11 million), 4.6MW Bronkhorstspruit biogas, located on a Beefcor Bayview farm in Gauteng.

Up to R98 million was signed in debt, giving a debt-to-equity ratio of 73:27. Equity investors include:

  • Bio2Watt
  • Bosch Holdings
  • Norfund
  • two impact funds

Bosch Projects was awarded the EPC contract – a subsidiary of Bosch Holdings, which was contracted to the project in return for equity. 

Debt was provided by:

  • Industrial Development Corporation (IDC) – MLA
  • Agence Française de Développement 

The IDC’s loan was signed on 28 March 2013. The project capex was also funded by a R16 million grant from the Department of Trade and Industry.

The project’s PPA negotiations took place during the debt financing stage, starting in February 2010 and was signed in August 2011 – well over two years before the project reached financial close. 

German car builder BMW has a production line in Rosslyn, a 40km distance from Bronkhorstspruit, that was seeking renewable sources of energy to fulfill its energy needs. 25-30% of the factory’s power is now supplied by the Bronkhorstspruit waste-to-energy plant.

Bio2Watt was advised by Edward Nathan Sonnenbergs and the IDC was advised by Norton Rose Fulbright on the project.

The corporate offtake

Mbatha believes that there is hunger for corporate PPAs in South Africa: “The level of interest exceeds eThala’s capacity to supply”. It is also the view of Whyte, and Scribante at Baker McKenzie, that there is a growing market interest, especially from “small to medium businesses”.

Even if there is interest, the process to gain necessary regulatory approvals may deter many. 

Any developer looking to agree a corporate PPA must still interact with Eskom and the local municipality for the wheeling agreement, permits and municipal licences. Bronkhorstspruit’s timeline shows that this was a four year-long process for Bio2Watt, with the wheeling agreement chided by the company as “quite lengthy and unnecessarily expensive”.

Scribante and Whyte add that “even if the final IRP lifts the 200MW limit on embedded generation, more clarity will need to be given on the licencing regime” which, if unclear could,“[contribute] to another licencing backlog at the National Energy Regulator of South Africa (NERSA)”. 

Consent must also be obtained at the ministerial level, the two lawyers said. In this instance, Bio2Watt credits the Department of Energy (DoE) with its support for Bronkhorstspruit, notably with the acquisition of a generation licence from NERSA with DoE help. This license is overarching and extended to matters normally belonging to other governmental departments such as a water use licence. 

There is also a feedstock concern for other biomass projects raised by Mbatha which may erase any potential for a low tariff – however both Bio2Watt and eThala have circumvented this with the use of waste-to-energy power generation where inputs are either procured on-site (Bronkhorstspruit) or obtained from other internal operations (Harding).

There is no word yet on when the IRP is likely to be completed, but nonetheless eThala told IJGlobal that it is working to a Q4 2019 financial close on the 10MW waste-to-energy plant.


Asset Snapshot

Harding Biomass-to-Energy Plant (10MW)

Full Details
Asset Snapshot

Bronkhorstspruit Biogas Plant (4.6MW)

ZAR 149.95m (USD 8.62m)
Full Details
Transaction Snapshot

Harding Biomass-to-Energy Plant (10MW)

$24.00m USD
Debt/Equity Ratio:
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Transaction Snapshot

Bronkhorstspruit Biogas Plant (4.6MW)

Financial Close:
$14.22m USD
Debt/Equity Ratio:
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