SolarAfrica partners with Powerx for 60 MW wheeling deal

From the newsletter

Independent power producer (IPP) SolarAfrica and Powerx, a licensed energy trader, have signed a 60 MW power purchase agreement. This follows SolarAfrica's recent financial closure of $100 million for the initial phase of their Suncentral 1 solar project. Powerx will wheel the power to corporate and industrial customers.

• SolarAfrica has built over 133 MW of solar capacity and 39 MWh of battery storage, and has signed 555 MW under wheeling agreements. The company is based in South Africa but operates in five countries, including Nigeria.

• The South African renewable energy market continues to evolve with improved policies that attract investments. The recently approved Renewable Energy Masterplan by the cabinet is designed to promote industrialisation and the localisation of the renewable energy supply chain.

More details

• SolarAfrica Energy merged with Lagos-based Starsight Energy in 2023 and now has a project pipeline exceeding 2,000 MW. The merger was supported by investments of an undisclosed amount from Helios Investment Partners and African Infrastructure Investment Managers.

• The company has secured financing deals mainly from South African banks such as Investec and RMB, which funded $100 million for the first phase of the SunCentral project, which aims to achieve a total generation capacity of 1,000 MW. Beyond these large-scale projects, it has also undertaken smaller projects for commercial and industrial (C&I) customers. For example, it installed a 13.5 MW solar energy system for Ford Motor Company and a 3.6 MW system for Trade Route Mall in Gauteng.

• SolarAfrica's primary approach to project development and client engagement revolves around the use of Power Purchase Agreements (PPAs), saving their customers from the substantial upfront costs typically required. They finance, install, and maintain the solar system, and the client simply pays for the electricity consumed at a predetermined rate over the agreement's lifespan. These PPAs are offered with flexible terms, typically spanning periods of 10 to 20 years, providing businesses with long-term energy cost predictability.

• The South African C&I market has attracted several energy companies that bring significant competition, especially in raising funds for large projects. Some international players include Italian-based Enel Green Power, which has invested in wind and solar projects with over 330 MW of capacity. Norwegian company Scatec has a portfolio exceeding 730 MW and has built one of the largest solar plants in the country, with 540 MW of generation capacity. Saudi Arabian energy developer ACWA Power is also constructing a 100 MW concentrated solar power project.

• PowerX, South Africa's first licensed private sector electricity trader, has several other PPAs, including the 24.5 MW solar PPA with Yellow Door Energy it signed last month. The Electricity Act 2023, which liberalised the market, has opened it up, and more energy trading companies are joining to compete including EnPower Trading, NOA Trading, and Etana Energy.

Our take

• The liberalisation of the electricity market will likely put pressure on companies to differentiate themselves through innovative solutions and competitive pricing in their PPA offerings. While this benefits consumers with more choices and potentially lower costs, it could also lead to tighter profit margins for energy providers.

• The focus on renewables by energy traders can play a big role in contributing to a faster uptake of renewable energy solutions in South Africa. These model should be adopted across Africa to promote renewables adoption.

• The influx of international companies possessing greater financial resources poses a risk of displacing local companies within the renewable energy sector. To ensure fair competition, local companies, particularly IPPs, should be supported through subsidies and incentives. Fortunately, these concerns are addressed in the renewable energy master plan.