As South Africa continues to face rising electricity costs and ongoing power supply instability, power purchase agreements (PPAs) are emerging as a potential solution for small and medium enterprises (SMEs). But they need to meet the specific demands of this growing market segment.

Speaking during The Future of the Solar Market in South Africa: A Market Dissection webinar, Saul Wainwright, CEO of Sun Exchange, said the recent surge in demand for solar energy – driven by businesses seeking predictable costs and alternative power sources – calls for PPAs that are tailored to meet the unique challenges faced by SMEs.

“Power outages lasting six to 12 hours have pushed many businesses toward solar power. Solar capacity has increased from 4,2 GW in 2022 to 7,1 GW in 2023 as businesses try to mitigate economic disruptions,” Wainwright said. “The question now is how PPAs can be structured to better serve these businesses.”

One of the key obstacles SMEs face when considering solar energy is the difficulty of securing financing for projects. Wainwright said many businesses do not have the capital for upfront investment and lengthy due diligence processes with financial institutions further complicate matters. In response, PPAs need to be structured to remove this financial barrier, offering fully funded, risk-free models that reduce the burden on SMEs.

Wainwright also pointed out that PPAs need to accommodate a wider range of contract terms and financing structures to reflect the varied needs of businesses. He said agreements, typically ranging from 10 to 20 years, could include fixed pricing or escalation tied to inflation with maintenance and insurance built into the arrangement.

As energy costs continue to rise – Eskom has proposed a 38% increase in electricity tariffs – businesses will likely continue seeking alternatives. “We are already seeing a shift in the market. PPAs will need to respond by providing not only energy solutions but long-term financial predictability,” Wainwright said.

In addition to financing, PPAs should also address operational challenges, such as grid connection and system maintenance, which can be particularly complex for smaller businesses. By offering turnkey solutions that cover the design, installation and ongoing management of solar systems, PPAs could play a key role in helping SMEs navigate these technical hurdles.