On Wednesday, NRG Renew Africa, a South African provider of distributed and renewable energy solutions, signed a power purchase agreement (PPA) with international retail solutions company Smollan. The agreement entails the installation of a solar power system on two separate Smollan locations by the end of 2015.
The generated clean power will contribute 25% to the firms total energy consumption through a 20-year PPA. The total cost of the project has as yet not been disclosed.
NRG Renew Africa: strategic business decisions
The retail company had tabled the idea of developing its own solar PV system, but the financial risk was spread and the goal of a long-term renewable power supply was made viable by partnering with NRG.
David Smollan, CEO of Smollan, said: “From a business perspective, this makes sense on various levels – there is no upfront capital required, as we pay only for the power produced by the renewable energy system, it gives us full control of our energy future by providing Smollan with customised embedded generation sources designed to meet our specific needs.
“We have no performance or technology risk and as the owners of the system, NRG Renew Africa takes care of all engineering, maintenance, construction repairs and monitoring.”
Smollan added that the company has always valued uplifting communities through job creation and improved well-being on surrounding communities.
“In the process of formalising our approach to delivering growth while having a profound social impact, we recently launched our Social and Environmental Impact Plan. It was this plan that initiated our desire to shift towards renewable energy.”
Financially viable decision
NRG is able to provide competitive PPA rates through various financing vehicles, by accessing capital markets to bring low cost capital to energy projects.
Project Manager at NRG Renew Africa, Adhila Mayet commented: “We have modelled our PPA tariff and escalation rates to beat municipal rates in the short, medium and long term.
“This agreement will see substantial savings and removes the element of unpredictable energy supply.
“We expect that in the first year Smollan’s power costs will be lower than current charges and annual costs beyond the first year should still be lower than the predicted current escalation rates.”
According to Dr Dino Petrarolo, VP Commercial & Industrial at NRG Renew Africa, municipality prices are higher than Eskom tariffs by a variable mark-up, the power solutions company said in a statement.
“This makes the case for PPA contracting even more compelling as a hedge, and we believe that like Smollan, businesses in South Africa will increasingly look to renewable solutions to both enhance reliability and save money.”