Had Nelson Mandela University opted to use its own resources to set up the solar energy plant on its main campus, it would have cost about R16m. Instead, it opted for a Power Purchase Agreement (PPA) and did not pay a cent upfront.
According to this type of contractual agreement, the supplier designs and fits an energy system for free. Its partner then buys electricity from the supplier for a fixed term. In the option it chose, Mandela University will own its plant after 10 years.
Dr Andrḗ Hefer (right), Sustainability Engineer at Nelson Mandela University, outlined the pros and cons of this approach at the Universities South Africa led Loadshedding Webinar held on 21 July 2023. The webinar was a project of USAf’s Research and Innovation Strategy Group that is seeking to ensure stability in universities’ research enterprise, notwithstanding the rolling power blackouts. The event attracted 67 participants from 21 member institutions.
Mr Kishore Gobardan, Executive Director for Institutional Planning and Governance at the University of KwaZulu-Natal (UKZN), asked Dr Hefer whether he would still go ahead with a PPA, if he had to rethink the decision?
In response, Dr Hefer said if it were his own company, he would now opt for an outright purchase, instead – leveraged on a very strong service level agreement. “Financially, it probably means a difference of eight to 10% on your entire return,” he said.
The background to Mandela University’s PPA
Dr Hefer said setting up a renewable energy solution is “not as simple as it might seem”.
Their initial 2010 submission to the university’s Management Committee (Manco) for a PV installation was rejected. In 2016 they got approval for a PPA of one megawatt for 10 years, after which the university would take over ownership of the energy system.
During 2022, Manco approved another R65m worth of PV across all campuses, now with the university’s bid evaluation committee, which means savings of about R10m per annum, said Hefer.
This year the university has approved R45m for a central generator model to run across campuses. It will sync with the PV but, said Hefer, it is a “a sweet and bitter exercise” as it could add about R25m to operational costs.
Meanwhile, Gqeberha’s business chamber and the Nelson Mandela Bay metro have put out a request for proposal (RFP) for bids for a 150-megawatts project for about 25 of its largest energy users. “As part of that process, we will probably be able to have renewal energy penetration of up to 50% in our general usage, day-to-day,” said Dr Hefer.
The Mandela University’s plant on its south campus is grid-tied and so does not help during loadshedding. “If the grid is dead or Eskom goes down, we go down,” said Hefer. “The peak demand on that campus is roughly about three megawatts. The base load is about 1.2 megawatts, so we are never planning to put any electricity back into the grid,” said Hefer. The plant produces 16% of the university’s overall energy.
Some realities about setting up a power plant
The plant was approved in 2016 and went out to tender in 2017.
Because the University’s grid would affect the municipal one, they had many technical meetings with the municipality, at least once a month, “with a range of people for them to understand what was happening,” said Hefer.
Towards the end of 2018 they secured all the approvals, including for safety compliance. “We started to produce renewable energy in 2019. It was about a seven-month installation, and this was on a greenfield site of about two hectares,” he said.
Advantages of a PPA
“The performance to date is very much in line with our initial projections,” said Dr Hefer.
The biggest selling point of a PPA is no initial capital outlay “and virtually no financial or technical risk failure because all the responsibility sits with the PPA and the company selling the energy,” he said. There is also no maintenance cost for the entire duration of the partnership.
“The electricity purchase price for the PPA in many cases could be lower than your initial purchasing price from the municipality; or it could equalise after a few years.” Their unit price of electricity has a 6% annual increase “so we know exactly what’s coming”. The insurance cost stays with the PPA. “If you take ownership of the plant, you probably pay off a small capital component monthly,” he added.
The agreement had helped the university by giving it “a soft landing to experience and understand” PV plants and renewable energy.
Disadvantages of a PPA
First, very few PPAs are for less than 10 years “so it’s a long contractual road with a party that could change in ownership or liquidate,” he said. Secondly, “the financial benefits are being shared with a company that needs to make a profit and you won’t get the full benefit of the income generated from the PV plant,” said Hefer.
Thirdly, the university must give a few days’ notice to access the site and a lot of the data has not been easily available.
Two useful tips
“What we found extremely valuable was the simulation around the range of our needs and outcomes, and I would definitely propose that you do this professionally,” said Hefer.
He advised universities to look for internal experts or academics elsewhere who can provide invaluable assistance. Mandela University is very grateful to have Physics Professor Ernest van Dyk (left), leader of its Photovoltaics Research Group, and a consultant with 20 years of experience in the South African energy sector.
Van Dyk reiterated that the one disadvantage of the PPA agreement has been access to quality data.
“We’re really struggling with long-term monitoring data because after 10 years we take over this plant, and we want to know the state of themodules out in the field; the panels; and for that you need reliable long-term data and periodic field testing as well,”he said.
The Mandela University’s insights sparked a robust discussion with other institutions’ representatives who sought deeper understanding.
- Mr Phalane Mzamo Kabanyane, Deputy Director: Facility Operations at Central University of Technology (CUT): “Does the PPA offer flexibility in terms of ensuring your continuity and resilience in the form of storage capacity? Are you able to store some of your generated outputs for certain critical operations within the university?”
Hefer: Currently, no. Any additions or changes must be on our side. So, we approved a centralised generator system that will hopefully be online in about 18 months. We haven’t opted for battery systems. They are extremely expensive and would probably increase the project’s value five to six times.
- Mr Sebastian George, Senior Engineering Manager at the University of Pretoria: “You mentioned your plant is a three-megawatt plant. What inverters did you use to take all that capacity and put it into your network? Do you have multiple points of integration with your existing network, or are you injecting it at a single point?
Hefer: “It is a one-megawatt installation, not three, and I can get back to you about the inverter types. We are feeding in at only one place, at one substation.”
- Mr Ajesh Aheer, Sustainability and Utilities Manager at the University of KwaZulu-Natal: “Did you have to overcome any hurdles with the municipality regarding their loss of income?”
Hefer: “There weren’t many issues with our municipality. At that stage, they were one of two metros in the country that had trading agreements with independent power providers. So, they were more open. Our biggest hurdle was trying to get final approvals of the installation – such as who would come out and agree on the connections. They wanted to understand exactly the implications of our installation on their local grid, their transformers, their local substations. So, it was more technical than financial or political.“
- Dr Sandile Koko, lecturer at CUT: “Our solar PV plant was commissioned in 2018. It has a dual access solar tracking device and is equipped with a real-time data logger. However, the disadvantage is that it is grid-tied. There has been a lot of cost savings in the five years we have been using it. Is there any solution for it to be able to supply electricity during loadshedding?”
Hefer: “If you have a PV plant or any other installation running, and it’s grid tied, it goes down during loadshedding. Ours also goes down. Our solution is getting a centralised generator system that can synchronise with the PV plants.”
- Dr Warren Kukard, Director: Maintenance and Operations at the University of Cape Town: “Did you sign a production PPA or a consumption PPA contract?
Should it be a consumption PPA, you might be in a difficult situation where the system might curtail, meaning that you can’t see the PV generation that you still pay for.”
Hefer: “I think it’s a consumption one. Year-on-year, they need to produce a certain amount of kilowatts, I think it is 1.6 gigawatts. But we also have the daily implication. We can’t go over one megawatt; they curtail their production if it does. About a third of the plant is dual tracking so they can fine tune their production.”
Van Dyk: “There is a limit set by the municipality. And then there’s an annual level of performance that is expected, based on the degradation projected over the 10-year period.“
- Dr Ncedo Xhala, Acting Executive Director; Infrastructure at the University of Zululand: “We are still trying to get approval from our Manco for our energy management strategy. If we go for the option of solar PV, inverter, and battery as opposed to a PV plant, what is the lifespan and what are the maintenance requirements?”
Hefer: “There are so many fluctuations regarding maintenance that it would be very difficult to comment on that now. I know there are general terms pertaining to inverter replacement and maintenance, and battery replacements.”
- Professor Prakash Naidoo, Deputy Vice-Chancellor: Operations at the University of the Free State: “How do you manage the condition of the plant because in 10 years’ time, you’re not going to inherit a plant, you’re going to inherit something you must redo and incur a lot of costs. You don’t want to pay the capital costs when you’re getting nothing at the end of the period.”
Hefer: “Start those discussions very early. Because if you’re not comfortable with the quality of your current installation and you start discussing it a month before year 10, you will struggle. I can’t recall how much is built into the contract regarding penalties. That’s probably your biggest risk and why the initial technical specification of what you install on site is absolutely critical.”
Gillian Anstey is a contract writer for Universities South Africa.