How a Power Purchase Agreement Works
A PPA is simple: a solar provider installs a system on your roof at no cost to you. They own it, they maintain it, they insure it. You simply buy the electricity it produces — at a rate that's 20-30% lower than what you're paying Eskom.
What you get:
- Zero capital outlay — No upfront investment required
- Immediate savings — Lower electricity rate from the day the system is switched on
- Fixed or low-escalation rates — Your solar rate is locked in (typically CPI-linked at 5-6%) while Eskom increases 12%+ annually
- No maintenance responsibility — The PPA provider handles all servicing, repairs, and monitoring
- No balance sheet impact — The asset doesn't sit on your books (operating expense, not capital)
What the PPA provider gets: They earn a return on their investment through the electricity payments over the contract term. It's a win-win: they get a predictable revenue stream, you get cheaper power.
PPA vs Eskom: The Numbers Over Time
The real power of a PPA becomes clear when you project costs forward. Eskom's tariffs have been increasing at 10-15% annually. A PPA locks in a rate with much lower escalation.
Example: Business paying R80,000/month in electricity
| Year | Eskom Cost (12% annual increase) | PPA Cost (5% escalation) | Monthly Saving |
|---|---|---|---|
| 1 | R80,000 | R60,000 | R20,000 |
| 3 | R100,000 | R66,000 | R34,000 |
| 5 | R125,000 | R73,000 | R52,000 |
| 10 | R221,000 | R93,000 | R128,000 |
| 15 | R389,000 | R119,000 | R270,000 |
| 20 | R685,000 | R152,000 | R533,000 |
Note: This illustrates the solar-generated portion of your electricity only. Grid power is still needed for consumption beyond solar production. Actual rates depend on your specific PPA terms.
Cumulative saving over 20 years: Millions of rands
The gap between Eskom and PPA rates widens every single year. That's the structural advantage of a PPA — it gets better with time.
The PPA Process — Step by Step
Step 1: Assessment We visit your facility, assess your roof, and analyse your electricity consumption. This determines the optimal system size and your potential savings.
Step 2: PPA Proposal You receive a detailed proposal showing: system size, projected generation, your PPA rate, Eskom comparison, and projected savings over the contract term.
Step 3: Agreement If you proceed, a PPA contract is signed between you and the solar provider. Typical terms are 15-20 years with clear escalation rates.
Step 4: Installation The provider funds, procures, and installs the system on your roof. Installation typically takes 2-4 weeks with minimal disruption.
Step 5: Switch On & Save Your system starts generating. You pay for the solar electricity at the agreed PPA rate — which is 20-30% less than Eskom from day one.
Step 6: Ongoing The provider monitors, maintains, and services the system for the duration of the contract. You simply pay your monthly solar bill.
Which Ownership Option Is Right for You?
| Factor | PPA | Outright Purchase | Asset Finance |
|---|---|---|---|
| Upfront cost | R0 | Full system cost | Deposit (if any) |
| Monthly impact | Pay PPA rate (lower than Eskom) | No electricity cost for solar portion | Loan repayment (typically < savings) |
| Section 12B tax benefit | No (you don't own it) | Yes — 100% year-one deduction | Yes — 100% year-one deduction |
| Maintenance | Provider's responsibility | Your responsibility | Your responsibility |
| Balance sheet | Off-balance sheet (opex) | On balance sheet (asset) | On balance sheet (asset + liability) |
| Long-term savings | Good (20-30% below Eskom) | Maximum (no ongoing payment) | Very good (own the asset after term) |
| Best for | Capital-constrained businesses, tenants, risk-averse | Profitable businesses with capital, maximum savings seekers | Businesses wanting ownership + cash flow management |
Key trade-off: A PPA saves you less in total over 20 years than owning the system outright — but it requires zero capital and zero risk. If you have capital and want maximum returns, consider purchasing with Section 12B or asset finance.
A PPA Makes the Most Sense If You...
- Don't have capital for a solar purchase right now
- Prefer operational expenditure over capital expenditure
- Are a tenant and can't invest in a building you don't own
- Want zero risk — no technology risk, no maintenance, no performance uncertainty
- Need board approval simplicity — it's an electricity contract, not a capital project
- Are a property developer — install PPAs across your portfolio and offer tenants cheaper power
A PPA may NOT be ideal if:
- You have capital and want maximum long-term savings → Consider purchasing
- You want Section 12B tax benefits → You need to own the system
- Your roof lease is shorter than 15 years
- Your electricity consumption is very low (PPA minimums may apply)
What Happens When Your PPA Contract Ends?
At the end of the PPA term (typically 15-20 years), you typically have three options:
Option 1: Purchase the System Buy the system at a pre-agreed residual value (often significantly below original cost, since the system has been largely depreciated). You then own the system outright and pay no more PPA fees — just free solar electricity for the remaining system life.
Option 2: Renew the Agreement Negotiate a new PPA at revised terms. Since the system is fully depreciated, rates may be even more favourable.
Option 3: System Removal The provider removes the system from your roof at their cost. You return to full grid dependence (though this is rarely chosen — the economics strongly favour options 1 or 2).
Common Questions About Solar PPAs
Do I need to get my landlord's permission for a PPA? If you're a tenant, yes — the landlord needs to consent to the installation. However, many landlords are supportive because solar increases property value and reduces the building's operating costs. We can help facilitate the conversation.
What if I move premises before the contract ends? PPA contracts typically include provisions for premises changes. The contract may be transferable to the new tenant, or there may be an early exit mechanism. This is covered in the agreement terms.
What maintenance am I responsible for? None. The PPA provider handles all maintenance, monitoring, repairs, and insurance for the duration of the contract. You simply buy the electricity.
Can I get a PPA for solar + battery? Yes. Some PPA structures include battery storage, providing both cost savings and load shedding protection with zero capital outlay.
What's the minimum system size for a PPA? PPA providers typically require a minimum system size (often 100kWp+) to make the economics work. This corresponds to a monthly electricity bill of roughly R30,000+. We'll assess your eligibility during the free assessment.
How does a PPA affect my property if I sell the building? The PPA contract is typically assignable to the new property owner. Solar on the roof is a selling point — it means cheaper electricity for the next owner.