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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.

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 Andrḗ. 

This year the Uuniversity has approved R45m for a central generator model to run across campuses. It will sync with the PV but, he said, 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 Andrḗ.

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,”  he said. “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,” Andrḗ said. 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.

These images represent Mandela University’s Solar Photovoltaics (PV) plant, currently producing 16% of the university’s overall energy needs.  This is an initial intervention as the university aspires to ramp up its renewable energy production to supply up to 30% of its needs through onsite installations.

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,” Andrḗ said. 

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 Andrḗ.

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 Andrḗ.

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 Andrḗ.

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. 

Prof 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 the modules out in the field; the panels; and for that you need reliable long-term data and periodic field testing as well,” he said. 

This article was published on Universities South Africa's news site 

Contact information
Dr Andre Hefer
Sustainability Engineer
Tel: 041 504 1456