'How to evaluate a PPA: what South African businesses need to know

Topic

'How to evaluate a PPA: what South African businesses need to know

Discovery Green

By Chloe Dugger, Head of New Business at Discovery Green | 25 June 2026

South Africa's commercial energy market now offers structured power purchase agreements (PPAs) that can give large energy users cost certainty, predictable generation coverage, and a clear path to long-term price stability. For energy consultants advising clients on renewable energy procurement, the key question is rarely which type of PPA to choose: the wheeling structure available to a business is largely determined by how it is connected to the grid. The more important question is how to evaluate a PPA offer effectively. That means understanding how the generation forecast was developed, what coverage the structure delivers, where the risk of a generation shortfall sits, and how the price escalates over a 5 to 20-year horizon. Discovery Green, South Africa's second-largest renewable energy trading platform, works with consultants to match the right PPA structure to each business's consumption profile, risk tolerance, and financial objectives.

Discovery Green is an energy trader built for business, backed by Discovery and powered by EnergyOS, our proprietary energy operating system. South Africa's second-largest renewable energy trading platform structures PPAs around each business's consumption profile, with generation drawn from a diversified portfolio of assets, CPI-linked pricing, and generation risk held by the platform.

Key takeaways

Evaluate the offer, not just the price: The most useful PPA comparison looks at the generation forecast, the coverage rate, where shortfall risk sits, how the price escalates and long-term savings/NPV, rather than the contracted price in isolation.
Your grid connection determines the wheeling structure: Eskom-connected businesses typically use traditional wheeling, where electricity is delivered to the buyer through the national grid. Municipality-connected businesses that are not eligible under the traditional framework can access virtual wheeling, a financial arrangement that allows a buyer to hedge electricity costs without taking physical delivery of power.
Coverage economics matter: Coverage measures how much of a business's consumption the PPA supply meets. Aggregating generation across multiple assets supports higher, more stable coverage than a single-asset arrangement.
Forecast assumptions drive every number: The confidence level behind a generation forecast, such as a P50 or P90 estimate, materially changes the risk profile of a proposal and every NPV calculation built on it.
Generation cost qualification: PPA savings apply to the generation component of electricity costs, which represents approximately 45 to 55% of a business's total electricity costs.

Receive a Discovery Green PPA proposal in approximately 10 business days. Submit your consumption data today and receive a structured comparison of options at no cost. Request a proposal

How PPAs work in South Africa

A power purchase agreement is a long-term contract between a renewable energy generator and a commercial or industrial energy buyer. The buyer agrees to purchase a defined volume of electricity at an agreed or formula-linked price over a set term, typically 5 to 20 years. In South Africa, this electricity is most commonly delivered via the national grid through a wheeling arrangement governed by the NERSA wheeling framework.

Two wheeling structures are available to South African businesses, but in most cases a business does not choose between them. Traditional wheeling applies to Eskom-connected customers: electricity from a renewable energy generator is delivered to the buyer via the national grid. Virtual wheeling is offered to municipality-connected customers who are not eligible for wheeling under the traditional framework. It is a financial arrangement that allows a buyer to hedge electricity costs without taking physical delivery of power.

Because the wheeling structure is largely set by the grid connection, the real commercial decision lies in how the PPA itself is built and priced. One of the most important factors is where the supply comes from. With a single generation asset, weather and plant availability risk is concentrated in one location. When generation is aggregated across multiple assets in different locations, that risk is diversified, supporting higher and more predictable coverage across the contract term.

How to evaluate a PPA: the variables that matter

A PPA offer is only as strong as the assumptions beneath it. Four variables determine its real commercial value: the coverage rate, the generation forecast, where shortfall risk sits, and how the contracted price escalates.

Coverage: how much of your consumption the PPA meets

Coverage is the central commercial variable in any PPA evaluation. It measures the proportion of a buyer's electricity consumption that the PPA supply is expected to meet over the contract term. The higher the coverage, the greater the proportion of consumption that benefits from the contracted price rather than the utility tariff.

Coverage is constrained by weather and plant performance. A single generator produces electricity according to its own weather exposure and plant availability. When its generation falls short of demand, the buyer purchases the balance from the national utility at the prevailing tariff. Every share of consumption the PPA does not cover remains fully exposed to utility tariff movements throughout the contract term.

Aggregating generation across multiple assets changes this. When one asset underperforms due to local weather conditions, another compensates, so the aggregate output is more stable and predictable than any single generator can deliver. Discovery Green, powered by EnergyOS, matches each business with a diversified portfolio of generation assets to support higher coverage than a single-asset arrangement.

For an energy consultant advising a client on procurement strategy, the coverage rate is a quantifiable commercial variable. Over a 5 to 20-year contract term, even a modest difference in coverage represents a material difference in utility tariff exposure. The contracted price in isolation is incomplete without the coverage rate beside it. Long-term savings are evaluated alongside the price, as this is a better indicator than the price alone when it comes to superior long term commercial outcomes.

The generation forecast: what sits behind the numbers

PPAs are often priced on a forecast of how much electricity its generation assets will produce. How that forecast was developed, and the confidence level and assumptions it relies on, affects every number in the proposal. Most times, forecasting is based on a single point estimate (i.e. a single view of the future) when in reality, there is a wide range of what could actually happen. If businesses procure renewable energy based on one view of the future, they run the risk of being unprepared for what actually ends up happening, which in turn can erode savings.

At Discovery Green, forecasting is powered by EnergyOS, its proprietary energy operating system. EnergyOS models consumption, generation, and energy market prices, simulating a wide range of possible outcomes, and uses these insights to allocate supply across the platform. As actual outcomes are observed, they are fed back into the models, so forecasts become more accurate over time - this continuous feedback loop powers EnergyAI. Because the platform carries the risk of generation falling below forecast, the buyer is not left to absorb a shortfall; if generation exceeds the modelled volume, the buyer does not need to pay for excess energy not consumed. This excess can instead be re-allocated to another client across the platform, whose consumption may have increased in that particular month and therefore needs more renewable energy.

Risk allocation: who pays when generation falls short

In a single-asset arrangement, weather and plant availability risk is typically passed to the buyer. When generation falls short, the buyer pays for supplemental grid electricity, and savings projections that ignore this cost will overstate the value of the contract. Discovery Green holds generation shortfall risk within its platform rather than passing it to the buyer. When comparing offers, consultants should check whether projected savings are net of supplemental grid purchases.

Price escalation: evaluating NPV over the contract term

The price structure of a PPA is as commercially significant as its coverage rate. Many structured PPAs in South Africa are priced on a CPI-linked escalation model: the contracted price increases annually in line with the Consumer Price Index rather than tracking the utility tariff trajectory. This mechanism creates long-term cost certainty for the buyer.

The utility tariff has historically increased at a rate above CPI. Where a business pays a CPI-linked contracted price for the generation component of its electricity, it builds a structural cost advantage relative to utility-sourced power over the life of the contract. The commercial value of this advantage is best evaluated on an NPV basis across the full contract term.

A well-structured NPV analysis of a PPA considers four variables: the contracted generation price and its escalation mechanism, the projected utility tariff trajectory, the coverage rate over the contract term, and the risk allocation for generation shortfall. Discovery Green structures contracts with CPI-linked pricing and holds generation risk within its platform. For a CFO reviewing a long-term energy contract, that combination is the relevant commercial package to evaluate.

In approximately 10 business days, your client can have a structured proposal with modelled coverage rates, CPI-linked pricing, and risk allocation terms, with no commitment required. Review Discovery Green's product range

Five questions to ask any PPA provider

An energy consultant recommending a PPA over 5 to 20 years needs five answers before the proposal reaches a board.

First: What renewable energy assets are generating power?
Second: What coverage rate does the structure deliver, and how is it calculated?
Third: Where does shortfall risk sit? If generation falls below the contracted volume, who bears the cost of supplemental grid purchases?
Fourth: How does the contracted price escalate? CPI-linked, fixed, and utility-tariff-linked structures produce different NPV outcomes under different market scenarios.
Fifth: What are the exit provisions? Long-term contracts carry change-of-use risk, and the exit mechanics need to be understood before signing.

A credible PPA provider gives quantified responses to all five.

How Discovery Green's aggregation model is structured

Discovery Green operates as a wheeling platform and aggregator, not as a single-asset developer or installer. Discovery Green uses actuarial methodology to match buyers with a portfolio of generation assets rather than tying a buyer's contract to the output of a single generator. The platform is powered by EnergyOS, with EnergyAI running throughout to ensure the system gets smarter over time. The commercial result is higher, more stable generation coverage than a single-asset arrangement can deliver, with generation shortfall risk resting with Discovery Green rather than the buyer.

The platform serves more than 50 commercial and industrial clients. Discovery Green's asset portfolio includes capacity at the Overberg, Tournee and Notsi projects, alongside its broader aggregated supply pool. Three product tiers serve different buyer profiles: Green Flex for buyers who want flexibility, Green Saver for those who want to maximise their savings, and Green Guarantee for businesses that want to run entirely on renewable energy.

Explore Green Flex, Green Saver, and Green Guarantee

The proposal process

From the date of consumption data submission, Discovery Green typically delivers a structured PPA proposal within approximately 10 business days. The proposal includes modelled coverage rates, contracted pricing with CPI-linked escalation, risk allocation terms, and a comparison of applicable product options. No commitment is required. The required inputs are 12 months of interval metering data, site location, and grid connection details. A quick and efficient turnaround means a structured quantitative comparison can reach a board or CFO within a standard project cycle. Request a PPA proposal for your client

Conclusion

South Africa's renewable energy market has matured to the point where the relevant question for energy consultants is no longer whether a PPA is worth considering, but how to evaluate one: what coverage it delivers, what assumptions underpin its generation forecast, how its price escalates, and where risk is allocated. Discovery Green, powered by EnergyOS, delivers a rigorous quantitative answer to those questions in approximately 10 business days, in a proposal structured for the boardroom.

Send consumption data now and receive a no-commitment proposal with modelled coverage, CPI-linked pricing, and risk allocation. Request a proposal

Frequently asked questions

What should I look for when comparing PPA solutions in South Africa?

When comparing PPA solutions in South Africa, energy advisers should evaluate four variables: the coverage rate, the generation asset mix, the contracted price escalation mechanism, and where generation shortfall risk sits. The coverage rate measures what proportion of a client's consumption the PPA supply is expected to meet; aggregating generation across multiple assets supports higher, more stable coverage than a single-asset arrangement.

Where shortfall risk sits determines whether savings projections are net of supplemental grid purchases. In Discovery Green's model, generation shortfall risk is held by the platform, not the buyer.

Can a business choose between traditional and virtual wheeling in South Africa?

In most cases, no. The wheeling structure available to a business is largely determined by how it is connected to the grid. Traditional wheeling applies to Eskom-connected customers, with electricity delivered to the buyer through the national grid. Virtual wheeling is offered to municipality-connected customers who are not eligible for wheeling under the traditional framework; it is a financial arrangement that allows a buyer to hedge electricity costs without taking physical delivery of power. Because the structure is largely set by the grid connection, the more important decision is how to evaluate the PPA offer itself.

How quickly can Discovery Green provide a proposition?

Discovery Green typically delivers a structured PPA proposal within approximately 10 business days of receiving a client's consumption data. The proposal includes projected coverage rates, contracted pricing with CPI-linked escalation, risk allocation terms, and a comparison of applicable Discovery Green product options. No commitment is required to receive a proposal. The required inputs are 12 months of interval metering data, site location, and grid connection details. An energy consultant can initiate the process on behalf of their client by submitting this data through Discovery Green. Request a proposal

About the author

Chloe Dugger is Head of New Business at Discovery Green, a division of Discovery Limited, where she has accumulated over 15 years of experience in both the business and non-profit sectors. Her professional focus is primarily on sustainable finance and education. Prior to her current role, she held significant positions at the World Bank Group, including as a Financial Sector Specialist and as a consultant for the Global Index Insurance Fund at the International Finance Corporation (IFC). In addition to her professional achievements, Dugger is recognized for her commitment to advancing sustainable development initiatives.

Disclaimer

Discovery Limited is the licensed controlling company of the designated Discovery Insurance Group. Registration number: 1999/007789/06. Companies in the Group are licensed insurers and authorised financial services providers. This information is provided to you by Discovery Green (Pty) Ltd, a private company registered under the laws of South Africa and licensed to trade energy. By submitting your and/or your businesses details, you consent to the processing of your information in accordance with the Discovery Group Privacy Statement, accessible at www.discovery.co.za/corporate/privacy, and direct Discovery Green to obtain data from third parties such as your utility provider (i.e. Eskom or your municipality), to enrich and analyse your information enabling Discovery Green to market products and services to suit your specific needs and affordability. Should you believe that the integrity of your personal information or confidentiality has been breached, please contact us via email at privacy@discovery.co.za