Why a Low PPA Tariff Can Still Mean Expensive Power

Guest Opinion | By Felix Keuya

Editor’s Note: This article is an opinion piece. The views and arguments expressed are those of the author and do not necessarily reflect the editorial position of Towncrier Africa. Factual claims in contributed articles are subject to editorial review, but publication does not constitute endorsement of the author’s views.

Africa’s renewable contracts are getting cheaper, but let’s not kid ourselves: the price a generator and buyer agree on is just the first step in figuring out what electricity actually costs by the time it reaches the customer’s meter.

Three cents per kilowatt hour sounds impressive and grabs headlines, but it only answers part of the real question customers care about: what’s the price when the electricity hits their meter?

Right now, Africa Energy Intel tracks 33 generation deals across the continent. Out of 20 verified solar contracts, the median price sits at 3.24 US cents per kilowatt hour, ranging from 2.3 cents all the way up to 38 cents. It’s tempting to look at that spread and rank markets as cheap or expensive. Don’t do it. These contracts were signed in different years, under varying risk conditions, and aren’t always buying the same thing.

A PPA tariff is simply the price a generator agrees to charge in a power purchase agreement. Before electricity becomes truly usable, customers, like mines, factories, or data centers, still have to pay for the network, losses, balancing, backup supply, and other market services. As more markets in Africa open up to bilateral supply and wheeling, those extra costs are becoming even more relevant. Like it or not, the grid still needs to be paid for, even if headlines don’t mention it.

Tariff is only the starting point

South Africa spells things out pretty clearly. Eskom’s wheeling policy for July 2026 says that customers keep paying the standard network tariff for all energy delivered, even before adjusting for private generation. Choosing independent producers doesn’t reduce those network charges. Every kilowatt still pays its way. And don’t forget administration fees, ancillary services, losses, legacy charges, and generation capacity payments; they all still show up in the bill.

Wheeling just makes the distinction obvious: producing electricity isn’t the same as getting it through the grid. Private generation lets you buy less energy from the utility, but it doesn’t eliminate all the infrastructure and services you need to make the transaction happen.

The broader reform in South Africa is heading in the same direction. Cabinet has put forward a new pricing policy for public review, meant to break up tariffs into generation, transmission, distribution, and retail components. NERSA’s proposed wholesale pricing method identifies capacity and legacy charges that players will still have to pay. Sure, competition can make those costs easier to spot, but it won’t make them disappear.

Kenya came to a similar conclusion. Its open access rules let eligible users tap into transmission or distribution networks, but they must pay approved wheeling or use-of-system fees. If the contracted generator doesn’t deliver and the customer needs backup from the grid, grid charges kick in. There are also rules for imbalance and reactive energy charges, plus losses. All have to be settled.

So, a six cent solar PPA might look attractive, but if it doesn’t deliver six cent power at the meter, it’s missing the mark. For buyers, the meaningful comparison isn’t between two headline PPAs; it’s between today’s total cost for reliable power and the delivered cost under the new deal.

Finance drives the price

Network charges are only part of the gap. Financing is another big piece.

IRENA pegs the average levelized cost for new onshore wind in Africa at about 5.1 cents per kilowatt hour, almost identical to Europe’s 5.2 cents. But that’s hiding a sizeable gap in financing costs. IRENA assumes Africa’s projects carry a weighted average cost of capital at 12 percent, compared to Europe’s 3.8 percent. For Africa, financing costs are the main chunk of the bill.

The IEA estimates capital for large-scale clean energy generation in Africa costs at least double or triple what it does in advanced economies and China. Their survey found the cost of capital in Kenya and Senegal runs 8.5 to 9 percent, while North America and Europe sit at 4.7 to 6.4 percent. Any local energy business borrowing money faces rates well above 15 percent.

So, the tariff really reflects a credit assessment. It packs in the buyer’s risk, currency exposure, debt terms, security package, and what happens if things go sideways. Cheap solar panels don’t magically make a buyer creditworthy. Great solar resources don’t fix currency conversion issues. A strong asset can help the model, but it can’t negotiate when things fall apart.

This is why project finance matters more than a headline tariff. A low bid isn’t automatically a solid project. If it only works with optimistic energy output, thin debt coverage, wishful thinking about curtailment, or financing terms that will never actually materialize, then the risk has simply been undervalued, not removed. Lenders eventually insist on sorting out those realities in the financial model.

Power measurement point matters

Network performance adds one more layer. The IEA estimates African electricity networks lose about 15 percent of their power on average. You can’t just tack that loss onto every PPA. It varies by market and where the connection happens. Still, it shows why the measurement point matters. Power sold at the generator’s busbar is not the same thing as power credited at a customer’s meter.

Corporate buyers need to start from their current bill and work backwards. Which charges drop? Which stay? How well does generation match their demand? Who pays for losses, shortfalls, and backup? What happens if the currency shifts, the grid curtails the power, or the generator doesn’t deliver? The answer should be a clear, delivered cash cost based on the actual contracts in play, not just the paper price from a published PPA.

What buyers and investors look for

Investors see things differently. Their focus is on whether the project’s revenue can survive tough times, whether it covers debt payments. Sometimes, a project with a slightly higher tariff but solid payment security beats another with a rock-bottom tariff but weak cash flow. Bankability has never been about chasing the lowest cent per kilowatt hour.

That’s why Africa Energy Intel separates generation prices from consumer tariffs and ties them to policy and project realities. A tariff benchmark makes sense, but only after you know what’s included, what’s left out, and who actually absorbs the difference.

Africa’s renewable generation costs are dropping. That’s progress, for sure. Now the challenge is putting the rest of the electricity cost stack, network, services, finance, in plain sight so buyers and investors can contest and finance those costs.

Three cent generation is worth celebrating. Three cent delivered power is the real prize. Until those two numbers are equal, a PPA tariff is just a starting point, not the final bill.

Sources and verification

• Africa Energy Intel, Tariff Benchmarks, data as of 22 July 2026
• Africa Energy Intel, Policy Tracker
• Eskom, Wheeling of Energy and Net Billing Policy, July 2026
• South African Government, Cabinet statement, 29 July 2026
• NERSA, Wholesale Electricity Pricing Methodology Consultation Paper, May 2026
• Kenya Law, Energy (Electricity Market, Bulk Supply and Open Access) Regulations, 2024
• IRENA, Renewable Power Generation Costs in 2024
• IEA, Financing Clean Energy in Africa
• IEA, Cost of capital in Kenya and Senegal
• IEA, World Energy Investment 2024, Africa

About the author

Felix Keuya is a renewable energy and project finance analyst focused on African power markets, financial modeling, PPA analysis, and commercial diligence. He publishes research through Africa Energy Intel, a market intelligence platform reviewing African energy projects, transactions, policy, tariffs, and power markets.