The fine print behind the power: How to compare wheeling proposals
As electricity wheeling gains traction across South Africa, many businesses are being approached by Independent Power Producers (IPPs) promising cheaper, greener electricity. But as with any long-term agreement, the devil is in the detail – and not every proposal is as clean as the energy it’s selling.
While wheeling can be one of the most effective ways for commercial and industrial users to secure stable, affordable renewable power without installing on-site infrastructure, comparing proposals can be tricky, says Sakhile Ngcongwane, Business Development Manager at SolarAfrica. Attractive tariffs often mask complex terms, hidden costs or unrealistic delivery timelines, which can leave businesses locked into unfavourable contracts for years.
“It’s not just about the tariff on page one. Two proposals can look similar at first glance, but their long-term implications for your business can be worlds apart,” he explains.
Ngcongwane shares five important factors for companies to consider when deciding between wheeling proposals.
1. Contract term vs flexibility
Wheeling agreements typically range from five to twenty years, with different options providing different benefits. Longer contracts could come with more favourable tariffs and guarantees, while shorter contracts offer a bit more flexibility on the amount of power a business commits to buying.
Ngcongwane says businesses should assess whether the contract term aligns with their own operating cycles. “If you’re a mining operation with a 30-year life of mine, a 20-year deal makes sense especially for long-term budgeting and planning. But if you’re a manufacturer whose client contracts run in seven-year cycles, a shorter term might be a better option as you navigate shifting operational needs.”
Another key distinction to look for is whether the pricing pattern offered is “firm” or “non-firm”. Firm pricing is generally preferred by risk-sensitive customers who may prefer to contract conservatively. Firm guarantees the amount of power and price for a set period of time, while non-firm sees businesses purchase extra energy generated, over and above what they have committed to. It is offered on an ad hoc basis, with no contractual liability for the buyer or seller.
Also consider mobility: if your business moves premises, expands, or adds new sites, can you transfer your contract with the same terms intact? If not, will you face penalties? “The key is to find an IPP that can match your business’s horizon and adapt as you grow,” he adds.
2. Today’s price or tomorrow’s price?
A common mistake is comparing tariffs without asking when they take effect. Some providers quote an attractive “today” price, but with the project still years from completion, the actual cost once electricity flows could be significantly higher.
“Businesses often sign at 80c/kWh thinking it’s a great deal, says Ngcongwane. “But by the time power starts flowing, after annual escalations, they’re paying 95c or more, meaning that in effect, it may not be as good a deal as it first appeared. “Always confirm whether you’re being quoted the tariff applicable at signature today or at the future commercial operation date when the power comes online.”
He also highlights that when it comes to annual escalation rates, even small differences can have a big cumulative impact over 10 or 20 years. “One proposal may start at 6% and step up later; another may rise steadily from day one. Model both over the full term to see which delivers the best value.
“In short: don’t compare year-one tariffs; instead, consider the lifetime cost curve.”
3. Hidden costs and guarantees
While many proposals market themselves as “capex-free,” some require liquid guarantees in the form of upfront deposits or trust-held funds that can tie up working capital.
“While this serves as a sign of commitment that you will be able to pay for the power sold to you, in many cases it’s also to demonstrate to the projects’ funders that the necessary liquidity can be raised.
“These guarantees often amount to six or twelve months of payments, distorting the true value of a deal. The real question is: what’s the net present value of the entire contract, including these hidden costs?”
Some IPPs require this upfront contribution and many companies don’t factor this in when they evaluate proposals, assessing the tariff only. While the tariff may be cheaper, they “pay” for it upfront in the form of liquid guarantees or deposits, says Ngcongwane.
He says that a transparent partner should disclose all associated costs upfront and explain how they affect long-term savings. “At SolarAfrica, for example, we offer capex-free terms – you’re essentially only paying once you start using your wheeled power,” he adds.
4. Credibility counts
With new entrants flooding the renewable space, vetting your provider is as critical as comparing numbers. Ngcongwane advises asking the tough questions:
- Have they delivered wheeling projects before?
- Do they hold valid environmental and grid connection approvals?
- Who are their investors and engineering partners?
- Have they achieved financial close, and who supported them?
- Do they offer full-service development throughout the full pipeline, or only financing?
- When it comes to energy traders, have they actually secured the energy they want to sell to you? Are the generation plants they’re buying from already under construction?
“Any developer promising to have a utility-scale project ready within a year should raise eyebrows, he adds. “From feasibility to grid connection, a realistic timeline is closer to a development cycle of 12 to 24 months and a construction cycle of 12 to 18 months at a minimum.”
He also cautions that some financial players entering the market don’t always understand the structural side of providing electricity, seeing it as a tradeable commodity only rather than a physical asset as well. “Infrastructure projects don’t behave like phone contracts; they demand deep technical and operational expertise. That’s where experience matters most, and it is important to ask if the provider has done this before and has the capabilities to deliver.
“Across the market, we’re seeing a growing disconnect between what is offered versus what is actually possible.”
5. Evolving power needs
Wheeling shouldn’t be viewed in isolation. As businesses evolve, so do their energy needs – from cost-savings to securing supply or meeting new sustainability goals. Future-proof your business by aligning with a provider that understands your current energy needs, how to respond, and how these may shift in future.
“Look for an IPP with a solid professional reputation – one with multiple capabilities and in-house expertise, who can offer a holistic and integrated combination of energy solutions that includes on-site solar, battery storage and wheeled energy,” he advises.
SolarAfrica, which also recently acquired its trading licence, is one such example. “We’re focused on developing our solar assets so that as our customers’ needs evolve, we will have the capability to source other forms of power.” SolarAfrica also provides energy certificates, authenticating renewable power for companies with net-zero mandates.
Ngcongwane’s message for business owners looking to buy power?
Don’t just chase the lowest tariff. “Understand the structure behind it; the escalation, the guarantees, the flexibility, and – most importantly – the credibility and track record of the company behind the proposal.
“A well-structured wheeling agreement can unlock major savings – but only if you understand the fine print behind it.”
While wheeling can be one of the most effective ways for commercial and industrial users to secure stable, affordable renewable power without installing on-site infrastructure, comparing proposals can be tricky, says Sakhile Ngcongwane, Business Development Manager at SolarAfrica. Attractive tariffs often mask complex terms, hidden costs or unrealistic delivery timelines, which can leave businesses locked into unfavourable contracts for years.
“It’s not just about the tariff on page one. Two proposals can look similar at first glance, but their long-term implications for your business can be worlds apart,” he explains.
Ngcongwane shares five important factors for companies to consider when deciding between wheeling proposals.
1. Contract term vs flexibility
Wheeling agreements typically range from five to twenty years, with different options providing different benefits. Longer contracts could come with more favourable tariffs and guarantees, while shorter contracts offer a bit more flexibility on the amount of power a business commits to buying.
Ngcongwane says businesses should assess whether the contract term aligns with their own operating cycles. “If you’re a mining operation with a 30-year life of mine, a 20-year deal makes sense especially for long-term budgeting and planning. But if you’re a manufacturer whose client contracts run in seven-year cycles, a shorter term might be a better option as you navigate shifting operational needs.”
Another key distinction to look for is whether the pricing pattern offered is “firm” or “non-firm”. Firm pricing is generally preferred by risk-sensitive customers who may prefer to contract conservatively. Firm guarantees the amount of power and price for a set period of time, while non-firm sees businesses purchase extra energy generated, over and above what they have committed to. It is offered on an ad hoc basis, with no contractual liability for the buyer or seller.
Also consider mobility: if your business moves premises, expands, or adds new sites, can you transfer your contract with the same terms intact? If not, will you face penalties? “The key is to find an IPP that can match your business’s horizon and adapt as you grow,” he adds.
2. Today’s price or tomorrow’s price?
A common mistake is comparing tariffs without asking when they take effect. Some providers quote an attractive “today” price, but with the project still years from completion, the actual cost once electricity flows could be significantly higher.
“Businesses often sign at 80c/kWh thinking it’s a great deal, says Ngcongwane. “But by the time power starts flowing, after annual escalations, they’re paying 95c or more, meaning that in effect, it may not be as good a deal as it first appeared. “Always confirm whether you’re being quoted the tariff applicable at signature today or at the future commercial operation date when the power comes online.”
He also highlights that when it comes to annual escalation rates, even small differences can have a big cumulative impact over 10 or 20 years. “One proposal may start at 6% and step up later; another may rise steadily from day one. Model both over the full term to see which delivers the best value.
“In short: don’t compare year-one tariffs; instead, consider the lifetime cost curve.”
3. Hidden costs and guarantees
While many proposals market themselves as “capex-free,” some require liquid guarantees in the form of upfront deposits or trust-held funds that can tie up working capital.
“While this serves as a sign of commitment that you will be able to pay for the power sold to you, in many cases it’s also to demonstrate to the projects’ funders that the necessary liquidity can be raised.
“These guarantees often amount to six or twelve months of payments, distorting the true value of a deal. The real question is: what’s the net present value of the entire contract, including these hidden costs?”
Some IPPs require this upfront contribution and many companies don’t factor this in when they evaluate proposals, assessing the tariff only. While the tariff may be cheaper, they “pay” for it upfront in the form of liquid guarantees or deposits, says Ngcongwane.
He says that a transparent partner should disclose all associated costs upfront and explain how they affect long-term savings. “At SolarAfrica, for example, we offer capex-free terms – you’re essentially only paying once you start using your wheeled power,” he adds.
4. Credibility counts
With new entrants flooding the renewable space, vetting your provider is as critical as comparing numbers. Ngcongwane advises asking the tough questions:
- Have they delivered wheeling projects before?
- Do they hold valid environmental and grid connection approvals?
- Who are their investors and engineering partners?
- Have they achieved financial close, and who supported them?
- Do they offer full-service development throughout the full pipeline, or only financing?
- When it comes to energy traders, have they actually secured the energy they want to sell to you? Are the generation plants they’re buying from already under construction?
“Any developer promising to have a utility-scale project ready within a year should raise eyebrows, he adds. “From feasibility to grid connection, a realistic timeline is closer to a development cycle of 12 to 24 months and a construction cycle of 12 to 18 months at a minimum.”
He also cautions that some financial players entering the market don’t always understand the structural side of providing electricity, seeing it as a tradeable commodity only rather than a physical asset as well. “Infrastructure projects don’t behave like phone contracts; they demand deep technical and operational expertise. That’s where experience matters most, and it is important to ask if the provider has done this before and has the capabilities to deliver.
“Across the market, we’re seeing a growing disconnect between what is offered versus what is actually possible.”
5. Evolving power needs
Wheeling shouldn’t be viewed in isolation. As businesses evolve, so do their energy needs – from cost-savings to securing supply or meeting new sustainability goals. Future-proof your business by aligning with a provider that understands your current energy needs, how to respond, and how these may shift in future.
“Look for an IPP with a solid professional reputation – one with multiple capabilities and in-house expertise, who can offer a holistic and integrated combination of energy solutions that includes on-site solar, battery storage and wheeled energy,” he advises.
SolarAfrica, which also recently acquired its trading licence, is one such example. “We’re focused on developing our solar assets so that as our customers’ needs evolve, we will have the capability to source other forms of power.” SolarAfrica also provides energy certificates, authenticating renewable power for companies with net-zero mandates.
Ngcongwane’s message for business owners looking to buy power?
Don’t just chase the lowest tariff. “Understand the structure behind it; the escalation, the guarantees, the flexibility, and – most importantly – the credibility and track record of the company behind the proposal.
“A well-structured wheeling agreement can unlock major savings – but only if you understand the fine print behind it.”
