As South Africa’s private electricity market expands, two terms appear in almost every renewable energy transaction: private power purchase agreements (PPAs) and wheeling. They are closely connected, but they serve very different purposes. A private PPA is the commercial contract between an electricity generator and a customer. Wheeling, on the other hand, is the mechanism that allows that electricity to travel across Eskom’s or a municipal transmission and distribution network to reach the customer. In simple terms, the PPA creates the business deal, while wheeling makes delivery possible.
A private PPA sets out the commercial relationship between the two parties. It specifies how much electricity will be supplied, the price the buyer will pay, the length of the agreement, performance obligations, and how risks such as outages or underperformance will be managed. These contracts often run for 10 to 20 years, giving both the developer and the customer long-term certainty over revenues and electricity costs. Wheeling addresses an entirely different challenge. Renewable energy projects are rarely built next to the factories, mines, shopping centers, or commercial buildings that consume the electricity. Instead, power generated at a remote solar or wind farm is transported through the national electricity grid before reaching the customer. The owner of the network charges a wheeling fee for using its infrastructure, much like a toll charged for using a highway.
The relationship between the two is straightforward. A mining company in Gauteng, for example, may sign a long-term PPA with a solar developer operating a plant in the Northern Cape. The PPA governs the commercial sale of electricity, while a wheeling arrangement enables Eskom’s transmission network to deliver that electricity from the solar farm to the mine. Without a PPA, there is no agreement to buy or sell electricity. Without wheeling, electricity generated hundreds of kilometers away cannot reach the customer. Most large private renewable energy transactions therefore require both agreements to operate successfully.
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The growth of wheeling has become one of the defining features of South Africa’s electricity market reforms. As more companies seek cleaner and more predictable electricity supplies, wheeling allows businesses to purchase renewable power from independent producers regardless of location, rather than relying solely on their local utility. This flexibility has significantly expanded the market for renewable energy developers. Instead of serving only customers located near their projects, generators can now contract with large electricity users across the country, provided sufficient transmission capacity exists.
However, wheeling also introduces additional considerations. Developers and buyers must account for network availability, transmission constraints, grid-use charges, settlement mechanisms, and regulatory compliance. These factors influence the overall economics of a project but are separate from the commercial terms negotiated in the PPA itself. As South Africa continues to liberalize its electricity sector, understanding the distinction between these two concepts is becoming increasingly important. A private PPA determines who buys the electricity and on what terms, while wheeling determines how that electricity reaches the customer. The two work together to enable a more competitive electricity market one where renewable energy can be generated where resources are strongest and consumed wherever demand exists.
