Funders ready to help renewable energy sector

AS THE renewable energy procurement programme looks set to get back on track, Mergence Investment Managers said yesterday that “efficient lending” in the sector could lead to lower costs of capital for independent power producers (IPPs).

Alongside the developers of renewable energy projects in the Renewable Energy Power Producers Procurement Programme (Reipppp), funders such as Mergence have been anxiously waiting for the Reipppp to restart after Eskom delayed signing power purchase agreements (PPAs) with 27 IPPs in window 3.5 and 4 of the procurement programme.

After nearly two years of stalling and uncertainty, Public Enterprises Minister Lynne Brown announced on Friday that the signing of PPAs for 27 wind and solar renewable energy projects would go ahead.

Mergence said the 27 projects had a total value of about R60 billion.

Mark van Wyk, the head of unlisted investments at Mergence Investment Managers, said yesterday that Brown’s announcement was an indication that renewable energy would continue to form a “sensible and meaningful” part of South Africa’s long-term Integrated Resource Plan (IRP).

The IRP determines South Africa’s long-term electricity demand and details how the demand should be met in terms of generating capacity, type, timing and cost.

Mergence in 2013 set up the Mergence Energy Debt Fund as a vehicle to provide institutional investors with access to the financing opportunities from the Reipppp, which was launched in 2011.

“This fund was the first of its kind in the sector, set up in 2013, when there was a lack of finance for renewable energy projects which were little understood and perceived as high risk,” Mergence said.

In 2016, Mergence came alongside Deutsche Bank in a R213 million loan to Solar Capital De Aar 3 to complete the construction of a 90MW project in the Northern Cape.

Standard Bank last year “refinanced” the project, allowing Deutsche Bank and Mergence to exit their investment successfully.

“More efficient lending in the sector, as illustrated by this deal, means that the end consumer of alternative energy should start to benefit from lower tariffs as the cost of capital comes down for renewable energy projects.

”Lowering the cost of capital will lead to a potential lower tariff from the plant whose output is governed by a power purchase agreement with Eskom, to the benefit of the consumer.

“Solar power rates are very competitive with coal,” said Van Wyk.

Mergence said the fund has returned capital plus interest at a rate of CPI plus 5 percent to retirement fund institutional investors by realising an investment within the first four years of the debt fund’s existence.

He said the development of a more liquid and efficient capital market within the Reipppp would benefit the renewable energy industry.

“The potential ready supply of capital for projects bodes well for the future of the industry in South Africa.”