Financial Mail - Investors Monthly
STABLE RETURNS
New models make it easier to invest in renewable energy, writes Pedro van Gaalen
New and innovative funding models make it easier to invest in renewable energy
Operational renewable energy projects in SA offer investors stable long-term returns due to the predictable outputs they generate.
However, the substantial funding required to realise them, particularly the larger projects in SA’s Renewable Energy Independent Power Producer Procurement (REIPPP) Programme, means opportunities in the sector have generally been reserved for institutional investors.
But new and innovative funding models have emerged thanks to the renewed focus on renewable energy, both by the government and the private sector, that has been fuelled by Eskom’s runaway costs. These models have not only introduced new funding lines into a market that is poised to boom, but are also broadening access and inclusion in the sector.
One example is Revego Africa Energy Ltd, which plans to list on the JSE this year. The new R1bn fund is a joint venture between Investec and UK Climate Investments, a UK government-backed entity that concentrates on clean energy in India and Africa. Each contributed R500m.
The listing aims to raise third-party funding from retail and institutional investors, who will benefit from a rand-denominated entry into the derisked operational side of this growing alternative asset class.
“It will also create opportunities for developers and earlystage investors to exit REIPPP projects while offering additional options to invest further in electrification,” says Mike Meeser, chief investment officer of Revego Fund Managers.
Meeser believes Revego addresses a growing demand for investments that have a positive impact on the environment, society and governance while delivering attractive, stable long-term returns.
Fedgroup CEO Grant Field says there is increasing demand for renewable energy opportunities among retail investors as the investment preferences of an emerging socially conscious generation reshape market trends.
Field suggests that this creates interesting opportunities for fund managers and financial services providers. “These predominantly millennial investors genuinely care about the world, and technology has created opportunities to provide solutions that address the legacy issues that they feel most passionate about.”
He says replacing polluting, unsustainable energy generation to protect the environment is high on the agenda of these investors. “However, while [they] want to save the environment and contribute to a greener, more sustainable future, they also want to realise fair investment returns.”
To address this demand, Fedgroup leveraged the burgeoning platform economy to deliver an efficient way for retail investors to generate competitive returns from urban solar farms, among other impact investments.
Through Fedgroup’s Impact Investing platform, investors can directly purchase one or more panels in a range of approved rooftop solar photovoltaic (PV) installations. Fedgroup deploys the capital raised through this venture network, and solar PV project specialists manage the installations.
Fedgroup’s direct ownership funding model effectively addresses the inefficiencies fund managers face in administering and deploying capital from a large pool of investors. The economies of scale the platform creates enables the company to accommodate a larger volume of investors, instead of relying solely on large investments from institutions to fund projects.
“The result is an innovative funding model for private sector renewable energy projects. It addresses the prohibitive upfront capital needed to purchase solutions outright, or the financing costs associated with funding private rooftop solar energy installations, which were proving to be major barriers to adoption in SA,” says Field.
Through Fedgroup’s direct ownership model, property owners can lease unused rooftop space and convert it into an income-generating asset that doesn’t require a capital outlay. Investors get paid in regular cycles for the yields that their solar panels produce, while property owners or tenants mitigate the unreliability of Eskom’s supply by purchasing off-grid power.
And with direct access to solar panels producing renewable energy, investors can qualify for a tax deduction under section 12b of the Income Tax Act. This allows for deductions over three years of 50%, 30% and 20% in respect of any qualifying asset owned by a taxpayer, which adds to the renewable energy investmentment value proposition.