Moody’s confident in local renewable energy industry

RATING agency Moody’s Investors Service on Friday expressed confidence in the local renewable energy industry’s ability to raise debt.

The agency said these included a significant fall in renewable electricity costs, the growth of independent renewable power producers and the likely increased participation of institutional investors.

Moody’s report came days after the agency dropped a bombshell when it announced on Wednesday that it had put on review for downgrade the ratings of Eskom, the Development Bank of Southern Africa, Industrial Development Corporation and the Land Bank.

“The South African renewable energy market has grown rapidly over the last five years or so and there is rising demand for renewables debt. South Africa was the continent’s largest renewables market in 2015 in terms of asset finance for utility-scale projects, and it saw the highest year-on-year growth globally,” said Christopher Bredholt, a Moody’s vice-president and senior analyst.

Moody’s said renewable energy projects were becoming less dependent on high levels of subsidy and had benefited from reductions in the price of equipment and installation costs, as well as the country’s abundant natural resources, particularly solar power.

Projects, which are part of the Renewable Energy Independent Power Producer Programme, generate more than 2 000 megawatts (MW) of renewable energy power.

Although coal is the dominant source of energy in South Africa, the government has set a target of 17 800MW of renewable energy power by 2030. So far, the private sector has invested R194 billion through the procurement programme.

“The development of South Africa’s renewables sector will be shaped by the country’s transmission infrastructure, which needs additional capacity, as well as the broader sovereign credit environment.

‘The South African renewable energy market has grown rapidly over the last five years.’

“While local banks and development finance institutions have played a dominant role in financing of South Africa’s renewable energy projects, Moody’s expects increasing participation of institutional investors in the sector. The South African government has stated its long-term policy commitment to renewable generators and to the extent it builds a longer term track record of administering its support programme, it will be positive for project issuers,” Moody’s said.

But Bredholt said Eskom – the designated buyer of the power from the renewable energy producers – had raised questions about the broader electricity generation mix. “Cost-reflective tariffs are yet to be implemented in the face of Eskom’s rising costs from power purchase agreements, considerations which may influence the government’s programme”.

Eskom caused a stir when it announced in July that it would not connect utility-scale renewable energy independent power producers in the Renewable Energy Independent Power Producer Programme Bidding Window 4.5, which is under way. Eskom wants to have discussions with the Department of Energy before signing further agreements with renewable energy developers.

Eskom is reluctant to enter into long-term power supply agreements with the developers while it has enough electricity capacity.