Asset manager provides R2.5bn for solar, wind projects

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Asset manager Futuregrowth Asset Management has provided R2.5-billion in debt funding, which will offer investment opportunities in new solar and wind projects for clients’ funds under management.

Asset manager Futuregrowth Asset Management has provided R2.5-billion in debt funding, which will offer investment opportunities in new solar and wind projects for clients’ funds under management.

Over the next 20 years, South Africa’s energy generation capacity will need to increase by more than 40 000 MW, twice as much as currently available.

Futuregrowth believes that renewable resources could comprise nearly 18 GW, or 42% of new generation capacity, if government adheres to the targets set out in the Integrated Resource Plan, which is a 20-year plan to add additional capacity to the grid.

The roll-out of the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is an example of government and private-sector collaboration to fulfil a real need at a time when procuring alternative sources of energy is in danger of becoming increasingly difficult and costly for government.

“Futuregrowth has a long history of investing in projects that are socially responsible and generate development impact. South Africa needs significant capacity over the next 20 years to fuel economic growth.

“Renewable-energy projects generally have a shorter construction timetable than thermal projects and can, therefore, start supplying power to the grid within 12 to 24 months. This, coupled with a low carbon footprint, is a win-win investment, ” says Futuregrowth Asset Manage- ment portfolio manager Paul Semple.

He further notes that growing investment opportunities in renewables is becoming preva- lent in South African capital markets and this offers a unique opportunity for Futuregrowth’s clients to access a pool of assets that are not usually available to institutional investors.

The growth in renewable energy is driven by several factors, including that renewable-energy technologies are increasingly competing with fossil-fuel options.

According to the International Renewable Energy Agency, which promotes the accelerated adoption and sustainable use of all forms of renewable energy, the levelised cost of electricity is declining, especially with regard to solar photo- voltaics, concentrated solar power and wind power. This has encouraged governments and the renewable-energy industry to adopt effective – and ambitious – policies to promote renewables.

“The REIPPPP that is currently under way will require about R100-billion to fund the 3 725 MW of renewable-energy projects. The lion’s share of this will come from the private sector,” says Semple.

He adds that Futuregrowth estimates that significant imports of about R60-billion will be required to build the first 3 725 MW of renewable- energy projects and that these foreign-equipment imports have started to flow in and will continue until 2016, when construction of the first three rounds of procurement would have finished.

“Further government policy incentives to encourage the development of local manufacturing capacity to replace the imported requirements will greatly assist in overcoming this challenge faced by South Africa’s economy,” explains Semple.

In addition to the vast opportunities that the renewables sector will offer South Africa’s economy, the social impact they will have on local communities is something to look forward to.

The REIPPPP strongly emphasises social and economic development. All projects will create a significant number of jobs during the construction and operations cycles. Local communities will have shares in the projects and will benefit from enterprise and socioeconomic developments funded by top-line revenue.

With each new round of projects awarded under the REIPPPP, an increasing amount of project capital expenditure will be used locally.

“Local communities will own a minimum 2.5% stake in a project and are entitled to their pro rata portion of dividends. This is combined with a minimum local content and preferential procurement requirement in respect of each project, which will support small enterprise development and job creation,” concludes Semple.


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