Standard Bank Group has emerged as the leading investor in the first round of South Africa’s renewable energy independent power producer (REIPP) procurement process, backing a total of 11 wind and solar projects.
Standard Bank Group will provide comprehensive corporate and investment banking services to all its clients, including underwriting R9.4-billion worth of debt, providing interest and currency hedges, carbon trading credits, and corporate bonding and guarantee facilities. Standard Bank Group has also taken an equity stake in four projects.
The South African government’s allocation of 1,416MW for this first round of the procuremnt process has translated into about R47-billion of fixed investment, of which the majority, roughly R27-billion will be funded by debt. Standard Bank Group’s mandated clients comprise 338MW of wind and 235MW of solar photovoltaic (PV), out of the combined 1416MW per year expected to be produced by all the projects.
The associated debt funding is a third of the total R27-billion that is being committed by banks in the form of debt and makes Standard Bank Group the largest funder of the 28 wind and solar power projects awarded in this round. This leading position is possible due to our in-depth understanding of the sector and the South African market.
Winning bidders signed project agreements with South Africa’s Department of Energy (DoE) on 5 November 2012, officially starting closing procedures on South Africa’s first large-scale procurement programme which began a year ago. Developers will have until 16 November 2012 to finalise all their documents and foreign currency hedges, after which projects can be rolled out.
The funding strategy that Standard Bank Group undertook required an innovative approach whereby initial debt can be sold down to life companies and other investors so that additional capital can be tapped.
The proprietary approach to sell-down represents leading edge technology that can only be achieved through a fundamental understanding of the assets and risk assessment capability. This places Standard Bank Group in a unique position to support future rounds and the South African government’s broader Integrated Resource Programme.
Alastair Campbell, Executive Vice President, Power & Infrastructure Finance at Standard Bank Group and a long time advocate and proponent of the renewable energy sector in South Africa, says this represents a significant commitment from Standard Bank Group to the establishment of a renewable energy sector in South Africa.
“Standard Bank will be ready to disburse funding for most of the projects as soon as all documentation is finalised and hedges are closed. We are financing five out of the eight wind projects and six of the 18 solar PV projects and so will underwrite about a third of all project debt,” says Mr Campbell.
“This confirms that there is considerable appetite from developers and banks to invest in renewable energy projects in South Africa. Standard Bank has been involved in the emerging story of power generation from inception. We participated in the Integrated Resource Planning public hearings which re-affirmed REIPP procurement process as an accepted way of diversifying our energy mix and reducing carbon emissions. It has been exciting to be able to work collaboratively with Government, the National Energy Regulator of South Africa (Nersa), developers, investors and equipment suppliers to help deliver this watershed project for South Africa.”
“The execution of REIPPPP supports the Governments industrial development policy and strategy. We are excited by the prospect of ‘green jobs’ that will be created and the skills training and development that come along with that. It is in our view, a very important signal that Government is giving to stakeholders in the SA economy through fiscal support of this programme. In return, it will therefore be incumbent upon the sector that the undertakings that have been made of localisation, black economic empowerment, community upliftment and job creation are met. This will strengthen the partnership between this exciting new sector and Government as we roll-out not only the remainder of renewables, but other IPP’s that the Minister of Energy has recently pronounced on,” says Mr Campbell.
Ntlai Mosiah, Head of Power & Infrastructure SA Advisory and Coverage at Standard Bank Group, says: “The successful conclusion of the first procurement process has been a very exciting and important step forward in attracting local and international private players into South Africa’s energy mix. We are very happy that the bidding process has been well run and we are confident that the next rounds will also be as efficient and competitive. Hopefully, this success will provide the catalyst for further programmes, such as co-generation and cross-border IPPs.”
Further bidding rounds are expected to take place roughly six months apart from 2013 onwards to allocate the total 3725MW. In line with the country’s long-term power plan, South Africa aims to secure a total of 17 800 megawatts of renewable energy or 42% of South Africa’s new generation capacity by 2030. Mr Mosiah is confident that Standard Bank will play a meaningful role in the roll-out of these projects.
He says Standard Bank Group is already preparing for financial close of the second bidding window and in supporting the third bidding window. The second bidding window is expected to close in the first quarter of 2013.
“We have already committed a total of R6.1-billion of debt out of a total R19-billion to preferred bidders on the second bidding window. The second programme is smaller than the first and will have a total of 19 projects. Standard Bank is supporting preferred bidders on five of these projects,” he says.
“As the programme unfolds, an increasing number of benefits are expected for the South African electricity consumer. Chief amongst these is the expected fall in tariffs bid due to increasing interest and competition in the process. We are expecting that renewable energy prices will reach grid parity in the foreseeable future, precise timing depending on the rate of Eskom’s blended tariff increases. An aligned major benefit will emerge from increased local component manufacturing and supply (localisation) with its associated industrial development and job creation, an aspect that Government has insisted should be accelerated. Our commitment to renewables is a live demonstration of our brand promise, that Africa is our home.”