SA Renewables at risk as foreign investors balk amidst policy uncertainty

Over the past several years, there has been a great deal of optimism and goodwill surrounding South Africa’s renewable energy strategy. The country’s approach has been largely guided by the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), which was designed to encourage private investment and attract foreign capital. The national renewable energy target is for 18 800MW to be supplied by renewable energy by 2030. According to reports, the REIPPPP alone has already delivered 5 243 MW, through 79 different projects, which account for over a quarter of the target (in just four years).

Sadly, however, that progress has faltered – along with the optimism from both local and international funders.

According to Mike Peo, Head of Infrastructure, Energy and Telecommunications for Nedbank Corporate and Investment Banking, the programme is now 18 months behind schedule – with Round 4 projects yet to come to market. This is after the Independent Power Producer Procurement (IPP) office has granted up to five extensions. Delays in the programme are costly on a number of levels – investor confidence, job creation, localisation and BEE participation, to name but a few.

Mike Peo Head of Infrastructure, Energy and Telecommunications, Nedbank CIB

“We are sitting at an impasse, with Eskom and the Department of Energy not committing to a timeline for the completion of these projects,” explains Peo. “In the current [energy] oversupply scenario, Eskom maintains that it cannot afford to buy the power, but the private sector view is that there is a contractual obligation to complete the Round 4 projects.”

Nedbank provides project finance to Independent Power Producers (IPPs) under REIPPPP, and has approximately 42% market share across the rounds. The lender has committed R35bn in debt investments, and is the single largest lender to that particular sector.

Given the ongoing political volatility, coupled with policy uncertainty around the future rollout and framework for renewables, Peo warns that foreign capital may be withdrawn from the sector.

“Increasingly, international development finance institutions, project developers and sponsors are aware of what is happening politically, and they will invest less [into SA renewables] and ultimately adjust their investment destinations,” he says. “They have infinite options and opportunities for investment, so when the risk-reward quotient becomes unattractive, they will leave.”

Despite this rather gloomy scenario, Peo insists that the lender remains optimistic about the sector – and will strive to maintain its current market share in the renewables space.

“Provided that we can achieve some policy certainty some time soon, we think that international investors will return,” he notes. “It’s critical that we get the policy framework [for renewables] sorted out.”

South Africa has committed to COP21 and the Paris Agreement, so from a broader political viewpoint, renewables will continue to be a major priority. The country’s new Integrated Resource Plan (IRP), which directs the expansion of the electricity supply (and the technology mix), is currently being developed – and will likely be presented to Parliament early next year.

As we enter the second half of a tumultuous year, local and foreign investors will certainly be keeping a close eye on South Africa’s ever-changing energy framework – with cautious optimism all round.

Link to Moneyweb article: bit.ly/2tgMwnK

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By | 2018-03-07T11:50:11+00:00 July 3rd, 2017|Finance, General, Investment Banking, Renewable Energy|0 Comments

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