A collection of Futuregrowth thought leadership pieces, media articles and interviews.

Renewable energy investments

01 Jul 2016


Renewable energy projects are the latest trend in the world of responsible investing. We put our nose to the ground to find out who is investing where.

Source: Invest SA | Date: 01/07/2016 | Author: Neesa Moodley

Futuregrowth Asset Management is one of the biggest institutional investors in the South African Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) and was the first to invest in scale from the commencement of the programme.

Angelique Kalam, manager of sustainable investment practices at Futuregrowth, says  to date more than  50 projects have been  shown  to the  company across bid  rounds one to four  and subjected to the  Futuregrowth credit analysis and due diligence process. "So far, we have committed debt and equity deals to 23 projects and have a further six firm opportunities in the pipeline which are expected to close over the next six to 12 months."

Mergence Investment Managers, a majority black-owned and managed investment house, has carved a niche for itself regarding impact investing. Existing investment projects include an investment in Sustainable Heating - a company that produces steam, hot water and hot air from renewable fuels using biomass boilers powered by woodchips or organic waste. The company provides an outsourcing solution for green heat production to clients that include Pioneer Foods (Sasko), Novus Holdings and Dairy Day (a dairy factory in KwaZulu-Natal). Sustainable Heating received an award from the 1 00% Green Initiative last year for its installation in the Western Cape.

The  Mergence Renewable Energy  Debt Fund was  launched in April 2013 and has  invested in 12 projects to date, which  have all  reached completion, been commissioned and are selling electricity into  the  grid. The projects are split into 64 per cent solar projects and 36 per cent wind projects. Peta Chennells, senior investment analyst at Mergence Investment Managers, says the Small Projects Independent Power Producers Procurement Programme (SMIPPPP) is an important part of the overall REIPPPP, designed to boost small business and ensure their involvement in the overall renewable energy plan.

"Two hundred megawatts will be secured from small projects under the SMIPPPP, each with a maximum contracted capacity of 5MW, allocated over four bid submission phases/ windows." Mergence saw an opportunity to provide long-term funding in an area where funding was not readily available, while continuing the asset manager's commitment to stimulate growth and job creation across the renewable energy value chain.

"By collaborating with institutions such  as  the Industrial Development Corporation  (IDC) and African  Development Bank (AfDB), and drawing on  its experience of providing close to R1 billion  of senior secured debt under the main  REIPPPP, Mergence has  been  able to secure more opportunities for  its institutional investors to participate in investments like these that  closely match   their  investment horizon at attractive returns."

Old Mutual Alternative Investments

As one  of the largest equity  investors  in infrastructure on  the African  continent, Old Mutual  Alternative Investments (Omai)  is involved  in core  infrastructure deals and  projects across Africa through the lnfrastructural, Developmental and  Environmental Assets (Ideas)  Managed Fund and  the five infrastructure funds managed and  advised  by its African  Infrastructure Investment Managers (AIIM) business. AIIM has  experience as  both  a project developer and  an  equity  investor  across several jurisdictions  in Africa with extensive on­ the-ground experience, and  the  Ideas  Fund  has established itself as  the largest equity  investor in the South  African  renewable energy sector, which complements its mature portfolio of core infrastructure assets across the SADC  region.

Through Ideas and AIIM, the Old Mutual Group is invested in seven wind farms, nine solar PV facilities and a hydroelectric power project in South Africa.  Ideas also has a long-term partnership with Mainstream Renewable Power, who have been instrumental in developing large-scale renewable energy plants throughout South Africa.

Some of the projects that Old Mutual is directly and indirectly invested in, include the following:

AIIM Hydroneo

AIIM receny partnered with Hydroneo Afrique, a wholly-owned subsidiary of MECAMIDI, and  established a 50/50 joint venture that  will develop, finance, build,  own  and  operate a  number of small  and  medium  hydroelectric power  plants  in Cameroon, Cote d'lvoire, Gabon, Ghana and  Mozambique. These hydroelectric power plants  will better  serve  the growing energy demands across Africa, facilitate the long­ term  economic growth  and  competitiveness of the continent, and  are  expected to represent an  installed capacity of 200MW over  the next five years.

Cookhouse Wind Farm

Located near the town of Cookhouse in the Eastern Cape, Cookhouse Wind Farm has 66 turbines that are 80-metres tall, with a generation capacity of 138.6MW to produce clean, renewable energy under a 20-year power purchase agreement (PPA) with Eskom. The project was selected as preferred bidder in round one of REIPPPP and comprises more than 21 per cent of the capacity of the 634MW total round one procured wind energy.

Cookhouse Wind Farm has established itself as a market leader in a number of aspects. Over and above being one of the largest South African wind farm, it is 25 per cent owned by the local community through the Cookhouse Wind Farm Community Trust­ five times the governmental target for local community ownership.

Renewable Energy Investments South Africa (Reisa)

Reisa commenced commercial operation of the Kathu Solar Photovoltaic (PV) facility in 2014. The project has over 340 000 installed solar photovoltaic modules with a combined generating capacity of 75MW and is producing energy under a 20-year PPA signed with Eskom's Single Buyer Office, delivering clean, renewable energy to the Northern Cape and  South  Africa with a low environmental impact. The Kathu Solar PV facility was one of the largest photovoltaic projects selected as a preferred bidder under round one of the South African REIPPPP in December 2011.

Local communities in dose proximity to the project will benefit from dividends flowing to the Kathu Solar Community Trust over the 20-year project life, with the key focus being sustainable socio-economic development and economic upliftment.

Opportunities/deals in the pipeline

Countries with a strong energy development potential that are at the forefront are likely to be Cameroon, Guinea and Nigeria. Cameroon and Guinea, in particular, offer significant potential in the hydroelectric power sector.

In addition, the South African REIPPPP continues to mature. While there has been a tightening of returns, Old Mutual believes there are still attractive opportunities in the market for local capital.

South Africa's 2010 Integrated Resource Plan calls for the generation capacity of 1 7 800MW from renewable energy sources by 2030. South Africa's energy market has been extremely active and the Department of Energy, through the Independent Power Producers Procurement Programme (IPPPP), by the end of its round four expedited window (EW), will have awarded around 8 OOOMW of generation capacity. The Department of Energy called for expressions of interest, by 20 June 2016, from potential strategic partners to state-owned companies for 600MW of new generation capacity from gas.

Omai is actively bidding to develop more projects in terms of the round four EW and is ensuring it is positioned to participate in the Gas to Power Programme.

Omai sees a bright future for clean and renewable power generation in South Africa. It will have a positive and sustained impact on the country as a source of stable, reliable and low-cost power for the national economy while it creates both long-term investment and employment opportunities.

Montreal carbon pledge

Mikhaeel Vawda, marketing manager for 27four Investment Managers, says that as a multi-manager 27four invests in funds dedicated to renewable energy.  The number of funds available in this space has grown considerably over the past five years as the REIPPPP has rolled out.  There are numerous dedicated funds offering investors exposure to renewable energy projects through debt or equity participation and across the spectrum of projects. ''As we have seen the projects being rolled out and investment interest increase, commensurately the returns have also started to compress. As the pipeline of deals has grown in South Africa, so too has it grown throughout Africa."

ESG branding hasn't been big in the South African market. Not many funds have been specifically labelled as such, but there are many managers who claim that responsible investing and ESG factors are central to their investment process. More  than  three-quarters of the asset management industry will  profess  to be using responsible investment principles  in some manner whereas there  are  probably only half a dozen  funds  that are  specifically labelled as such.