Bank backs SA's renewable energy plan from inception

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The Development Bank of Southern Africa (DBSA) has been involved in SA's renewable energy programme from its inception and the bank played an important role in assisting government in the creation of the necessary enabling environment for the independent power producers programme.

The renewable energy programme is being rolled out in five phases and the first three rounds have already reached financial close.

So far 11 projects financed by DBSA have been completed and are already generating power - and thus contributing to the country's national energy supply - and the remaining projects are at various stages, namely under construction or in the run-up to their construction phases.

Lucy Chege, GM Infrastructure Finance (responsible for energy projects within SA) at DBSA, says the bank has committed about R11bn across the first three rounds and it has been involved, to date, in supporting 18 projects across all three rounds. The 18 projects that are under way will result, on completion, in a generation capacity of 1,450 megawatts.

"In the initial stages we worked with government on the electricity regulations and we have continued working with the Department of Energy to support its efforts.

"Once the programme moved into the implementation phase we provided debt funding support for the projects as the upfront capital required is significant.

"In addition, we are supporting the broad-based black economic empowerment (BBBEE) entities and the community trusts with funding so that they can acquire their equity stakes in the projects. So far we have provided about R1.3bn to BBBEE and community trusts," Chege says.

She says during the initial phases all potential funders had to undertake a detailed review of the projects to gain a good understanding of their risk profiles. At the time, renewable energy was relatively new in SA and there was limited local project finance expertise in this sector.

"Lenders needed to come to grips with the various elements that must be considered in renewable energy projects and this necessitated leveraging off overseas technical expertise, experience and skills.

"As lenders we subcontract the assessment process to these experts so they can give us their independent view.

"Each renewable energy project needs to be assessed individually. For example, on a wind or solar farm project the funders need to look at the wind or solar studies to determine if there is sufficient resource to generate the required power, as the ability of the project to repay its funding depends to a large extent on the available resource such as wind speed or solar irradiation levels.

"A site where there is insufficient wind all year round will, for example, be inappropriate for a wind farm.

"Funders need comfort as to the quantity and availability of the generating resource and the site layout is also critical in ensuring efficient generation."

In line with the DBSA's ongoing approach, the bank worked jointly with all the commercial lenders.

"It is a partnership so we leverage off the expertise that each party brings to the project," Chege says.

She says in most of the renewable energy projects the developers were required to provide their own risk capital.

However, DBSA provided some risk capital for the Ilangalethu Concentrated Solar Power project, with a generating capacity of 100MW.

Participation by BBBEE players and community trusts in renewable energy projects was one of the requirements of SA's renewable energy programme and funding was provided by DBSA.

"The community trusts are set up so they can benefit people who live within a predetermined 50km radius of the project site and the trusts needed funding so they could work," Chege says.

The DBSA has supported three technologies - solar photovoltaic, concentrated solar power and wind projects.

A major advantage is that the cost of generating each megawatt is coming down.

"Most of the manufacturers did not realise just how long the South African renewable energy programme would run. Therefore, as more projects are rolled out greater economies of scale come into play and there is more competition between participants and both of these factors translate into lower prices and cheaper electricity generation," Chege says.

The Department of Energy stated at the inception of the renewable energy programme that there will be five bidding rounds. It announced the preferred bidders for the fourth round last week.

It is expected that these round four projects will add 1,121MW of clean energy to the grid once fully operational.

Source: Business Day