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Paul Semple: Renewable projects helped reduce loadshedding, created jobs

A government initiative with a long-winded title (Department of Energy’s Renewable Energy Independent Power Producer Procurement Programme aka REIPPPP) is not only seeking to ease the load of more traditional energy sources, but is actually successfully doing so.

By agreeing to buy energy from co-funded renewable projects and placing it back onto the grid, an incredibly successful and encouraging private-public partnership is working within our borders and there is some evidence to show that these projects have significantly contributed to the reduction in loadshedding over the last few cold months.

Futuregrowth is a material funder of some of these projects through capital it raises from pension funds. Paul Semple, portfolio manager at Futuregrowth explains how these initiatives not only may go a long way to aiding in the alleviation of electricity shortages, but also how job creation and social upliftment in geographically difficult areas has increased materially as a result. – Candice Paine

Hi, this is Candice Paine for Biznews and I’m sitting with Paul Semple who is the Area Manager of Futuregrowth Power Debt Fund, a very interesting initiative that almost works hand-in-hand with Government around renewables. Paul, tell us a little bit more around what you’re actually doing.

Candice, thank you. I’m working for Futuregrowth, managing the Power Debt Fund, which is fairly new fund. It was launched just over three years ago when Futuregrowth foresaw the growing opportunity in the renewable power sector. We were really fortunate to get involved early on and we invested over R2bn in the first round of renewable deals that came on-stream almost three years ago.

What actually constitutes renewable energy?

Renewable energy is a collective term for a number of renewable technologies, predominantly solar-powered technology as well as wind power, but it also includes biomass and small hydro technologies.

What is the South African Government’s commitment to growing renewables?

South Africa has identified that we’re a resource rich country for renewable energy and the Government has identified a target of approximately 18 000mw of electricity to be procured from renewables by the year 2030.

Read also: SA’s successful renewables policy a blueprint for Africa – and the world

What does that make up as a percentage of the energy that we require?

That makes up about 40% of all new energy that will be procured between now and then and probably around 30% of the total energy mix.

That’s quite significant and should be a good assistant to Eskom’s current problems.

Absolutely. I think the procurement of renewable energy has come at exactly, the right time because it’s been procured very quickly. It’s been very efficient and cost-effective and it’s provided electricity to the grid at a time when really, the Government is scrambling around to find sources of power, which in many cases, take years to build

Are we saying that this renewable energy has had some impact on the drawdown in loadshedding recently?

Absolutely. I really believe it has. Over the last six to 12 months, approximately 2 000mw of new power have come onto the grid from renewable projects. I believe this has greatly helped to alleviate the pressures on the grid.

For the layman, what does 200mw of electricity mean? What does that actually drive?

In terms of households, that’s approximately 350 000 households but in the bigger picture where we are running between 30 and 40 000mw of power; 2000, over the last year or so has been a great help.

Read also: German Energy Minister Baake tells SA: Build your renewables – dump nuclear

How are the deals actually structured? Who are the stakeholders? What are their roles? How do they participate? What does Futuregrowth do in the process?

The program has really been backed by the international community and international developers that have come into South Africa. The program is great in the sense that there’s a minimum local equity contribution/requirement and so all these projects have to meet that requirement.

There’s also a large debt requirement of which, most of that has been provided by South African institutions with Futuregrowth being one of the leading institutions, particularly in the institutional space.

The commercial banks have provided a large amount of the debt, but Futuregrowth has committed over R7bn worth of debt commitments to 23 projects to date and the 23 projects make up around 30% of the total projects that have been awarded contracts by the Government to date.

That’s quite a material commitment from the private sector. Is this one of the private/public partnerships that’s really working within the context of South Africa?

Yes, it’s been a tremendous success, Candice. To date, almost R200bn worth of investment has gone into renewable power of which, the private sector has probably introduced about R120bn. It’s been a very successful partnership.

What does that mean for the communities around which these projects are built?

The communities have benefitted. Firstly, part of the contract between Government and the projects is a requirement that they invest in the communities in which the projects are located.

Apart from the jobs that have been created and the additional skills that have been transferred, there’s been a large requirement on projects to invest back into the community such as building and infrastructure, which will support the community in which they reside.

I imagine that many of the communities are in geographically difficult areas, so you’re actually taking employment and social upliftment into areas that may not have been obvious in the first place.

Absolutely. The majority of the renewable projects are located in rural areas and there’s been a lot of job creation mainly through the construction phase of these projects. Having said that, theirs is an ongoing requirement for jobs for employment by these projects, to maintain them.

These rural areas have attracted more and more investments, so the skills that have been passed on through the development phase of these projects; those same people can use those skills in other projects springing up in those areas.

Read also: Cooling down on the coal: Renewable energy projects for South Africa

Okay, and it probably also serves to keep people in rural communities rather than this type of urban drift, which helps with the social structure.

It certainly does.

Okay, so there are wonderful spinoffs from these types of projects. Let’s talk from Eskom has committed to buying the energy from these projects and putting them back onto the grid. What kind of rates do they agree to, and how are those things set?

Eskom has entered into a 20-year power purchase agreement with these projects so that they will buy all the power that’s produced over the next 20 years at a set tariff.

At this point in time the tariff has come screaming down and is actually, below the costs that Eskom would pay for an equivalent unit of power from coal projects. For example, with wind projects Eskom would be paying around 65-odd cents/unit of power versus just under R1.00 for the same unit of power from a coal-fired plant.

Okay and those tariffs are obviously built into the cost of the project and involved in your due diligence when you’re looking at the project from the outset.

That’s absolutely correct. The projects will use that revenue from Eskom to pay down the debt that they’ve borrowed from the likes of Futuregrowth.

Read also: Eskom must invest another $15bn by 2022 to keep electricity grid working

These projects obviously form the base of the investments in your Power Debt Fund. Let’s just talk a little bit about the returns of your Fund. How have these projects contributed to that?

These projects have been great in the sense that they are long-term investment and the have inflationary-linked returns because the tariffs that Eskom pays are inflationary-linked so they meet the mandate of the Fund, which is a long-term investment. In addition, the tangible social and developmental impact that these projects have, meet the mandate of the Fund as well.

Okay so the Fund is exceeding its benchmarks on all levels.

Absolutely. Yes.

Paul, who would be the investors in your Fund? Where does the money come from to fund these projects?

Candice, the money that is used, is from our Pension Fund clients.

Paul Semple is the Portfolio Manager for the Futuregrowth Power Debt Fund. Thanks so much for your time today.

Thanks, Candice.

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