Renewable Energy Investments Centre for Environmental Rights DATE: 24 October 2016 PRESENTER: Peta Chennells Senior Investment Analyst
Agenda Why Renewable Energy Makes Sense South African energy requirements Investment opportunity Socio economic development Mergence renewable energy project video Questions
South African Renewable Energy Programme An authorised FSP: no. 16134
South Africa s Energy Dilemma Security of Supply Low Cost Job Creation Low Carbon Low Water
Abundant wind and solar resources South African Wind Map South African Solar Map
42% of new capacity build from renewable energy 17.8 Nuclear 23% Coal 15% 9.6 Gas 15% 6.3 6.3 2.6 Hydro 6% Coal Gas Hydro Renewables Nuclear Renewables 42% Source: Policy adjusted IRP (2030) DOE 26 Aug 2016
GWs 6.4GWs allocated to 102 projects over 6 bid windows 7 6 5 2.2 4 3 1.5 2 1.0 1 0 1.4 BW1 (2011) BW2 (2012) BW3 (2013) BW3.5 (2014) BW4 (2014) Smalls (2015) Total Bid Window & Bidding Year Operational (# of projects) BW1 BW2 BW3 BW3.5 BW4 Smalls Total 100% 84% 0% 0% 0% 0% 43% (2.2GW, 44 projects) Source: Policy adjusted IRP (2030) DOE 26 Aug 2016
Dramatic Tariff Decreases Average tariff in R/kWh (Apr-2016-R) 3.65 Solar PV Wind 2.18 1.51 1.19 1.17 0.87 0.91 0.75 0.62 0.62 BW1 (2011) BW2 (2012) BW3 (2013) BW4 (2014) BW4E (2015) Bid Window & Bidding Year Source: CSIR; Cost of new power generators in South Africa, Oct 2016
REIPP now 40% cheaper than Coal IPP Average tariff in R/kWh (Apr-2016-R) 1.03 0.62 Renewable Energy BW4E Coal BW1 Source: CSIR; Cost of new power generators in South Africa, Oct 2016
Renewable Energy as an Investment Opportunity An authorised FSP: no. 16134
Investment in Renewable Energy R194bn committed investment R654bn forecast investment 654 194.1 BW1 BW2 BW3 BW3.5 BW4 Smalls 2016 2030 Source: Policy adjusted IRP (2030) DOE 26 Aug 2016
Invested R1.2bn across 12 Projects 74MW 44MW 20MW 27MW 10MW 75MW Noblesfontein NC 8% Fund allocation Soitec Touwsriver, WC 8% Fund allocation Herbert Douglas, NC 9% Fund allocation Van Stadens PE, E Cape 8% Fund allocation Greefspan Prieska, NC 3% Fund allocation Solar Capital 3 De Aar, NC 18% Fund allocation 28MW 27MW 30MW 75MW 80MW 75MW Soutpan Limpopo 6% Fund allocation Dassieklip Caledon, WC 8 % Fund allocation Witkop Limpopo 9% Fund allocation Kalkbult De Aar, NC 8% Fund allocation Kouga Oyster Bay, EC 4% Fund allocation Solar Capital 1 De Aar, NC 10% Fund allocation Track record: - Invested R1.2bn in 12 Round 1 and Round 2 projects - Committed over R400m to 5 small projects - Fund raising for second renewable energy debt fund
Renewable Energy as an Investment Stable long term predictable cash flows Strong returns coupled low volatility Low probability of default & high recovery rates
Long-term Debt backed by Long-term Contracts Shareholders Mergence REDF 3. Equity (30%) 2. Limited Guarantee SA Government 4. Debt (70%) 15 Year Loan Project Co 1.Power Purchases 20 Year PPA Eskom Holdings Other Financial Institutions
Long term stable and predictable returns to investors 160 140 120 100 80 60 40 20 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 Semi-Annual Periods Total Expenses Debt Servicing costs Total PPA Revenues(ZAR) Source: Mergence data
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Comparable market returns with reduced volatility 12.0% 10.0% 11.2% 35% 30% Bonds CPI + 5% 8.5% 9.1% 25% 7.7% 20% 15% 10% 5% 20 years 10 years 5 years 0% Bonds CPI + 5% Source: Mergence data, Rolling 3 year average annual geometric returns: 1990-2016
Low defaults and high recovery rates 83.2% 2.5% Average default rate Average recovery rate Source: Addendum to Moody s Project Finance Defaults Study, 1983 2013. World Availability Based PPP
Mergence Performance Summary as at 30 September 2016 145 140 135 Net Returns Since Inception Fund 10.4% JIBAR + 3% 9.3% Outperformance 1.1% 130 125 120 115 110 105 Excluding 10% capital appreciation EY Valuations (since inception 19% increase) No defaults on any of our projects 100 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Mergence Renewable Energy Debt Fund Jibar + 3% Source: Mergence Renewable Energy Debt Fund, Sept 2016
Socio Economic Benefits Renewable Energy Investments An authorised FSP: no. 16134
Stringent Economic Development Criteria Bidding Projects Economic development commitments = 30% bid evaluation criteria Includes: Local content % of total spend Successful Bidders Successful projects legally commit to economic development criteria Monitored by DOE & Lenders Failure to comply = loss of PPA Job creation commitments Local community development BEE shareholding Socio Economic development spend
What s been committed so far? 112 000 FTE Jobs R65bn local content spend R25bn development spend R29bn community income Source: Policy adjusted IRP (2030) DOE 26 Aug 2016
Over R100bn in investment in South Africa
2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 Mergence community impact R300m receivable from 28MW solar farm Average impact of projects R m 350.0 300.0 250.0 200.0 Social & enterprise development (cum) Community dividends (cum) Ownership 3-10% Local community Trust ownership Socio-Economic Development 1-1.5% of revenue for socio economic development in local (mainly rural) communities 150.0 100.0 50.0 Enterprise Development 0.6% of turnover on enterprise development targets education and skills development 0.0
How the projects benefit their communities Limpopo area De Aar, Northern Cape De Aar, Northern Cape 1 300 children will receive school shoes and jerseys, while 8 400 children will receive books Free community Wi-Fi to the value of R745,000 installed within previously disadvantaged community R700 000 spent on a computer laboratory and equipped the Community Training Centre
Conclusion An authorised FSP: no. 16134
Conclusion Renewable Energy makes sense for everyone!
Questions? An authorised FSP: no. 16134