Renewable Energy Investments Centre for Environmental Rights DATE: - - PowerPoint PPT Presentation

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

South Africa’s Energy Dilemma

Low Cost Low Carbon Security of Supply Low Water Job Creation

Abundant wind and solar resources

South African Wind Map South African Solar Map

42% of new capacity build from renewable energy

Source: Policy adjusted IRP (2030) DOE 26 Aug 2016

6.3 6.3 2.6 17.8 9.6

Coal Gas Hydro Renewables Nuclear

Coal 15% Gas 15% Hydro 6% Renewables 42% Nuclear 23%

6.4GWs allocated to 102 projects over 6 bid windows

1.4 1.0 1.5 2.2 1 2 3 4 5 6 7 BW1 (2011) BW2 (2012) BW3 (2013) BW3.5 (2014) BW4 (2014) Smalls (2015) Total

GWs Bid Window & Bidding Year

BW1 BW2 BW3 BW3.5 BW4 Smalls Total Operational (# of projects) 100% 84% 0% 0% 0% 0% 43%

(2.2GW, 44 projects)

Source: Policy adjusted IRP (2030) DOE 26 Aug 2016

Dramatic Tariff Decreases

3.65 2.18 1.17 0.91 0.62 1.51 1.19 0.87 0.75 0.62 BW1 (2011) BW2 (2012) BW3 (2013) BW4 (2014) BW4E (2015)

Bid Window & Bidding Year

Average tariff in R/kWh (Apr-2016-R)

Solar PV Wind

Source: CSIR; Cost of new power generators in South Africa, Oct 2016

REIPP now 40% cheaper than Coal IPP

0.62 1.03

Renewable Energy BW4E Coal BW1

Average tariff in R/kWh

(Apr-2016-R)

Source: CSIR; Cost of new power generators in South Africa, Oct 2016

Renewable Energy as an Investment Opportunity

Investment in Renewable Energy

R194bn committed investment

BW1 BW2 BW3 BW3.5 BW4 Smalls

R654bn forecast investment

Source: Policy adjusted IRP (2030) DOE 26 Aug 2016

194.1 654 2016 2030

Invested R1.2bn across 12 Projects

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

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

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

74MW 44MW 20MW 27MW 10MW 28MW 27MW 30MW 75MW 80MW 75MW Solar Capital 3 | De Aar, NC

18% Fund allocation

75MW

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

Mergence REDF Project Co Shareholders Eskom Holdings

• 4. Debt (70%)

1.Power Purchases

• 3. Equity

(30%)

SA Government

• 2. Limited Guarantee

20 Year PPA

Other Financial Institutions

15 Year Loan

Long term stable and predictable returns to investors

20 40 60 80 100 120 140 160 1 2 3 4 5 6 7 8 9 1011121314151617181920212223242526272829303132333435363738394041424344454647 Semi-Annual Periods Total Expenses Debt Servicing costs Total PPA Revenues(ZAR)

Source: Mergence data

Comparable market returns with reduced volatility

12.0% 8.5% 7.7% 10.0% 11.2% 9.1% 20 years 10 years 5 years Bonds CPI + 5%

0% 5% 10% 15% 20% 25% 30% 35% 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Bonds CPI + 5%

Source: Mergence data, Rolling 3 year average annual geometric returns: 1990 - 2016

Low defaults and high recovery rates

Source: Addendum to Moody’s Project Finance Defaults Study, 1983 – 2013. World Availability Based PPP

2.5% 83.2% Average default rate Average recovery rate

Mergence Performance Summary

as at 30 September 2016

100 105 110 115 120 125 130 135 140 145 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

• Excluding 10% capital appreciation – EY Valuations (since inception

19% increase)

• No defaults on any of our projects

Net Returns Since Inception Fund 10.4% JIBAR + 3% 9.3% Outperformance 1.1%

Socio Economic Benefits

Renewable Energy Investments

Stringent Economic Development Criteria

Bidding Projects

• Economic development commitments =

30% bid evaluation criteria

• Includes:

– Local content % of total spend – Job creation commitments – Local community development – BEE shareholding – Socio Economic development spend

Successful Bidders

• Successful projects legally commit to

economic development criteria

• Monitored by DOE & Lenders
• Failure to comply = loss of PPA

What’s been committed so far?

112 000

FTE Jobs

R29bn

community income

R65bn

local content spend

Source: Policy adjusted IRP (2030) DOE 26 Aug 2016

R25bn

development spend

Over R100bn in investment in South Africa

Mergence community impact

R300m receivable from 28MW solar farm

0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033 R’m Social & enterprise development (cum) Community dividends (cum)

Average impact of projects

• Ownership

3 - 10% Local community Trust ownership

• Socio-Economic Development

1 -1.5% of revenue for socio economic development in local (mainly rural) communities

• Enterprise Development

0.6% of turnover on enterprise development – targets education and skills development

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

How the projects benefit their communities

Limpopo area De Aar, Northern Cape De Aar, Northern Cape

Conclusion

Conclusion

• Renewable Energy makes sense for everyone!

Questions?