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 Low Creation Carbon Low Water
Abundant wind and solar resources South African Wind Map South African Solar Map
42% of new capacity build from renewable energy Coal 15% Nuclear 17.8 23% Gas 15% 9.6 6.3 6.3 Hydro 6% 2.6 Renewables 42% Coal Gas Hydro Renewables Nuclear Source: Policy adjusted IRP (2030) DOE 26 Aug 2016
6.4GWs allocated to 102 projects over 6 bid windows 7 6 2.2 5 4 GWs 1.5 3 2 1.0 1 1.4 0 BW1 (2011) BW2 (2012) BW3 (2013) BW3.5 (2014) BW4 (2014) Smalls (2015) Total Bid Window & Bidding Year BW1 BW2 BW3 BW3.5 BW4 Smalls Total 43% Operational 100% 84% 0% 0% 0% 0% (2.2GW, (# of projects) 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 1.17 1.51 0.91 1.19 0.62 0.87 0.75 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 Coal BW4E 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 Soitec | Touwsriver, WC Herbert | Douglas, NC Van Stadens | PE, E Cape Greefspan | Prieska, Solar Capital 3 | De Aar, 8% Fund allocation 8% Fund allocation 9% Fund allocation NC NC 8% Fund allocation 3% Fund allocation 18% Fund allocation 75MW 28MW 27MW 30MW 75MW 80MW Solar Capital 1 | De Aar, Soutpan | Limpopo Dassieklip | Caledon, WC Witkop | Limpopo Kalkbult | De Aar, NC Kouga | Oyster Bay, EC NC 6% Fund allocation 8 % Fund allocation 9% Fund allocation 8% Fund allocation 4% Fund allocation 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 2. Limited Guarantee SA Mergence 3. Equity Government (30%) REDF 1.Power 4. Debt (70%) Purchases Eskom Project Co Holdings 15 Year Loan 20 Year PPA 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 1011121314151617181920212223242526272829303132333435363738394041424344454647 Semi-Annual Periods Total Expenses Debt Servicing costs Total PPA Revenues(ZAR) Source: Mergence data
Comparable market returns with reduced volatility 35% 12.0% Bonds 11.2% 30% CPI + 5% 10.0% 9.1% 25% 8.5% 7.7% 20% 15% 10% 5% 0% 20 years 10 years 5 years 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 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 Net Returns Since Inception Fund 10.4% 140 JIBAR + 3% 9.3% 135 Outperformance 1.1% 130 125 120 115 110 • Excluding 10% capital appreciation – EY Valuations (since inception 19% increase) 105 • 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 Successful Bidders Economic development commitments = Successful projects legally commit to 30% bid evaluation criteria economic development criteria Includes: Monitored by DOE & Lenders – Local content % of total spend Failure to comply = loss of PPA – Job creation commitments – Local community development – BEE shareholding – Socio Economic development spend
What’s been committed so far? R65bn 112 000 local content FTE Jobs spend R25bn R29bn development community spend income Source: Policy adjusted IRP (2030) DOE 26 Aug 2016
Over R100bn in investment in South Africa
Mergence community impact R300m receivable from 28MW solar farm Average impact of projects Ownership R’m 350.0 3 - 10% Local community Trust ownership Social & enterprise development (cum) Community dividends (cum) 300.0 Socio-Economic Development 250.0 1 -1.5% of revenue for socio economic development in local (mainly rural) communities 200.0 150.0 Enterprise Development 0.6% of turnover on enterprise development – 100.0 targets education and skills development 50.0 0.0 2013 2015 2017 2019 2021 2023 2025 2027 2029 2031 2033
How the projects benefit their communities Limpopo area De Aar, Northern Cape De Aar, Northern Cape 1 300 children will receive Free community Wi-Fi to the R700 000 spent on a computer school shoes and jerseys , value of R745,000 installed within laboratory and equipped the while 8 400 children will receive previously disadvantaged Community Training Centre books community
Conclusion An authorised FSP: no. 16134
Conclusion Renewable Energy makes sense for everyone!
Questions? An authorised FSP: no. 16134
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