Financial services provider Rand Merchant Bank (RMB) is financing a concentrated solar power (CSP) project and a biomass project awarded in round three of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). “This is the first biomass project to be awarded in the REIPPPP,” says RMB senior transactor Dario Musso.
Musso says the key difference between biomass and solar or wind energy is that biomass requires fuel. “Unlike typical renewable-energy plants, which rely on freely available wind and solar resources, a biomass plant requires a reliable long-term fuel supply agreement with a creditworthy fuel supplier,” says Musso.
He adds that the technology used in biomass, which is capable of producing dispatchable electricity, has been proven in the global market. “Biomass is an attractive means of producing renewable energy and unlike a solar photovoltaic (PV) plant or wind farm, biomass plants are able to generate consistent and predictable power 24 hours a day,” Musso adds.
Biomass is becoming an attractive renewable-energy source at small- and large-scale project level. With growing populations and depleting fossil fuel resources, the demand for power generated from biomass is exp- ected to increase in developing countries such as South Africa.
Musso says RMB committed more than R10-billion to successful bidders in the first round of the REIPPPP, covering one 100 MW CSP project, one 67 MW wind project and three solar PV projects of 75 MW each. Most of these projects are close to being fully built.
In Round two, RMB financed one wind and three solar PV projects, all currently under construction.
“The REIPPPP has been good for South Africa, as it has attracted interest from foreign investors and developers, while also stimulating the local economy,” says Musso, adding that one of government’s key objectives with the REIPPPP is to localise production facilities and, therefore, create jobs.
Further, RMB says the REIPPPP is a well-structured programme that has been successfully implemented thus far by government, and is a model being considered by several other countries embarking on their own renewable-energy initiatives.
Owing to the attractive nature of the REIPPPP (underpinned by a long-term offtake by State-owned power utility Eskom), government has managed to make the programme competitive. “Competition has been fierce thus far, with electricity prices bids coming down to grid parity levels for some technologies,” says Musso.
Besides offering a competitive industry that can create jobs, the REIPPPP is also designed to offer skills transfer to locals. “There are obligations in the REIPPPP agreements for project developers to source local goods and services as well as to employ and train locals,” says Musso.
Musso says RMB has one of the biggest teams in the African infrastructure finance market and has employed several experienced transactors, as well as some young university graduates, who have all been involved in the REIPPPP process.
“For these graduates the experience has been incredible, as never before in the South African infrastructure finance sector has there been so many deals being imple- mented at the same time,” he notes, adding that the exposure and experience for these graduates has been very positive.
Challenges During Bidding
Given the onerous requirements of the REIPPPP, deliberately designed to ensure that only serious and credible bids are received, one of the key challenges for banks has been to filter bankable deals with capable parties, in order to ensure that internal resources are allocated to projects with the best chance of success.
Another key bidding criteria has been the requirement for black economic empowerment, localisation and local employment. While this may have been an unusual requirement for foreign investors, Musso says both foreign and local investors have been able to quickly embrace these criteria, which have to date been incorporated successfully into winning bids. “Foreign investors have adapted to the REIPPPP system and its regulations and have managed to meet all the requirements for a successful bid,” he adds.
Musso describes the REIPPPP programme as a learning curve for all involved. “Projects from Round one of the REIPPPP are starting to reach completion and the knowledge gained is being applied to future REIPPPP rounds,” he says.
Musso says there is an abundance of potential solar and wind projects across Africa. “Renewable-energy projects are starting to be developed elsewhere in Africa, such as in Namibia and Zambia, and policymakers are using the South African REIPPPP as a benchmark. This is an exciting opportu- nity for a continent with abundant renewable- energy resources and a dire need for electricity.”
“RMB remains one of the biggest funders to the sub-Saharan African renewable- energy sector and plans to continue its investment and support for future rounds of the REIPPPP, as well as for renewable-energy projects throughout the continent,” Musso concludes.