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Author: Nadia Rawjee, Uzenzele Holdings
There has been a significant amount of coverage in Engineering News around exciting new projects and opportunities in the Renewable Energy sector. The key question is how these projects are ultimately going to be funded.
The good news is that there are a significant number of incentives from the likes of the Department of Trade, Industry and Competition (DTIC) and developmental financing options for the sector at the moment. Coupled with investor appetite from both local and international investors, there are many reasons to be excited.
Below I have outlined a couple of key considerations for Engineering News readers who are looking to have their projects funded in the coming years.
Remember that Renewable Energy projects are a highly technical solution and having the right team involved will make or break your application for funding.
You need to ensure that your Engineering, Procurement, Construction and Management (EPCM) service provider is reputable and professional and that financiers find them credible. A good EPCM team will be able to provide you with the right information regarding technology and will create confidence amongst investors.
While being able to speak the right technical language is important, much of the up-front work on the project is going to depend on your ability to clearly communicate your financial objectives and milestones. Your bookkeeper or auditor is probably not that person and you need to invest time and energy in building your finance capacity.
It is not enough to simply say that South Africa needs low-cost, environmentally friendly energy solutions and you will need to clearly articulate the supply and demand sides of the equation.
On the Supply side you will need to firstly know who provides your target area with energy. Is it Eskom or is it supplied via Municipality? This information affects approval times and tariff and therefore the potential saving from your Renewable Energy project
The second consideration will be feedstock scoping and forecasting is very important. For example, whilst tyres are in large supply in dumps, users of tyres for biofuels must have access to tyres with the relevant licenses and approvals. Similarly the generation of energy from solar sources is dependant on environmental and other factors. You will be judged on whether you truly understand these issues and have accounted for them in your business plan.
On the Demand side, the strength and credibility of the off-taker will be heavily scrutinised and even more so in the current COVID economy. Unpacking the business case for financial institutions to have comfort that your business is financially strong and sustainable should be done diligently. The precarious state of municipal finances is an important consideration and you need to understand the credit rating of these institutions.
There are significant tax and other incentives for high-quality and eligible projects and it is important to try and identify how you can integrate these into your investment case.
For instance, there are COVID tax deferrals by SA government which includes a three-month deferral for filing and first payment of carbon tax liabilities which could ultimately provide cash flow relief of close to R2 billion for qualifying projects.
As a management team, are you able to keep track of these incentives?
The South African renewable energy sector is going to be one of the most exciting sectors to follow in the coming years. A number of high-quality projects are likely to create thousands of much needed jobs and add stability to the national power infrastructure. The litmus test for many of these projects is the ability to move from ideation to bankability.