The Green Climate Fund (GCF) has extended funding of $100-million to the Development Bank of Southern Africa (DBSA) to establish the Embedded Generation Investment Programme (EGIP).
Embedded generation entails the production of electricity from generation facilities that are connected to the national grid, with or without wheeling arrangements.
The DBSA explained in a statement published on Wednesday that the EGIP comprises a credit support mechanism that will develop a model for funding embedded generation renewable energy projects in South Africa.
The sub-projects under the EGIP will be implemented by private sector entities in their capacity as independent power producers and/or offtakers and local municipalities, acting primarily as offtakers.
The DBSA has matched the GCF’s $100-million funding, thus ensuring there is a funding contribution of $200-million towards the implementation of the EGIP from the two institutions.
About $84-million of the $200-million funding will be used to provide broad-based black economic empowerment funding to enable the participation and ownership of local communities and small, medium-sized and microenterprises in renewable energy.
The financing mechanism is also intended to crowd-in additional funding of around $104-million from local financial institutions and to assist South Africa to make further inroads towards meeting its climate change objectives.
Once all sub-projects are in operation, the proposed investment will add 330 MW of new generation capacity, thereby directly avoiding emissions of more than 700 000 t/y of carbon dioxide.
“The key objective of the EGIP is to improve the viability and bankability of the initial projects so that they reach financial close. This will ensure that a market for embedded generation is created in South Africa.
“We believe the programme will create an enabling environment and a new funding model for continued renewable energy investments outside of the Renewable Energy Independent Power Producer Procurement Programme,” said DBSA CEO Patrick Dlamini.
He added that EGIP is critical in helping South Africa achieve its climate targets.
As the accredited and executing entity, the DBSA will be responsible for programme implementation and management. The bank will also take responsibility for overall portfolio management, evaluation and monitoring in respect of the sub-projects under the EGIP.
The implementation of the EGIP is expected to start once the revised Integrated Resource Plan is approved by Cabinet.