Distributed generation funding model ideas will ‘evolve’, but regulation critical

30th July 2021 By: Simone Liedtke - Writer

New funding model ideas for distributed generation projects will evolve as the market expands, but Rand Merchant Bank (RMB) business development head Hugh Howarden has stressed the importance of government clarifying the requirements for the development and registration of such projects.

President Cyril Ramaphosa in June announced that the licensing-exemption threshold for distribution generation projects would increase to 100 MW and that the new requirements for such projects would be gazette within 60 days.

There is, however, concern that the registration of distributed generation projects could turn into a quasi-licensing requirement, potentially still resulting in significant red tape and delays in the registration of such projects.

Meanwhile, Howarden explained during a South African Photovoltaic Industry Association-hosted webinar this week that project operators could choose between funding a project through a balance sheet, leasing the project or funding it through project finance.

However, moving forward, a combination of these options may generally become the “traditional way of finance” for distributed generation projects.

While he did not give much insight into what this could entail for operators, Howarden did note that stranded assets, for example, would see offtakers “move away from the seven-year debt repayment model”.

Distributed generation, Howarden advised, would be “the future of energy” as new fossil fuel power stations were “becoming increasingly difficult to fund”.

“This will pave the way towards achieving rural electrification and last mile connectivity,” he added, which he said would become “more and more imperative in order to balance out economic growth in [South Africa]”.

This move will have commercial, environmental and community drivers, Howarden said.