Green deal could snowball to further financing deals - RMB
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AS THE SOUTH African Wind Energy Association (Sawea) welcomed last week's R130 billion concessional climate finance “Green Deal” at COP26 from the US, UK, Germany, France and the EU, James Formby, the chief executive of RMB, said yesterday that the deal could translate into a R500bn boost to help South Africa's Just Energy Transition to decarbonise its sources of energy.
The finance is earmarked to help Eskom ultimately retire its coal power stations and assist it in building the renewable energy sector while preventing up to 1 to 1.5 gigatons of emissions over the next 20 years.
South Africa has faced crippling load shedding this month as power utility Eskom battles to keep the lights on, hitting the economy.
Formby said while this would not solve Eskom's debt burden and capital structure, the deal was very positive news for South Africa.
“As we once again struggle with load shedding, it's clear Eskom needs urgent help with accelerating the decommissioning of coal plants and replacing them with renewables, gas bridging and storage.
Formby added: “We are yet to see the details behind these financial commitments such as the timing and conditions, but overall we are optimistic about the potential substantial decarbonisation benefits for South Africa that will move us closer to globally accepted emission targets.”
He said the initial commitment of $8.5bn (R127.3bn) for the first phase of financing, could “crowd in” up to a further R390bn of local and foreign private investor capital.
Because of the fairly predictable cash flows, debt funding could be as much as 70 to 80 percent of total financing required.
“Assuming 75 percent of debt and assuming the R130bn, 25 percent, comes in as grant money or can be back ranked to commercial lenders, this means that up to R390bn could be unlocked in the form of debt funding from South Africa's banking and savings industries.
“It will be important that the terms of this $8.5bn enable this. This also assumes an appropriately capitalised and separate ‘gridco' which would give lenders confidence that the power produced would be paid for, without requiring further government guarantees,” he said.
Formby said infrastructure assets were an ideal long-term asset match for the liability profile of pension funds which need the yield to preserve wealth for pensioners.
“This is why there are proposed changes to Regulation 28, which governs where pension funds can invest, to include an explicit infrastructure category to support the allocation to infrastructure assets, subject to the discretion of fiduciary asset managers, of course.”
The non-bank assets under management of the South African savings industry were approximately R11 trillion as at December 31, 2020, mostly invested in equities, so South Africa had the capacity to help unlock this transition, Formby said.
Sawea board member Mark Tanton said: “We view our sector as a key implementer for the country to decarbonise its power sector and increase its energy availability.
“Hence, we look to the various policy makers within the Department of Forestry, Fisheries and the Environment, the Department of Mineral Resources and Energy, and the Department of Public Enterprises to facilitate and lead this transition, which will no doubt be abetted by this financing deal.”
He said South Africa needed to remove carbon dioxide from the atmosphere as fast as possible, while drastically increasing its energy availability factor, so that the country could bring a halt to the ongoing and crippling load shedding.
Meanwhile, the South African Photovoltaic Industry Association (Sapvia) represents more than 540 members operating across the solar PV value chain, with a mix of local and international ownership. said yesterday that it welcomed the president's focus on energy for the forthcoming South Africa Investment conference.
BUSINESS REPORT ONLINE