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Tuesday, 08 October 2013 14:11

The benefits of private renewable energy investment

Private-public partnerships are essential in the race for turning Africa into a renewable energy-operated success story.

Capital means Private investment has become the go-to solution to fill the vast funding gap in the renewable energy industry in Africa. Private-public partnerships continuously succeed in getting new “green” innovations and technologies out of the science labs and into the market place.

The Industrial Development Corporation’s (IDC’s) Green Energy-Efficiency Fund (GEEF) supports the introduction of renewable energy technologies, and aims to continuously contribute to global climate protection while supporting South Africa’s economic growth.

Investing in energy-efficiency is a strategic approach to ensure business competitiveness. The benefits of these investments include, but are not limited to:

• Technical support available for energy assessments based on the size and complexity of a proposed project.

• Investment risk reduction through energy-efficiency validation checks.

• Modernisation of industrial equipment and the use of energy-efficient technologies will result in reduced energy and other costs.

• Improved product quality and production capacity while increasing the company’s profitability.

• An improved company image due to contributions to carbon footprint reduction and South Africa’s sustainable development goals.

• Lower vulnerability to increasing energy prices.

• Increased company value.

The IDC’s GEEF programme is supported by the German Cooperation and Development Ministry, and encourages investments in energy-efficiency and renewable energy projects with the aim of improving energy-efficiency and at the same time facilitating South Africa’s transition towards a low-carbon economy. Subsequently, the energy and related cost savings will drive improved production capacity, operational effectiveness and competitiveness resulting in job creation.

Did you know? The cost of solar power generation has halved since 2010.

Another noteworthy programme regarding renewable energy in Africa, is the South African government’s renewable energy programme for Independent Power Producer Procurement (IPPP). The programme was initiated in 2011 and closed its third bid submission date on 19 August. Announcement of the preferred bidders in respect of the third submission date will take place on 29 October, after which the signing and initiation of the agreements and financial close of the project will take place not later than 30 July 2014, according to the Department of Energy (DoE).

The South African Minister of Energy, Ben Martins, determined that 3 725 MW of energy needs to be generated from renewable sources to ensure the continued uninterrupted supply of electricity. This number is broadly in accordance with the capacity allocated to renewable energy generation in South Africa’s Integrated Resources Plan (IRP).

Based upon the principles of the IPPP Programme (IPPPP), the department intends to introduce a separate “small-projects” IPPPP for electricity generation projects of less than 5MW.

The following technologies will be considered as qualifying technologies for selection under the IPPPP:

• Onshore wind.

• Concentrated solar thermal.

• Solar photovoltaic (PV).

• Biomass solid.

• Biogas.

• Landfill gas.

• Small hydro.

The shortage of energy infrastructure and the move by policymakers and regulators towards alternative energy sources have created interesting prospects for private equity.

The private investment trend addresses the lack of sufficient energy infrastructure, and the move by policymakers towards alternative energy sources is creating very attractive opportunities for investment in Africa’s energy sector.

For the first time in several years, 2012 saw a decline in global investment in renewable energy.

The year 2012 saw the most dramatic shift ever in the balance of renewable energy investment worldwide, according to the United Nations Environment Programme’s (UNEP’s) publication, Global trends in renewable energy investment 2013.

According to the report, developing countries have been growing in importance for the sector for many years, and overtook developed economies in terms of asset finance of utility-scale projects in 2010.

Crowd funding is also increasingly being applied to clean energy, especially in developed countries such as the United States, Germany and the United Kingdom. Independent power producers post lists of available projects on their websites and attract investors to provide the capital that is used to buy and install rooftop solar panels, for example.

However, this financing mechanism does not offset project credit risk, for example. If crowd-funding is going to expand substantially, credit risk and insurance products will be needed to protect investors. Likewise a healthy, long-term crowd-funding market is likely to require a secondary market for crowd-funded debt.

Funding from the private sector and large international companies such as Google may be the perfect solution to Africa’s struggling energy sector, but needs to be supported by government subsidies or regulatory incentives to generate proper funding and create worthwhile opportunities.

Full thanks and acknowledgement are given to the IDC, and for the information given to write this article.