At AEF, we provide a platform for investors and project promoters to meet and discuss how they can collaborate in the energy space. The insights shared by our subject and sector experts at this forum made Absa a bank of choice - particularly for renewable energy projects across sub-Saharan Africa.
Highlights of our main contributions towards sustainable green energy projects in Africa:
- The Enel Green Power Wind Projects
Absa acted as joint Mandated Lead Arranger, Joint Hedge Bank, Agent Bank and Account Bank for Enel Green Power’s portfolio financing of five wind projects awarded under Round 4 of REIPPP. The five onshore wind farms will have an installed a capacity of 700MW and will be located across the Northern Cape and Eastern Cape provinces of South Africa. At a total cost of approximately R17bn, this is the largest transaction in REIPPPP to date and is also the first renewables portfolio financing to be closed in SA. The projects reached Financial Close in July 2018 and are currently in the construction phase.
- 25MW Ngodwana Biomass Power Project
We were the Joint Mandated Lead Arranger, Hedge Coordinator of the Ngodwana 25MW Biomass power plant located at the Sappi Ngodwana Mill site in Mpumalanga with an investment cost of worth R2.05bn. This is the first utility scale Biomass IPP in South Africa and in the REIPPP Programme. For this project, Sappi mandated Absa to act as the Joint Mandated Lead Arranger and Underwriter. Absa committed 50% of the total funding requirement through Senior Debt, Debt Service Guarantee Facility, VAT Facility and the Eskom Guarantee. The bank also developed and executed a tailored hedge strategy.
- The Old Mutual & Partners Solar PV Projects
Absa acted as the Mandated Lead Arranger, Hedge Bank, Agent Bank and Account Bank for the Old Mutual & Partners Solar PV Projects awarded under Round 4 of REIPPP. The four solar PV projects will have a total installed capacity of 248MW and they will be located across the Northern Cape and North-West provinces of South Africa. At a total cost of approximately R5bn, these projects included a variety of EPC/O&M Contractors as well as innovative BBBEE Finance and Community Trust financing arrangements. The projects reached Financial Close in July 2018 and are currently in the construction phase.
Regulatory certainty and supportive policy framework needed to support investments in renewable energy projects in Africa
By:Bhavtik Vallabhjee, Absa Head: Power, Utilities and Infrastructure.
A clear, predictable and supportive regulatory framework backed by a stable investment environment will be key to attract investors and funders to renewable energy and power projects, according to Bhavtik Vallabhjee, Absa Head: Power, Utilities and Infrastructure.
Other important considerations are a viable tariff which provides an equitable Return on Investment to the investor commensurate with the risk of an Emerging Market – while at the same time making it affordable for the end user, he says.
Vallabhjee says the regulatory framework for renewable energy projects in sub-Saharan Africa differs from country to country, depending on level of commitment by governments to support this sector.
He says the future for renewable energy projects is bright, but investors want regulatory and policy certainty. With the falling cost of renewable energy technologies, Renewables is now at grid-parity in some countries, and renewable energy projects can be built without the need for Government subsidies.
“Project Financing is credit-intensive. A multitude of risks have to be considered. Risks have to be carefully assessed and appropriately mitigated. This is a pre-condition for debt and equity funding to be secured. As utilities may not be the most credit-worthy or financially robust entities, some form of credit enhancement to backstop the utility is required. This could take many shapes or forms. For various reasons, Government Guarantees may not always be possible, ” says Vallabhjee.
Tariffs have to be scrutinised carefully. Many first-world countries have subsequently revisited tariffs that they initially have signed-up to in their PPAs. When tariffs look to good to be true (culminating in enormous returns for developers), they probably are!
Vallabhjee says Absa already has a solid track record as the pre-eminent regional bank in providing funding for renewable energy and conventional power projects. The bank has closed several deals in Africa in the last several years and now is very adept at understanding the risks associated with power projects and can bring its vast experience to bear to successfully structure, fund and close complicated multi-sourced, multi-tranched project financing deals, he says.
Vallabhjee says political risk in Africa and the view that Africa is “very risky” is a perception issue. The number of projects that have gone into workout or recovery mode in Africa over the last 30 years can really be counted on one’s fingertips. There aren’t many. Projects seldom go “insolvent”. There could be a temporary blip – but usually all works out well in the end. Nonetheless these risks have to be appropriately mitigated and projects acceptably structured.
He says South Africa, Egypt and Morocco are leading the way with a regulatory and policy framework because the government is supportive of investment by Independent Power Producers (IPPs).
For example, in SA, the country has had more than 102 IPP projects in the past nine years bringing about R200 billion in direct investments. This compares with less than 30 IPPS in the whole of sub-Saharan Africa (excluding South Africa) prior to the launch of South Africa’s IPP programme.
“SA has spent a lot of time, money and effort working with good legal, financial, technical consultants to develop a Renewable Energy programme that is acceptable to the developer and financing community alike - to the point where other countries have been examining closely how SA’s programme has been structured with a view to emulate our success,” he says.
Infrastructure projects in Africa have notoriously long lead-times. Policy certainty, a clear regulatory framework and a supportive Government providing acceptable credit support for their Offtakers would go a long way to help fast-track projects in Africa. Renewable Energy can provide clean and reliable power affordably, whilst going a long way to increase energy access across Africa.
Absa excited to participate in Mozambique LNG project financings and future gas-to-power opportunities
By:Theuns Ehlers, Head of Resource and Project Finance
Absa Corporate and Investment Bank (CIB) is keen to provide project funding for two Mozambique liquefied natural gas (LNG) projects being developed by lead sponsor Anadarko and Exxon Mobil respectively. The project development and construction costs for the two projects is expected to exceed US$50 billion.
The projects, which are expected to make good progress towards financial close later this year, will be the largest project financing deals ever to be concluded on the African continent, says Theuns Ehlers, Head of Resource and Project Finance.
The project sponsors and their advisors are in the process of finalising the debt financing package. It is expected that the international and regional financing community will show significant appetite to participate in the financing of these landmark projects. Export Credit Agencies and development financing institutions are all expected to play a significant role in the debt financing, alongside international and regional commercial banks.
This financing represents a significant opportunity for regional banks such as Absa, to contribute with meaningful debt financing commitments to these projects. Absa’s local presence in Mozambique places it in a unique position to also assist with banking and financing for the host of contractors and people who will be employed during the construction and operational phases of the project.
Construction of the two projects is expected to take between five and six years, and will provide significant employment opportunities for the local market. Development of these LNG projects is expected to be transformational for the Mozambican economy, with the country’s GDP expected to more than double by the end of the construction period.
Once commissioned, the Mozambican government will earn revenue through their direct investment stakes in the two projects, as well as from taxes and royalties associated with the projects. Over time, these projects will add significantly to Mozambique’s overall tax base, which we expect will go a long way to uplifting the basic living conditions of the people of one of the poorest countries in the world, Ehlers says.
Because of South Africa’s proximity to Mozambique, Ehlers sees business opportunities for South African companies, particularly those in the construction and civils sector.
“There will be a significant benefit for South Africa from the two projects which I estimate will be over US$1 billion. With its strong skills base and experienced contractors South Africa is well positioned to support these projects,” Ehlers says.
Development of gas finds such as those in Mozambique, as well as other discoveries in East and West African markets, are also expected to stimulate gas-to-power opportunities on the continent, with gas fired power plants well suited to complimenting a power generation mix that is expected to see progressive renewable energy penetration.
Investors and operators of these gas power plants, as well as traditional coal and nuclear base load operators however remain mindful to the advancements in battery storage both from a cost and application perspective.
That said, “The future remains very exciting for Africa, who has the potential to leapfrog developed markets through the introduction of cheaper and cleaner power generation options – all of which is desperately needed to supply affordable power to new industries and the ca 650 million people still sitting without access to electricity,” he says.