AIIM Contributes to Renewable Energy Fund in South Africa

28 Aug 2019

A clean fund for the future

The SOLA Group has secured R400mn in order to build commercial and industrial solar PV facilities across Southern Africa. The renewable energy fund, Orionis, will enable 40 MW of solar PV projects to be built without capital expenditure by the electricity off-takers.

The deal is a result of a partnership between the SOLA Group, African Infrastructure Investment Managers (AIIM), and Nedbank Energy Finance, who have partnered to provide affordable solar PV solutions for businesses that are in dire need of electricity security.

Chris Haw, the chairperson of the SOLA Group, believes that the clean energy solutions created by the fund are timeous.
“This partnership brings together three highly experienced entities whose combined skills offer consumers clean energy solutions at a time when our country desperately needs it,” he said. 

“This partnership brings together three highly experienced entities whose combined skills offer consumers clean energy solutions at a time when our country desperately needs it”

SOLA’s extensive track record of developing and building solar PV has allowed for the development of the Orionis fund, which will have the ability to fund 40 MW worth of projects. The forthcoming pipeline already includes 15 MW of solar PV Power Purchase Agreements, including several breweries and other industrial facilities around South Africa. The consumers pay for their clean energy directly, through a PPA tariff that is typically 20% lower than Eskom or their municipal provider’s rates.

The financed model would allow sectors focused on short-term cost reductions in their Opex budgets, such as FMCG companies, the opportunity to tap into solar power. This would allow reductions in operating costs and in carbon emissions, which are generally very important to industrial sectors. The financed solar PV is provided through a legal arrangement called a Power Purchase Agreement.

What is a PPA? 

A commercial solar PPA enables a fully integrated solar photovoltaic system to be installed and provide electricity to the entity through a customised monthly payment plan, typically at a tariff that is 20% lower than Eskom. PPAs can also include the option to take ownership of the PV system at the end of the financed period, with no upfront installation costs. The conditions of power purchase are detailed in the PPA which is negotiated directly with each client to ensure the agreement is workable for both parties.  

How do clean energy funds reduce opex?

As mentioned, financed renewable energy projects will enable industrial facilities to access secure and cheaper power, and free up CAPEX for investment into their core business activities. But how does this work? 

Over the last few years, reduced costs of embedded electricity generation such as solar PV have interrupted the traditional model of electricity production. In other words, solar PV power is rapidly becoming the cheapest form of power to procure globally. In order to fund solar PV projects, however, large sums of capital are needed in order to permit, design, construct and keep the solar PV operational – similar to a regular utility such as Eskom. 

Whilst companies can opt to buy their PV systems outright, through an Engineering, Procurement and Construction (EPC) option, there is often little need for the entity to own the PV system themselves, as their main goal could be to reduce their operating expenses. Without available Capex, companies would need to secure financing in order to fund the construction of these projects.

SOLA’s PPA offering, through consolidating the finance, design, construction and operation of solar projects, allows companies to access cheaper finance than procuring it individually. “Operating at scale allows SOLA to provide lower tariffs and more competitive rates, reducing costs of financing,” adds Haw. 

For large commercial and industrial companies, PPAs enable flexible procurement of electricity, allowing them to consume the cheapest electricity available at a given time whilst also reducing their carbon footprints.

How financed solar PV can support the African Economy

Allowing small-scale, and flexible embedded generation of electricity is a key aspect to transition to a low-carbon economy, as it allows for increased penetration of renewables. 

Supporting the further deployment of small-scale embedded generation (SSEG) plants, according to Council for Scientific and Industrial Research (CSIR) Energy Centre, will also create thousands of full-time jobs and help to grow hundreds of small businesses across the country. The SOLA Group currently employs 50 full-time staff members for its South African operations, and the construction of 40 MW of solar PV projects through the fund is likely to create an additional 880 jobs in the coming years.

“The model of electricity generation that incorporates both centralised and distributed electricity will improve the ability for South Africa to meet energy demand, reduce electricity costs and strengthen resilience to outages,” concludes Haw. 

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