Construction of the first solar and wind farm projects by independent power producers will kick off over the next few weeks under the first round of Government’s renewable energy programme.
Futuregrowth Asset Management, acting on behalf of its retirement fund clients, is a key debt investor in 10 of the 28 projects that were signed off by the Department of Energy on 5 November 2012.
Investments in renewable energy projects are a new and growing asset theme in the South African capital markets and the renewable energy programme is expected to introduce hundreds of billions of rands of fixed investment into South Africa.
Pioneering asset manager Futuregrowth has approved debt finance totalling R2.1 billion so far for investment in nine solar power farms and one wind power farm that will deliver a generative capacity of over 500MW of electricity when commissioned in around two years time.
“A rigorous selection and credit appraisal process has been employed by Futuregrowth to approve investment in these projects,” said Paul Semple, manager of Futuregrowth’s Power Debt Fund..
“Of the 10 projects approved by Futuregrowth, six are located in the Northern Cape, two are in Limpopo and one each in the Eastern and Western Cape provinces. All have entered into a purchase agreement with Eskom for power they will produce over the next 20 years and these revenue streams will be used to repay the debt finance,” he said.
Futuregrowth is among the first to provide an investment opportunity in this sector for retirement fund investors by means of its Power Debt Fund. The fund seeks long-term returns and tangible social and development impact from investing in renewable energy projects.
This fund will form part of Futuregrowth’s suite of Socially Responsible Investment (SRI) funds, which offer a unique opportunity for clients to access a pool of assets not normally available to institutional investors.
Where mandates allow, Futuregrowth’s existing funds will buy into its Power Debt Fund, which in addition to the initial 10 renewable energy projects, will seek to invest debt and equity finance into renewable power projects that will be named by the Department of Energy as preferred bidders in further rounds of the renewable energy programme. Access to the fund is also available through direct investment, with a minimum investment of around R200m.
“These projects will contribute to providing clean, sustainable energy and we expect South Africa’s demand for this to grow exponentially over the next 15-20 years,” said Semple.
This fund offers a unique diversification element with yield pickups ranging between 3.5 and 4.5 percent.
The Power Debt Fund will focus on providing both fixed and floating rate senior debt to solar and wind energy projects but is also mandated to invest in power distribution and reticulation as well as supporting industries and sectors.
As the transactions will be unlisted, unrated and have relatively few co-creditors, the fund is not intended to be highly liquid, however it will maintain a small holding of liquid assets to facilitate transactions and/or client cash flow needs.
“This fund is intended as a long-term asset, with an investment period of at least 15-20 years to match the underlying debt repayments by the renewable energy projects,” said Semple.
The fund is in line with Futuregrowth’s SRI philosophy to invest in projects that are contributing to South Africa’s development. It also utilises Futuregrowth’s unique experience and skill when it comes to investing in infrastructure.