ABSA Bank has completed the senior debt refinancing of three of renewable power plants developed by Globeleq in South Africa. The purpose of the refinancing is to enhance the projects’ capital structures, allowing for the release of value to shareholders and the reduction of the tariff to the national utility, and ultimately consumers in South Africa.
The refinanced renewable energy assets include the 138MW Jeffreys Bay wind farm, 50MW De Aar solar plant and 50MW Droogfontein solar power plant.
The tariff reductions will save the national utility more than ZAR 1 billion across the three assets over the remaining 12-year term of the power purchase agreements. Absa Bank acted as the mandated lead arranger and sole underwriter of the c. ZAR 5.2 billion debt financing package.
This transaction will be the second refinancing of renewable assets under the Department of Mineral Resources and Energy’s (DMRE) Independent Power Producer Office (IPPO) Refinancing Protocol. Globeleq hopes to eventually refinance the entire portfolio of assets it owns in South Africa.
“Globeleq sees this transaction as enabling future secondary market debt, which in turn will stimulate new opportunities, jobs and contribute to the economic development of South Africa. We hope that other IPPs will look to do the same and reduce the cost of their power to Eskom,” said Mike Scholey, Globeleq CEO.
Refining of renewable energy plants in South Africa
In 2019 South Africa’s Department of Mineral Resources and Energy (DMRE) and the Independent Power Producer Office (IPPO) invited renewable energy IPPs from Bid Window 1-3.5 of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) to voluntarily participate in a tariff reduction initiative to reduce the wholesale price of electricity in South Africa.
The refinancing initiative was motivated by the notion that earlier rounds of South Africa’s renewable energy programme had higher tariffs compared to the latest rounds. When South Africa’s renewable energy programme started, renewable energy technology was 70% higher than it currently is, making the tariffs for the projects higher compared to the newest projects. The off-taker for IPP generated electricity, Eskom, is highly indebted and in a difficult financial position. It is expected that the tariff reduction will help lessen the burden on Eskom’s balance sheet.
Bernard Magoro, Head of the IPP Office said: “We wish to thank all parties for the commitment shown and the constructive way in which they approached this refinancing and hope that the successful conclusion thereof will lead to more IPPs taking comfort from the process and coming to the fore to participate in this initiative. The IPPO is proud to be part of this achievement.”
ABSA and Globeleq deal to encourage re-investment
Apart from reducing wholesale electricity prices, the refinancing will unlock funds for the shareholders which, in turn, will encourage re-investment in the sector as well as accelerate equity distributions to the three community trust shareholders, enabling spending on high impact sustainable ventures.
Absa’s Johan Koorts, Resource & Project Finance Principal said “Absa Bank has been a major supporter of the South African renewable energy programme since its inception and has to date arranged financing for c. 3 gigawatts of projects across various bid windows. This transaction strongly demonstrates Absa’s ongoing commitment to the financing of clean energy and the acceleration of investments that make a sustainable impact on the communities we serve.”
Other parties involved in refinancing the deal include Liberty Group Ltd/Stanlib Limited; Futuregrowth Asset Management Pty Ltd, Sanlam Capital Markets Limited and Momentum Metropolitan Life Limited. Norton Rose Fulbright were the legal advisers, whilst Webber Wentzel were the tax advisers, and Mazars were the auditors.
