South Africa’s renewable energy embedded generation sector is poised for a massive boom following the government’s recent amendment to Schedule 2 of the Electricity Regulation Act to allow power systems of up 100 MW capacity to be developed without a requirement for licensing from the regulator NERSA.
The new regulations initially announced by South Africa’s President Cyril Ramaphosa in June came hard on the heels of rolling power black outs in Africa’s most industrialised nation.
These new reforms have been met with much enthusiasm and optimism by business and are set to attract significant investment in South Africa’s embedded generation sector and help the nation in addressing its power challenges.
“This (100MW threshold) will remove a significant obstacle to investment in embedded generation projects. It will enable companies to build their own energy facilities to cater to their own needs,” acclaimed Ramaphosa during a media address.
With burgeoning investor excitement on the new regulations on South Africa’s energy sector, RenewAfrica.Biz’s Nigel Lungi (NL) spoke to Mpho Mokwele (MM), the Head of Project Finance at the Development Bank of Southern Africa (DBSA). Mpho elaborates more on the development bank’s recently announced Embedded Generation Investment Programme (EGIP), and how it will impact South Africa’s embedded generation sector.
NL: What exactly is the Embedded Generation Investment Programme (EGIP)?
MM: The Embedded Generation Investment Programme (EGIP) is a US$200 million funding facility put together by the DBSA and the Green Climate Fund (GCF) specifically to fund embedded generation projects in South Africa. It’s not a procurement type of programme like the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), instead it’s about providing an opportunity for independent power producers (IPPs) access to concessional finance for implementation of their embedded generation projects, including solar and wind. Within the EGIP facility there’s a couple of instruments to enable the implementation of the embedded generation projects. As you know, the embedded generation sector is quite a new sector, yes there have been quite a number of projects implemented but we have not seen “utility scale” type of embedded generation projects. I would love to see in this country a utility scale type of embedded generation projects, we’re talking about 10 MW, 20 MW, 100 MW embedded generation projects, in line with the regulations now. So what we want to do is to develop that market for a “utility scale” type of embedded generation projects through the finance we secured from the Green Climate Fund (GCF). What we then do is we blend that finance alongside the DBSA’s facilities, it becomes more affordable and opens up the sector.
NL: How big is the fund and can IPPs and energy companies be granted 100% finance for their projects through EGIP?
MM: It’s not a fund, it’s a facility that is co-funded on a fifty-fifty basis by the DBSA and the Green Climate Fund (GCF) at US$ 100 million dollars each, adding up to US$200 million. And to answer the second answer to your question, no, no one can access 100% of the facility because it’s quite important for us to spread the concessional nature of this facility across multiple developers. We need to open the market by spreading it across different IPPs, some of them have developed projects under the REIPPP programme but have not been successful, that’s who we’re targeting. There is a prudential limit per project which is about US$10 million equivalent.
NL: Are non-South African companies implementing projects in South Africa eligible for funding?
MM: Absolutely! You look at the REIPPP programme, you had a whole lot of developers, international and technical sponsors which I won’t mention but a lot of them were foreign companies that came here to develop renewable energy projects, we supported them as the DBSA. We will support them but what’s important is within that credit structure there is an involvement of local players. There’s a transformation objective underpinning the programme itself, it’s not just about providing access to finance. It’s also quite important for us to transform the sector and open it up to other players that would have otherwise not had access to finance. So it’s a yes, but on condition that there’s involvement of local players.
NL: In your funding criteria for EGIP, how is black economic empowerment going to tie in?
MM: We have products and instruments within EGIP. There’s the subordinated tranche which provides some credit risk mitigation for your senior debt participants. There’s also a BEE funding component in EGIP in order to provide funding to BEE players that want to get into the embedded generation renewable energy space and have projects developed. So it must not be completely people that don’t know anything about renewable energy. We need serious players. We provide concessional financing for BEE players and local communities that are in and around those projects. We will be funding the communities around areas where projects are being developed to make sure there’s inclusivity in terms of implementation to the projects.
NL: I know social impact is one the key drivers for DBSA’s programmes. What impact does the DBSA hope to achieve through the EGIP initiative?
MM: There’s a transformation objective to the EGIP initiative, making sure there is inclusivity and transformation . We’ve been driving that agenda as the DBSA. Gender mainstreaming is also quite important, ensuring that there is female participation. Obviously from a socio-economic angle, we aim to help address the energy supply constraints. EGIP is also about creating job opportunities for the youth, underlying the programme is improvement of South Africa’s socio-economic conditions.
NL: The DBSA was instrumental in the establishment of South Africa’s largely successful REIPPP programme for utility scale projects. Are you hoping for the same level of success on EGIP?
MM: Of course, of course! You look at the renewable energy IPP programme, it’s well established, we’re now on the 5th round of that programme which has been oversubscribed to the tune of over 100 projects. So it means from a market point of view, there’s not much of an intervention that’s needed from the DBSA. We were at the fore-front of developing that programme and implementing it. Seeing it mature to this stage, it’s quite a success. So the next programme, or next market that we need to be at the fore-front of developing is the embedded generation market. That’s why we have developed the EGIP programme. When we conceptualised it two to three years ago that was the underlying motivation. We were aware that the regulations were not permitting these projects to be implemented. But in spite of the restraining regulations at the time, we soldier on and put the programme together and went to the Green Climate Fund to raise the funds. Everyone is quite excited about the 100 MW embedded generation license exemption threshold. We knew at some point that we would get here. We have been at it for the longest time, hence we have released our Call for Proposals closing at the end of this month. We’re looking at a whole lot of proposals being submitted. We’re looking forward to evaluating the proposals and seeing what is in the market at this point in time. We’re looking forward to funding a whole lot of great opportunities and hopefully most of the projects are ready and ripe for funding
The deadline for submitting proposals is the 31st of September 2021. To access the link to submit proposals please click here here: https://www.dbsa.org/embedded-generation-investment-programme
