Investec pumps in R1bn to power up SA green power projects
New investment vehicle will seek out opportunities across sub-Saharan Africa, but will be particularly focused on SA
Investec Bank and UK Climate Investments have set up a R1bn investment vehicle to buy assets under SA’s green power programme. The vehicle, Revego Africa Energy Ltd, is expected to list on the JSE by June 2019 where it hopes to raise another R1bn to invest in operating renewable energy projects.
Also newly incorporated is the majority black-owned Revego Fund Managers, which will manage Revego’s investments.
According to Mike Meeser, chief investment officer for the fund, Revego will seek out opportunities across sub-Saharan Africa, but will be particularly focused on SA where more than 100 green power projects have been procured under the government’s lauded Renewable Energy Independent Power Producers Procurement programme.
Public enterprises minister Pravin Gordhan may have thrown a spanner in the works last week when he said the government would look to renegotiate the contracts with the winning bidders of round one and two of the renewables programme in order to take pressure off Eskom and electricity tariffs.
However, Brenda Martin, chief executive of the SA Wind Energy Association, said this would be a clear breach of contract. “The minister made the remarks attributed to him in passing and not part of his formal commentary and they do not therefore represent government policy,” she said.
With the utility obliged to take the power from these producers, and a government guarantee backing the power purchase agreements, projects under the programme have always been particularly attractive to investors and have raised R190bn in five years.
They are, however, subject to a lock-in period during which permission is needed from the department of energy for any equity sales within the first three years of operation. Some of the projects from bid rounds one and two have been in operation for more than three years and a secondary market is emerging.
Investors with limited amount of capital want to cash out of these projects so they can go on to develop new ones. “People are looking to exit and monetise the risk they’ve taken to date,” said Meeser. Revego is searching for assets to buy.
Permission from the department is still required if a controlling stake in any of the projects is to be sold, but Revego does not intend to be the majority shareholder. “The idea is that we are a financial investor, not an operational investor,” Meeser said.
North of the border, many other African nations are also promoting private-sector involvement in the development of renewable energy projects, which Revego could potentially invest in. Typically these transactions would be US dollar denominated and while the technology risk would remain unchanged, other risks such as country or payment risk means investors would require higher returns compared with transactions in SA.
“By having a mandate to invest in operating renewable energy projects in sub-Saharan Africa, having a combination of rand- and dollar-based investments could result in increasing the rand yield that Revego would be offering investors,” said Meeser.
Revego will be the first renewables “yield co” listed on the JSE, and with a proven track record and limited volatility, the green power projects are expected to deliver fairly stable returns of between 9% and 10%. The environmentally friendly aspect of the asset class is also anticipated to appeal to certain investors. Yield co is a company that owns assets that generate predictable cash flow.
“We still need to do a listing statement but we have a market sounding and there is an appetite – they like the asset class, they like the yield,” said Meeser. “The key thing for us now is to buy assets.”