Kouga Wind Farm generates multiple benefits for investors, community

An investment by Stanlib in a renewable energy developer in 2010, even before SA’s renewable energy independent power procurement programme (REIPPP) was launched, has delivered benefits to the country, the local community and investors.

In 2010, Stanlib invested R12m in a renewable energy company, which, to help reduce the risk, was made available only when certain milestones were reached. This gave Stanlib the right to take up 35% of the equity in the project under development: the 80MW Kouga Wind Farm, about 70km southwest of Port Elizabeth.

When the first round of bidding in the REIPPP was launched, planning for the Kouga Wind Farm project was at an advanced stage, which gave it a first-mover advantage. It was one of 28 wind farms approved in round one of the REIPPP. Stanlib took up its 35% stake when the project reached financial close in 2012 and has since increased its stake to 40.6%.

The Kouga Wind Farm, which cost R1.85bn to construct, has been fully operational since March 2015. It delivers about 300-million kWh of clean energy to the grid each year, which is enough to power about 50,000 households.

Stanlib’s stake, which is held in the Stanlib Infrastructure Private Equity Fund I, is today valued at a significant premium to the initial investment made. Apart from attractive returns for investors, Fund I’s investments have generated more than 700 direct jobs and 700-million tonnes of carbon emission reductions a year. The community, which holds 26% of the wind farm, has enjoyed significant upliftment from the project, such as the building of new schools, skills development and job creation. 

Mobilising private capital for infrastructure requires expertise

Private sector capital plays an increasing role in upgrading and maintaining SA’s infrastructure base, with significant potential for positive impact on surrounding local communities. This supports the government’s identification of infrastructure investments as an important driver of future growth of the SA economy, especially in critical areas such as the provision of power, water and transport infrastructure, among other basic services.

Market dynamics are supporting the mobilisation of private sector capital and expertise as yield-seeking investors in developed markets contemplate near-zero or negative interest rates and worry about how they will meet their long-term return targets. Infrastructure investments offer many benefits but require partnering with an asset manager with the right skills and track record to avoid pitfalls.

Successful infrastructure investing include being an early mover in a market and the selective use of development capital, which can be highly remunerative. While many potential investors may be dissuaded to enter new markets, Stanlib has found that actual risks in new market sectors tend to be overstated. 

Having the right partners is paramount, as is engagement with regulators and the government. There must be a strong and appropriate alignment of interests to minimise potential conflict areas. In the Kouga Wind Farm example, Stanlib’s engagement at the time with regulators and other key industry stakeholders gave it confidence that the SA energy market would be opened to private investors.

Building on past successes

The Kouga Wind Farm was one of the first investments made when Stanlib launched its private equity capability, under Greg Babaya and Andy Louw. After the success of the Stanlib Infrastructure Private Equity Fund I, with peer-beating risk-adjusted returns, the team has launched a second fund, Stanlib Infrastructure Fund II.

Fund II raised R5.5bn so far since launching in July 2020 and aims to raise another R2.4bn in February 2021.

“The interest shown by investors in Fund II underscores the fact that there is significant appetite from clients to marry return objectives with a positive social impact,” Babaya says.

Drawing on the private equity team’s experience with projects such as Kouga Wind Farm, Fund II will focus on SA infrastructure opportunities that have strategic competitive advantages, in sectors with high barriers to entry, and in projects producing stable and predictable cash flows, with experienced management teams, often with long-term supply/offtake agreements and all with clear exit opportunities.

“The call for private partnership and investments into infrastructure has been widely heard. At Stanlib, we are proud to be in a position to raise and deploy capital in areas that are most needed in SA. We will continue to grow and develop our private markets capability as we truly believe that these strategies will diversify the sources of return for our clients and deliver stable, inflation-beating, long-term competitive returns just as we did with Fund I,” says Stanlib CEO Derrick Msibi.

“This investment vehicle will go a long way in balancing competitive returns for investors with assisting SA economic recovery. We are pleased to play a part in applying our investment skills while being part of the solution.”

Stanlib manages more than R60bn in pan-African private debt and equity, which makes it a key player in the private equity industry and enables it to offer its investors a range of alternative assets and specialist skills.

This article was paid for by Stanlib.