International law firm Norton Rose Fulbright has concluded a R3.5bn financing arrangement for five wind farms to be built by multinational power producer Enel Green Power.
The financing, which will treat the five projects as one, is yet another way to reduce the cost of green power projects, which already produce significantly cheaper electricity than mega coal-fired stations Medupi and Kusile.
"The lenders, Absa and Nedbank, took on a portfolio of five wind farms, instead of looking at each one," said Jackie Midlane, head of banking and finance at Norton Rose, who advised the transaction for Enel. With all projects under a holding company, loan facilities will be provided to that one vehicle and on-lent to the wind projects.
The result was better financing terms, assisting the power producer in offering a competitive tariff.
The wind project is part of the fourth round of the government’s Renewable Energy Independent Power Producers Programme. The cost of producing renewable power decreases with each round as the cost of technology falls.
Renewable energy in the latest rounds is now significantly cheaper — as much as 40% — than what it would cost to produce power from Eskom’s new coal-fired stations.
Midlane said this was the first such financing arrangement under the government’s green power initiative. It was unique for the African project finance market, she said.
It does require a developer to bid for a number of projects simultaneously, as was the case with Enel Green Power.
Financing costs were just one of many costs, Midlane said.
Apart from the most competitive tariff, the programme also selects preferred bidders on economic development metrics.
The latest rounds in the programme — rounds 3.5, 4 and 4.5 — were delayed for more than a year because embattled power utility Eskom resisted signing the power purchase agreements. It eventually did so in April 2018.
Due to the power purchase agreements the state must buy power from these projects at a set tariff. The cost for these tariffs is ring-fenced and passed on to consumers to prevent Eskom’s finances being affected.
Although the problem with Eskom appears to be resolved, the programme faces growing pressure from organised labour, which says it is causing job losses in the coal production and transportation industries.
It is, however, anticipated that renewables will remain an important part of the energy mix in the revised Integrated Resources Plan, the release of which is imminent.
A new bid round is expected to launch in November, according to the energy minister.
Midlane said that she expected a greater emphasis would be placed on transformation in future.