Banks work behind the scenes to keep the lights on

30 Nov 2022

While the South African Reserve Bank has flagged rolling blackouts as a huge non-financial risk to the economy, corporate South Africa and the big banks, in particular, are working behind the scenes to ensure business continues uninterrupted.

Based on funding commitments for rounds one to four, Nedbank Corporate Investment Banking is funding about R35-billion into the Renewable Energy Independent Power Producer Programme (REIPPPP) and has helped introduce 3,517MW of new energy into the grid. A Nedbank spokesperson noted that the round five projects had not yet closed and round six had not yet been awarded so only projects from round one to four were currently contributing power into the grid.

Read more in Daily Maverick: “Load shedding is the biggest non-financial risk facing the SA economy – Reserve Bank”

Arvana Singh, head of sustainable finance at Nedbank says there are a number of examples that demonstrate the bank’s ability to unpack impact in the investment space. “Being at the forefront of sustainability and as a leading global sustainable products innovator, we continue to form new partnerships and look for new opportunities to unlock. We recently concluded a $350-million sustainability-linked loan in the international capital markets, which has been well supported by our lender group,” Singh said.

Nedbank has been a forerunner in the space as the first arranger of green renewable energy bonds back in 2019. Green bonds are fixed-income instruments that help companies raise capital for investing in climate and environmentally friendly projects while enabling investors to buy into these instruments. These bonds are typically asset-linked and backed by the issuer’s balance sheet.

The investment proceeds from the first green bond in 2019 were used to deliver financial support to solar and wind renewable energy projects. Singh said that in 2020, Nedbank issued the first green tier to capital and in 2021, it was the first bank on the African continent to issue a green additional tier one instrument.

“Later in 2021, we issued a R1.09-billion green residential development fund, which actually employs blend finance characteristics as well,” she said. Nedbank’s total amount of green bond issuance on the JSE as at the end of December 2021 was R6.8-billion.

Massive uptick

The First Rand TCFD (Task Force on Climate-Related Financial Disclosures) report reveals that First National Bank (FNB) financed 40MW of small-scale embedded generation over the past four years. Kyle Durham, head of sustainable finance and ESG solutions at FNB Business says the bank is seeing a massive uptick in clients purchasing solar plants for their operations.

“The demand is so great, we are looking at doubling the 40MW in the current financial year because the market has simply exploded,” he said, adding that solar systems capex is outpacing generators at a ratio of six to one.

“We are also accelerating other sustainable finance and have recently launched a dedicated funding product for lithium-ion electric forklifts, financing the additional capex requirements over a more suitable period at a competitive interest rate. “This will allow customers to take advantage of the cost savings (an estimated R2,000 per forklift, per month) over a traditional diesel forklift and we are working closely with Mitsubishi forklifts to unlock this solution for our customers,” he said.

Wind farms

Absa recently acted as the joint mandated lead arranger and lender for two renewable energy projects which reached financial close on 10 November. The projects in the Northern Cape comprise two 140MW wind farms to be developed at a total estimated capital cost of R7.7-billion. The projects will be the first of three by lead sponsor, EDF Renewables, to reach financial close under the 5th bid window of the South African Renewable Independent Power Producer (REIPP) programme. EDF Renewables’ third project under bid window five is expected to close soon, bringing the total project capital cost to an estimated R11.5-billion.

The three projects are being developed with Gibb Crede Wind Farm Investments and H1 Holdings. The combined project size will be 420MW (3 x 140MW each) and the power generated will be supplied to Eskom under a 20-year power purchase agreement.

“Absa continues to support the South African renewable energy programme, having now financed over more than 3.5GW of projects since the inception of the programme more than a decade ago. This transaction strongly demonstrates our ongoing commitment to financing clean energy projects and the acceleration of investments that make a sustainable impact on the communities we serve,” says Shaun Moodley, principal within Absa’s resource and project finance team.

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The EDF Group is a lead in utility and one of the biggest power producers in the world with a total installed generation capacity of 122GW. EDF Renewables South Africa has contributed four wind farms to the South African (REIPP) programme already.

Absa also acted as joint mandated lead arranger and lender for a utility scale renewable energy captive power project, comprising 200MW of solar power, to be built in North West at an estimated cost of R4.1-billion. The project, which is comprised of two projects of 100MW each and to be developed by Sola Group, will supply power to Tronox Holdings South African operations under a long-term power purchase agreement. The project is expected to reduce Tronox’s global carbon emissions by about 13%.

Moodley says the project will supply electricity, through wheeling arrangements with Eskom, to five of Tronox SA’s facilities in the Western Cape and KwaZulu-Natal. Tronox SA’s operations are energy-intensive and the competitive energy tariff secured for this project will contribute to significant savings in Tronox’s energy costs. BM/DM

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Massive uptick

Wind farms