The green industry's driving force
The IDC's green industries strategic business unit head, Rentia van Tonder, says the funder has adopted a proactive approach to focus on the development of green industries.
"I'd like to believe that this is one of the core focus areas of the IDC. We've made it very clear this is something we really want to participate in by taking early-stage risk," she says.
"If you look at what we've achieved in the last year, the bulk of our investments and approvals have been in green industries, mainly in renewable energy."
The extent of this investment is substantial, with the IDC involved in 19 preferred bidder projects under the government's renewable independent power producer (IPP) programme, with an approved investment of R7.5-billion.
Of these, 12 were awarded contracts earlier this year when the department of energy announced the winners in the first round of bidding, and another seven projects received preferred bidder status for round two.
<strong>Power behind jobs</strong>
The programme is seen as the major thrust for IDC investments because these producers are expected to create downstream and upstream development, provide critical mass to the industry and change perceptions about risk and viability. "Renewable energy is the main focus, which is mainly aligned with government's IPP programme," says Van Tonder.
Under the government's integrated resource plan for electricity (IRP2010) the aim is to ensure that, by 2030, 42% of electricity, or 17 800MW, is from renewable energy sources.
Of this figure, 3 725MW will be procured through the IDC's programme by 2016.
Following two bidding rounds, a total of 47 preferred bidders have been identified, involving projects that collectively represent renewables capacity of more than
2 459MW and investments in excess of R70-billion.
One of the measures to promote smaller-scale projects is the Small Projects IPP that has ring-fenced 100MW of the 3 725MW for projects of less than 5MW. Both the larger and these smaller projects have increasingly stringent requirements on community involvement, employment and shareholding.
Van Tonder says this second round of bidding has already shown the developmental and cost benefits of the programme, with the average solar photovoltaic pricing falling from around R2.75 per kWh to about R1.65 per kWh.
Local content in photovoltaic energy has also improved significantly, from 28.5% to 47.5% in the second bidding round.
New photovoltaic solar projects dominated this round, with nine such projects selected. They were followed by seven wind power projects, two small hydro power projects and and one concentrated solar thermal power (CSP) project .
Almost 1 044MW was awarded in this second round, divided up as follows: solar photovoltaic 417MW, wind 562.5MW, small hydro 13.3MW and CSP 50MW.
Competition for these IPP agreements is getting tougher. As many as 79 bids were submitted in the second round, and little more than another 1 000MW of targeted capacity is up for grabs in the remaining bidding rounds.
Van Tonder is confident the IDC is strongly positioned to provide the necessary backing for these and future projects, particularly through its ability to facilitate community involvement and shareholding.
"We are one of the few funders that will fund communities to acquire equity in these projects," she says. "We can provide 100% of the funding for them to acquire an equity stake."
This is possible because of the IDC's financial clout and its ability to structure deals and debt that provide the most value. This is demonstrated in part by the R5-billion Green Bond issued in April, which has been taken up by the Public Investment Corporation. This 14-year bond will contribute to meeting the IDC's green industries commitments.
Van Tonder says she has also established a very competent team that is well-versed in the art of project finance, specifically in the renewable energy field.
"We've built a lot of skills over the past two years on renewable energy and I think this is the biggest financing team in SA focusing on renewables."
Her team is slowly gaining the respect of international partners which initially may not have appreciated the IDC's experience and competence in development finance. "South Africa may be a newcomer to the market on this, but we do know how to develop projects, so we've gained a lot of appreciation and respect in the market," says van Tonder.