Investing in South Africa


Banks get in on SA's power boom

29 August 2013

Investec Plc announced on Wednesday that it was leading the financing of two South African gas power plants being developed by French company GDF Suez, marking the first major non-renewable independent power projects to be financed by South African institutions.

Construction of the two two greenfield open-cycle turbine power plants, the 670-megawatt (MW) Avon plant in KwaZulu-Natal, and the 335 MW Dedisa plant in the Eastern Cape, has commenced.

The plants are expected to start providing electricity to state company Eskom - with whom power purchase agreements were signed in June - in 2015 at the Dedisa plant and 2016 at the Avon plant.

The plants are 38% owned by GDF Suez, 27% by South African company Legend Power Solutions, 25% by Japanese company Mitsui & Co, and 10% by The Peaker Trust representing broad-based black organisations and communities. GDF Suez will establish the company that operates and maintains the two plants.

Investec said on Wednesday that it was the lead finance arranger in a syndicate of six financial institutions for the two projects, together amounting to a R9.7-billion investment in the country.

"The peaking power projects are the first major non-renewable independent power projects being financed in the South African market," Robert Gecelter of Investec project and infrastructure finance said in a statement. "The participation of some of South Africa's leading financial institutions illustrates the market's appetite to support this vital expansion of the national grid."

South Africa's renewable energy drive

Despite being Africa's largest power market with over 45 GW of installed generation, South Africa's fast-growing economy and fast-urbanizing population has created huge demand for energy, opening up solid opportunities for investors, particularly in the development of renewable energy.

The government is supporting the creation of new capacity with a number of initiatives, including a plan to bring 17 800 MW from renewable sources online by 2030.

Last year, the government signed contracts with a number of independent power producers to procure 3 625 MW of renewable energy by the end of 2016 in order to to curb South Africa's reliance on coal and help reduce it carbon emissions.

GDF Suez, one of the successful bidders, is a 43% equity stakeholder in the joint venture project Aurora Wind Power, which started construction of the 94 MW West Coast One wind farm near Vredenburg in the Western Cape.

Investec holds 34.5%, Kagiso Tiso Holdings holds 20%, and a community trust holds the remaining 2.5% in the project, which is expected to start delivering power in mid-2015.

New coal-fired power plant

GDF Suez is also involved in a fourth South African power venture, having signed an agreement with South African mining group Exxaro Resources to develop a 600 MW, expandable to 1 800 MW, coal-fired power plant outside Lephalale in Limpopo province.

"GDF Suez's partnership with South Africa is gaining momentum, with several agreements successfully concluded during the second quarter of 2013," GDF Suez Energy CEO for South Asia, Middle East and Africa Shankar Krishnamoorthy said after the signing of the agreement in July.

"Successful public-private partnerships in the power sector will contribute to the adequacy and efficiency of South Africa's electricity industry, which is key to the country's economic development."

SAinfo reporter

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