The recent appointment by President Ramaphosa of Jeff Radebe as Energy Minister provided some promise that the uncertainty surrounding the Renewable Energy Independent Power Producers Programme (REIPPP) would be resolved.
The industry received a strong boost with the Minister announcing that the 27 outstanding REIPPP projects from bid windows 3.5, 4 and 4.5 will be signed off on Tuesday 13 March 2018.
The signing process will culminate in Eskom signing Power Purchase Agreements (PPA’s) with the 27 projects. Although Eskom was not present when the Minister made the announcement, its spokesperson confirmed that a resolution to sign the PPA’s were taken at an Eskom Board meeting which was taking place at the time the Minister was making the announcement.
Concerns were previously raised about the average tariffs at which the PPA’s would be signed, with both both Eskom and relevant ministers indicating during 2017 that the PPA’s would only be signed at an average tariff of 77c/KWh. It has now been confirmed that the average tarffs at which the PPA’s would be signed are 86c/KWh. The signing is expected to unlock R56bn of new investment and create 61 600 full-time jobs over the next few years, which has been mired in uncertainty since April 2015.
This announcement will provide renewed positivity and momentum into the REIPPP programme.
We however continue to believe that the early round projects remain attractive funding opportunities to investors due to the following:
- Projects benefit from higher tariffs resulting in more financial flexibility in the event of problems occurring during the term of the PPA;
- The projects are operational therefore no construction risk is present;
- As the projects are operational, investors are able to fully deploy investments rather than be exposed to a partial drawdown process during the construction period;
- The projects have commenced capital repayments on its loans thereby resulting in investors receiving coupon and capital payments on a regular basis.