Attention is being drawn to the pension fund and insurance sectors as a way of mobilising funds for long-term investment into infrastructure.
Mark van Wyk, head of impact investing at institutional fund manager Mergence Investment Managers, says, “There is a place for fund managers in the wider infrastructure story. Projects can no longer be funded by traditional sources of banking alone because of stricter regulations and liquidity constraints post the financial crisis.
“With yields on inflation-linked government bonds at low levels, investors are interested in income generating assets that could offer similar long-term, inflation-linked sustainable returns. The infrastructure debt asset class is attractive, being a productive fixed asset with a government-supported income stream taking into account the variability of the sun and the wind.”
Mr van Wyk was part of a delegation at a ceremony held mid-February near Caledon in the Western Cape to connect the 27 megawatt Klipheuwel-Dassiesfontein Wind Energy Facility to the energy grid. The power purchase agreement was awarded to the Dassiesfontein wind farm in Round 1 of the Renewable Energy Independent Power Producers (REIPP) programme. Biotherm Energy (Pty) Ltd is the private equity investor into the project and Mergence has invested in the project development debt alongside other lenders, Standard Bank and the Industrial Development Corporation.
To date Mergence has invested in ten Round 1 renewable energy projects on behalf of its clients with a total investment in excess of R1 billion. In the pipeline, spanning rounds one, two and three of the REIPP programme, Mergence has identified renewable energy projects, in addition to smaller IPP projects, where it can invest in excess of R1,5 billion.
Commenting on the social aspects of renewable energy projects, Mr van Wyk said that Mergence aims to invest in projects that are structured to deliver socio-economic targets in excess of the minimum thresholds, taking into account local content, local procurement and local ownership.
The Dassiesfontein project is structured such that the community located within a 50 km radius of the facility will benefit through a trust that has been established for community upliftment and support. A total of 1 212 jobs were sourced locally during the construction period from May 2013 to January 2014, with more indirect jobs created or sustained at local manufacturers and suppliers. During the 20-year operational period of the wind farm, there will also be operation and maintenance, security and engineering control jobs created.
Mergence Investment Managers
Mergence Investment Managers (Pty) Limited is a black-owned specialist fund manager founded in 2004 with R14 billion assets under management. It is a subsidiary of Mergence Africa Holdings (Pty) Limited. Its clients are largely institutional and include parastatals, unions and pension funds.
Mergence helped to draft the Code for Responsible Investment in SA (CRISA) and is a signatory to the UN Principles of Responsible Investment (UN PRI). More information can be found at: www.mergence.co.za
BioTherm Energy is one of South Africa's first Independent Power Producers. The company is backed by Denham capital, a leading energy and commodities focused global private equity firm with over US$7.5 billion of assets under management. BioTherm was the first company to monetise carbon credits, first company to complete a non-recourse project financed IPP deal in South Africa, as well as the only South African company to close three Round 1 REIPPP projects.
Dassiesklip wind energy facility has been constructed on an area of 350 hectares located approximately 5kms west of Caledon in the Western Cape Province. The Facility has a capacity of 27MW and consists of nine 3MW wind turbine generators manufactured by Sinovel. The facility has been constructed by an EPC consortium consisting of Group Five, Iberdrola and Sinovel. Along with the equity provided by Denham capital, debt funding was utilised from Standard Bank and the Industrial Development Corporation.
The project company consists of BTSA (parent company of BioTherm), along with three BBBEE trusts, Overberg Wind Power and Winners Circle (BEE SPV).
BioTherm, as a South African company, is closely aligned with the national goals of expanding the role of renewable energy. It also sees wind and solar power not just as energy sources but as an integral part in ensuring that the economic, environmental and social aims of the country are met.