South African plans to build 17,800 megawatts of renewable-power plants offers a “new asset class” allowing funds to diversify investments, said Standard Bank Ltd.
“There’s a huge funding requirement,” Wayne Laskey, director for global markets at the bank, said in an interview, declining to estimate the total investment in the program. “This is a new asset class that’s coming to the market.”
A first tranche of 3,725 megawatts offered for tender needs investment of about 120 billion rand ($16 billion), according to the National Treasury’s 2012 budget review. That’s about 32.2 million rand a megawatt, suggesting a figure for investment in the total program of as much as 570 billion rand.
South Africa, which generates more than 80 percent of its power from coal, is inviting bids by developers of wind, solar and hydropower plants as part of a capacity expansion program aimed at overcoming an electricity shortage that temporarily halted the world’s deepest gold and platinum mines in 2008.
Standard Bank, based in Johannesburg, is one of the largest lenders in the program so far, underwriting more than 8.2 billion rand, or 605 megawatts, of the 26 billion rand of a first portion of wind and solar projects.
“Pension funds are playing a role but they’ll need to play a bigger role,” Laskey said. Banks’ ability to offer long-term financing is curbed by international regulations, he said.
Banks are suited to providing funds for renewable-energy projects for as much as about five years, while pension funds are better placed to offer money in the longer term, he said.
Power producers will be paid by the government, removing some risk in funding projects, while investors such as pension funds will gain a “diversification benefit,” he said.
While the government seeks to use rand funding, typically costlier foreign-currency financing may be needed should local banks and pension funds fail to meet its needs, Laskey said.
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