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IDC offers low-cost debt for renewable energy concerns

Frank colourFrank Spencer – CEO Emergent Energy.Speaking at the Power and Electricity World Africa conference exhibition in Johannesburg, Emergent Energy CEO Frank Spencer urged renewable energy start-ups to approach the Industrial Development Corporation for low-cost debt finance.

Companies wishing to develop or improve renewable energy projects can approach the Industrial Development Corporation (IDC) for finance at “very low-cost debt”, said Frank Spencer, director at renewable energy solutions and consulting services company, Emergent Energy.

“There are some low-cost debt options emerging specifically for renewables. The IDC has a facility [available] if you meet their criteria. You can borrow between R1-million and R5-million at prime minus 2% for up to 15 years,” he said. “That’s pretty good low-cost debt.”

Giving a presentation entitled “Leveraging government grants to improve renewable power projects” at the Power and Electricity World Africa conference exhibition in Sandton on Tuesday, 11 March, Spencer advised companies to consider long-term debt finance like the Green Energy Efficiency (GEE) Fund offered by the IDC.

“If you are building a solar PV [photovoltaic] that is going to run for 20 or even 25 years, financing a project like this over [a period of] five years is not good enough because it’s a long-term asset that you are building. Long-term finance is the way to go and a funding institution like the IDC would be the first to offer such finance specifically for renewables.”

To be eligible for funding from the GEE Fund, companies should be operating in the private sector space and should have a plan to implement an energy efficiency project that provides significant energy and/or emissions savings. Alternatively, the project should be able to offset grid-connected electricity through self-use renewable energy.

Already, some companies have taken advantage of the funding from the IDC to finance renewable energy projects, according to Spencer. These include Impahla Clothing, a Cape Town-based SME manufacturing sportswear and leisurewear.

The company is South Africa’s first carbon-neutral clothing company and has developed a carbon and environmental management framework as part of its strategy and corporate identity. Consequently, the company came up with a project to install a grid-connected rooftop PV system to reduce its carbon footprint.

Being a small company and with no money to finance the project, Impahla Clothing approached the IDC for assistance to fund the solar project through the GEE Fund with support from Germany's KfW Development Bank. Funds were approved and the company is confident that the solar installation will generate between 30% and 40% of its energy requirement, saving money and improving sustainability into the future.

The IDC has also financed a co-generation plant at Calcium Carbide in Newcastle, KwaZulu-Natal. The plant has resulted in the company reducing its energy consumption by 18%, and uses waste to gas to feed its combined heat and power plant. The company spends close to R7-million on electricity a month, and the new co-generation plant will cut this bill by about 20%.

The IDC has also funded installing solar water heaters in Gauteng through energy efficiency and renewable energy company Solar Network, resulting in a 40% reduction in grid electricity consumption. The company provides high-pressure solar water heaters to commercial and residential clients.

Spencer said the Department of Trade and Industry also offers grants to companies to finance renewable energy projects through the Manufacturing Competitiveness Enhancement Programme (MCEP).

“First of all you need to be in the manufacturing sector and you also need to be a BEE Level 4 or higher company. If you meet these criteria, they can fund anything from 30 to 50% of your project as grant money,” said Spencer, adding that his company has successfully accessed the MCEP funds for a number of projects.

In 2013 Emergent Energy delivered a 20kWp solar PV rooftop system at a cost of almost R300 000 to leading internet service provider Cybersmart, based in Cape Town. The installation, with an expected lifespan of 20 years, has provided what Spencer called a “levelised cost of electricity” that matches the locally available grid tariff. This will inevitably drop below the grid tariff as Eskom and the City of Cape Town increase electricity prices annually.

Emergent Energy recently commissioned two solar PV systems at the Klein Constantia and Kleinood Wineries in the Western Cape. The systems, which have payback periods of four years, will provide renewable electricity at a fixed rate for 20 years or more.

The company is also working with a range of financiers to offer annuity models or Power Purchase Agreements to clients. These allow clients to purchase renewable electricity at a lower rate than the standard Eskom or municipal tariffs, while avoiding the capital expenditure associated with owning a solar PV system themselves.

Besides its green benefits, Spencer said renewable energy systems have other attractive benefits: “Renewable energy systems are becoming an alternative to grid supply. It is a hedge against future electricity price increases and grants and other funding make it quite attractive."

The Power and Electricity World Africa Conference runs from 11 to 12 March at the Sandton International Convention Centre. The conference, which includes exhibitions, seminars, and conferences, showcases the latest trends and technologies, project updates and news contributing to the sustainable future of Africa’s power and energy sector.

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