South Africa’s Renewables Market Is the World’s Fastest Growing

Johannesburg, Capital Markets in Africa: South Africa’s renewable industry is looking good for project financiers.

The African country’s green power sector had the highest growth year-on-year globally for asset finance at 300 percent, according to Moody’s Corp. It drew $4.5 billion in 2015, the credit rating company said in a report on Friday.

It highlighted a drop in renewable electricity prices, the growth of independent power producers and increased participation of institutional investors as credit positive developments for non-recourse project finance. The projects are less dependent on a subsidy because the cost of solar and wind technology is falling.

“The South African renewable energy market has grown rapidly over the last five years or so and there is rising demand for renewables debt,” said Christopher Bredholt, analyst at Moody’s.

South Africa has a target to build 17.8 gigawatts of clean power by 2030. It has had four rounds of auctions under the Renewable Energy Independent Power Producers Procurement program. Developers sign power purchase agreements with utility Eskom Holdings SOC Ltd. that come with a guarantee from the South African government.

Returns have dropped from over 20 percent in the first round to around 15 percent in the fourth, according to Clarence Oelofse, managing director atFieldstone Private Capital Group’s Africa division.

“There’s lots of people interested, finding debt is not hard because its renewables projects,” Oelofse said by phone from Johannesburg. “Although with the rand PPA, it has to be rand debt, but developers have been able to find it. Coal is proving much more difficult nowadays.”

Financing has primarily come from local banks and development finance institutions, according to Moody’s.

Source: Bloomberg Business News