It’s been a year since South Africa experienced a hard economic lockdown due to the COVID-19 pandemic. In that time, we’ve had to reevaluate our processes and procedures to ensure a safe and reliable supply of critical products onshore.
The reality is that, even though we have the need to realise the desire to localize supply chains, we do not have the energy to do so. Currently, South Africa has about 21 000 megawatts of energy, too little to meet the country’s current demand.
In his departmental budget speech on 18 May 2021, Minister of Trade and Industry, Ebrahim Patel, said that the localization strategy is getting traction.
We will see the localization of up to R200 billion of additional production in South Africa over the next five years. The localization strategy paired with the energy crisis is creating an opportunity for businesses to invest in Renewable Energy (RE) and Energy Efficient (EE) projects to ensure we see these plans succeed.
“An initial list of 42 products have been identified for localisation, and R240 million has been raised from the private sector to appoint technical experts to drive localisation, bringing together industrial engineers, supply-chain managers, experts in dealing with illegal imports, and project managers.”
– Trade and Industry Minister, Ebrahim Patel
I was fortunate to present at The Southern African Energy Efficiency Confederation (SAEEC) Finance Webinar in May, alongside Deerosh Maharaj (Standard Bank of South Africa) and Benjamin Curnier (The Carbon Trust).
We demystified and unlocked finance solutions to create a sustainable tomorrow. We were all in agreement that we need to urgently get RE and EE projects to a financial close to enable a sustainable future. Apart from the funding available from the Government and the DTIC, Deerosh confirmed that financial institutions are ready to finance such projects as well.
Applying for finance can be daunting. Some companies think about the administrative burden it entails and loses momentum before they even start. Knowing what to look out for before you start the process is imperative. Having someone help you do the heavy lifting can also help you put your best foot forward from the start.
“The challenge is in a borrower articulating the story effectively and well enough. What you will find is liaising with someone (like Nadia / Uzenzele) will take you a long way in taking you to a point and holding your hand, so that when your application gets presented to the bank that you put your best foot forward first. It’s a lot better to get appetite upfront and move it to approval”
– Deerosh Maharaj: Senior Manager, Natural Resources: Power and Sustainable Solutions at Standard Bank Group at The Southern African Energy Efficiency Confederation (SAEEC) Finance Webinar in May
There’s a Chinese proverb you should always keep in mind before you embark on any application journey:
A little impatience will spoil great plans
Together with some patience, I’d like to share 7 principles that you have to adhere to in order to ensure financial close during your next EE and RE-funding applications:
- Credibility: You need to be a credible applicant with a good credit score and reputation. Proven past success stories are beneficial in the funding application process. Whether it is industry success stories or personal success – be sure to leverage these. If it’s your first stab at this, make sure you have very strong and credible business partners including engineers, equity partners and other key skills on your team to establish credibility.
- Technology and engineering, procurement and construction management (EPCM): We are seeing the market focusing on Solar PV and wind energy extensively at both a utility and individual energy user level. This is because there is a proven track record of the technological effectiveness of the engineering capability and skill in erecting and maintaining such projects. A well-established investment case exists against which funders are able to supply finance. It is easier to deal with what’s known than what is still unknown. If there is only little developed and in-market proof of the technology’s outputs available for your solution, you will have to invest in more research to present your case when applying for funding and often establish pilot plants at your (or your customers)’ own cost.
- Lack of feasibility studies and environmental impact assessment studies (EIAS): Due to the lack of maturity of studies and bankable information dealmakers need to make a decision, applications often are unable to progress past the first introduction. Project owners and sponsors who don’t have these plans will often create a negative first impression with the dealmakers and bankers they are approaching for finance. The DTIC and DBSA have funding available to complete bankable feasibility studies where the fundamentals stack up. We see that there’s a miscommunication in the level of maturity in these studies where project owners who would otherwise be eligible, either over-invest or under-invest in the pre-feasibility stage and become ineligible for this funding. Funders would require that project owners obtain EIAs with positive outcomes prior to providing term sheets. Onboarding credible partners and advisors early on can help you to establish eligibility throughout.
- Off-takers: Every application for finance makes or breaks it on the back of credible offtakes from reliable buyers. The better quality your off-takers and their commitment to purchase your goods or services at a profitable and economically viable rate and volume – the more likely you are to attract finance.
- Preparedness: If you haven’t engaged in a structured finance energy project with the 27+ funders in the market, we recommend that you work with a professional firm like Uzenzele. Before you do, you will need to be prepared with reliable financial records and business information, regulatory approvals, off-taker agreements and ensure that your compliance standards are in order. You and your team will need to be available, committed and dedicated to work closely with the professional firm to move your project to the standard of preparedness expected from funders. Having a partner such as Uzenzele help you through the application process will ensure you’re sufficiently prepared to put your best foot forward and have the bankers engage on your application with eagerness and intention to closing a deal.
- Regulation: Regulatory uncertainty is the biggest challenge in the energy sector, it’s imperative to have strong partners who understand the current (and ever-changing) regulatory environment. Your engineering partners should have this skillset in-house or strong partners they work with for the specific type of technology, size, etc. Make sure you ask your engineering and market entry partners about the specifics around the regulatory, licensing and tendering process as may be relevant. Underestimating the regulatory complexity and barriers which exist in energy projects can put your project in peril.
- Size or stage of the project: We often see many people look for funding yet very little qualify for it because of the size and stage of the project. Be sure that you are familiar with the requirements of the funding that you are applying for and that you are far enough along to qualify for it. Knowing which funder (and division or dealmaker within the funder) to approach based on project sizing and project stage is critical and can be complex. As a benchmark, Uzenzele works with project owners requiring over R10 million, including where up to R50 million may be obtained through the Critical Infrastructure Programme (CIP) whose minimum B-BBEE requirement has recently been amended to a Level 6 compliance or R50 million depending on the project and source of funding.
Once you adhere to these seven principles there will still be some bumps in the road to success, that’s why purposeful patience is an added key to success. The Clean Technology Show Africa and Solar Power Africa is coming up later this year. We hope to see further regulatory certainty around licensing as well as what can and cannot be done in industry be specified during these events.
We rely on alternative energy sources (EE and RE projects) to succeed sustainably to localize manufacturing. For further guidance on how to get your clean energy project funded, you can click here.
Further to implementing EE and RE projects, the localization strategy will be depending on energy regulations to succeed. In order to plan and implement successfully, the industry will need the timelines for licensing approvals, allowance of connectivity of energy producers, and processing efficiencies around getting those approvals and licenses out in time for projects to reach maturity to access finance.
If anything, thinking back to the initial impact of Covid-19 – the pandemic has proven that we need to localize manufacturing. We are committed to the cause to do everything in our power to help you succeed locally. With our experience and your solutions, we are busy laying the groundwork for the feasible implementation of EE and RE projects. Minister Patel, we are excited to see how this will EMPOWER your localization strategy to succeed.