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Investment in renewable energy ideal for pension funds

28 Oct 2015

PAUL SEMPLE / PORTFOLIO MANAGER

Article

The renewable energy sector is forging ahead and generating growth with total investments in the alternative energy sector now standing at more than R200bn.

Futuregrowth Power Debt portfolio manager, Paul Semple, said the growth of the sector reflected the success of the Department of Energy's Renewable Energy Independent Power Producers' Procurement Programme (REIPPPP). Though it's not official, he said the government has indicated that it plans to add an additional 6,000MW to the grid over the next couple of years.

"The programme is a strong model for private-public participation and that has a lot to do with the government's commitment to transparency and the efficiency with which it's run," he said.

Futuregrowth has participated in all four phases of the bid programme and to date has made debt and equity investments worth more than R6bn in 21 renewable projects located around the country. The Power Debt Composite forms part of Futuregrowth's suite of developmental investments.

Good returns

"This sort of investment is ideal for pension funds," said Semple. "It provides good long-term inflationary linked returns for our clients - outperforming the South African STeFI Composite Index benchmark by 2.97% year-to-date - and there are the benefits of the positive social development impact these investments provide."

He said that while there was a lot of interest from offshore investors, the fact that the power purchase agreement in the programme with Eskom was rand-based acted as a deterrent. "Offshore investors would have to hedge the currency risk and that would wipe out their profits so that has effectively limited the funders to South Africa," he said.

All the projects have a 20 year take-off purchase agreement, which provides the revenue stream to repay the debt finance. Between 70% to 80% of the current R200bn is debt.

Semple believes that the outlook for the renewable energy sector is good. "The rest of world is very positive on renewables and because we have some of the best natural resources available for solar and wind power, together with a reputationally strong and well run independent power procurement programme, we are well positioned to take advantage of it."

Read the original article here.