Positive Impact

Investing now to build the kind of future we want, where everyone benefits.

Funding clean energy with inflation-linked debt

15 Jun 2016

Positive Impact

The Kathu Solar Park is a 100MWp concentrated solar power (CSP) plant currently being built 10 km outside the town of Kathu near the Sishen Iron Ore mine in the Northern Cape.

Kathu Solar Park

The developer of the project is Engie (formerly known as GDF Suez), one of the largest Independent Power Producers in the world with 117GW installed power (21.5GW from renewable energy sources). This is approximately three times the installed capacity of Eskom!

Providing inflation-linked debt

Futuregrowth is part of the lender consortium, which is predominantly made up of the major local banks and development finance institutions, providing the project with inflation-linked debt. This debt enables the project to better match its debt repayments to the tariff received from generating electricity as both are linked to the Consumer Price Index (CPI).  As such, the project is better able to optimise its capital structure, thus enabling it to charge a lower energy tariff to Eskom.

The project

The Kathu project was awarded preferred bidder status in the Round 3 CSP bidding window of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP). In order to be awarded this status, Kathu Solar Park had to be one of the 17 projects selected out of 93 bids submitted in the third bid window. Projects were evaluated on the basis of both tariff charged for energy generated and local content (procurement and employment).  

The project applies CSP technology – specifically, parabolic trough technology. This technology uses a field of curved mirrors which focus the sun’s heat onto a thin pipe with heat transfer oil running through it.

The oil is heated to over 350⁰C and this heat is used to create steam. This steam is used to generate power similarly to a typical thermal power plant using a steam turbine. In other words, the key difference between a coal fired power station and the parabolic trough CSP power station is the way in which the steam is produced; one from coal, the other from the sun.

Solar energy generator

Source: CSP World

Storage: The game changer

The Kathu plant, being a CSP plant, has a key feature that makes it unique compared to other renewable energy technologies - storage. The plant is able to generate power at maximum power output for 4.5 hours after the sun has set. This is achieved by heating up molten salt during daylight hours from 228⁰C “cold” salts up to 382⁰C hot salts. The salt is stored in thermal storage tanks which maintain the high temperature. After sunset, the plant uses the molten salt to generate steam instead of the heat transfer fluid.

CSP plants like Kathu address the major drawback to traditional renewable energy plants, namely timing. The intermittent nature of the wind and solar resource results in power being generated at a time when it is not necessarily required. For example, solar PV plants’ peak production is at noon while South Africa’s peak demand time is after 5pm. In order to “transfer” this energy generated to the peak demand time, a pump storage facility is required. But this comes at an additional cost that is not often factored in.

Through its built-in storage capacity, the Kathu project is able to produce at peak capacity during this peak demand time. In effect, the plant is able to bridge the gap between traditional renewable energy technologies (solar PV and wind) and “dirty” base load power such as coal. The Kathu project is able to generate electricity when the economy requires it and is able to do this in an environmentally sustainable way!

Alignment with pension funds

Investing in this project via an inflation-linked debt instrument gives our clients the advantage of protecting purchasing power while earning appropriate risk-adjusted returns. Given that the inflation outlook in South Africa in the medium term is around 6%, this remains an important consideration for our pension fund clients.