Multilateral Investment Guarantee Agency (MIGA), a member of World Bank Group, has agreed to provide support to three wind farm projects in South Africa.
MIGA announced guarantees today of $73m in support of the construction, operation and maintenance of three wind farms in South Africa, namely, Noupoort, Khobab, and, Loeriesfontein 2 wind farms. The wind farm projects will have a collective generation capacity of 360 MW, and were selected as preferred bids during the third round of the South African Renewable Energy Independent Power Producers Procurement Program (REIPPP).
MIGA’s guarantees cover equity and shareholder loan investments by Lekela Power B.V. and its subsidiary, Lekela Power Intermediate Holdings (Pty) Ltd., and provide protection for up to fifteen years against the risks of Expropriation, Transfer Restriction and Inconvertibility, Breach of Contract, and War and Civil Disturbance. Some 90 percent of the equity and shareholder loan investments are covered by the guarantees.
“The wind farms will help diversify the country’s energy mix, and directly benefit local communities,” said MIGA Executive Vice President and CEO Keiko Honda. “Such large power generation capacity also provides opportunities for South Africa and its neighbors to further realize their development potential.”
One of the farms (Noupoort) began operations in 2016, while the two others (Khobab, Loeriesfontein 2) followed at the end of 2017. The power generated from all three farms will be purchased by Eskom, the national state-owned utility, under 20-year Power Purchase Agreements (PPA) that are backed by the Implementation Agreement (IA) with the Government of South Africa. MIGA guarantees provide additional cover, in the event the Government fails to comply with its obligations under the IA.
“Building and operating renewable capacity in African countries requires a highly skilled and an experienced team capable of managing the risks inherent in these complex projects,” explained Chris Ford, Chief Operating Officer of Lekela. “Alongside our engineering expertise, extensive engagement with local communities, and focus on delivering the highest standards of business ethics, holding effective political risk insurance is a key component of our risk management strategy.”
Significantly, community trusts that ensure local communities benefit directly are key shareholders in the wind farms. Beneficiaries of the trust are black South Africans living in proximity to the project sites. Each wind farm will invest significant sums from its revenues in funding sustainable projects in the local area. These funds will be focused on priority topics such as expanding and developing of local businesses, healthcare, education and energy.
Coal has been a dominant source of fuel in South Africa, accounting for about 89 percent of the country’s primary energy consumption. However, with significant additional generation capacity needed in the future, the Government is seeking to bring in almost 20 GW from renewable sources through the REIPPP according to the Integrated Resource Plan of 2010.
Through support for earlier projects, MIGA has helped improve South Africa’s grid infrastructure and strengthened the sovereign credit environment, paving the way for delivering clean energy in the country.
An earlier guarantee from MIGA in 2016 supports transmission and distribution upgrades in part needed to support the integration of renewable energy to the South African grid. Such investments will potentially increase the pace of the roll out of renewable energy in the country.
Source: Compnay Press Release