Absa Bank and Patrice Motsepe’s African Rainbow Energy and Power (AREP) have combined forces to create African Rainbow Energy, a renewable energy investment platform.
The new platform will be capitalised with a R500-million cash injection from Absa, which will also transfer R5-billion of existing renewable assets to the company. This transaction represents about 25% of Absa’s R20-billion loan book and will expand its participation in this sector. The bank has funded 33 projects to date, which represents about three gigawatts, or 46% of the total projects closed to date in South Africa.
For its part, AREP will transfer its existing investments in wind, solar photovoltaic and biomass projects, which have an installed capacity of more than 700 megawatts of renewable energy.
This will result in African Rainbow Energy having about R6.5-billion of gross assets, covering 31 renewable assets, making it a sizeable independently owned energy business in South Africa.
The establishment of African Rainbow Energy is intended to expand the pool of funding available for renewable energy developments in the country. This comes as plans are being accelerated to expand and diversify South Africa’s energy base through, among others, bid round five of the Renewable Energy Independent Power Producer Programme (REIPPP) and the proposed amendment to Schedule 2 of the Electricity Regulation Act which raises the threshold for companies to produce their own electricity without a licence, to 100MW.
With both players already investors in the space, it appears to be a case of stronger together.
“We aim to build a world-class energy company,” says Motsepe, the chairperson of AREP. “We feel there is a sense of urgency – we have to get going with the right things. The private sector has a critical role to play when it comes to stimulating the green economy, while at the same time investing and creating jobs.”
For Absa, the partnership underscores the bank’s commitment to supporting renewable energy development. “Climate change is a risk to society and the impact is evident globally. This week saw the death toll from China’s floods reach 300 people this week, while recent heatwaves in California raised temperatures above 50℃,” says Absa’s acting CEO Jason Quinn. “Responding to climate change requires global, national, regional and local collaboration, and banks have an important role to play in financing the transition to a low-carbon future. We have targeted financing or arranging more than R100-billion for environment, social and governance-related projects by 2025.”
Ultimately the objective is also to list the company on the JSE. “Before we do that it is important that we build an entity with scale so that when we list we attract the institutional investors. Scale is important,” says Brian Dames, former CEO of Eskom and CEO of AREP. “We are engaging with other investors to increase its equity base and fund further growth.”
African Rainbow Energy has already secured a deep investment pipeline and has partnered on a number of bids into round five of the REIPPP. It will also invest in the private power sector and is working with several companies on bespoke energy solutions.
AREP’s holding company, Ubuntu-Botho Energy Holdings, was founded by Motsepe and is the only African company to partner with Breakthrough Energy Ventures which was started by Bill Gates and includes the likes of Jeff Bezos, Richard Branson, Jack Ma and Mukesh Ambani. It’s an investor-led fund that is building companies that aim to provide energy with zero emissions.
“Our investment in African Rainbow Energy creates an opportunity for Absa to increase our role in the much-needed expansion of the renewable energy sector,” said Quinn.
“The fund will provide investors with exposure to utility-scale, commercial and industrial sector clean-energy investments, building a platform of scale in South Africa, and will seek selected, bankable projects in Africa,” said Dames.
The effective date of the fund is subject to the fulfilment of certain conditions which are expected to be concluded in the fourth quarter of 2021. DM/BM