FINANCE & FUNDING
SA banks are sitting on a R1-trillion renewable energy credit opportunity – financial analyst
Since January, several developments have accelerated the demand and take-up of funding for alternative energy.
Across all SA’s banks, there are roughly 1.6-million mortgages. About 1 million of those bondholders may be able to comfortably take on more credit. If each of them did solar installations or renewable energy solutions worth R250,000 for their homes, the total credit opportunity for the banks would be R250-billion.
Electricity usage across the country is typically split 20/80 between households and corporations or businesses. However, some sectors such as mining are cash-rich and won’t need access to credit to fund their energy supply solutions. So, a conservative estimate that corporations and businesses would finance three times as much as households gives you R750-billion.
And that’s how analyst Charles Russell of SBG Securities arrived at the R1-trillion renewable energy opportunity.
“That’s about a 25% increase in the overall stock of loans in South Africa, so funding of alternative energy supply is not a small theme. When I ran the numbers in January, I expected it to take off a lot quicker, simply because South Africa is in a fairly acute energy crisis,” he says.
Since January, several developments have accelerated the demand and take-up of funding for alternative energy. First, Eskom basically announced that rolling blackouts are here to stay, then SARS announced solar tax incentives in February, and municipalities started allowing the wheeling of additional capacity into the grid. However, Russell says stumbling blocks have included a lack of capacity in the market, with solar panels, inverters and batteries in short supply, and a shortage of properly qualified installation companies with the right technical expertise.
As such, he notes that the banks largely started coming to the market with practical offers towards the end of the first quarter of this year. Other players have also entered the market with alternative funding solutions.
How much have banks already funded?
First National Bank: FNB was not able to supply details as it is currently in a closed period. However, the bank will be part of the Energy Bounce-Back (EBB) Loan Guarantee Scheme announced by the National Treasury and administered by the South African Reserve Bank to help customers mitigate the impact of power supply challenges. The scheme is designed to assist businesses and households through financial incentives for the installation of rooftop solar-generated energy and energy storage assets. It is currently available for commercial customers and will soon be extended to individual FNB and non-FNB customers.
Businesses can access the scheme through FNB and WesBank asset-based finance, with loan options ranging from a minimum of R10,000 to a maximum of R10-million. Any business with a maximum turnover of R300-million per annum can apply. You can settle the loan early with no penalty fees, and no deposit is required. However, the loan cannot be used to pay back existing debt.
Individuals applying for a loan under the EBB Loan Guarantee Scheme will have to apply for a personal loan at a personalised interest rate. After proof of use is verified, the interest rate will be lowered to prime plus 1%, fixed for the term of the personal loan. The personal loans are available from R3,000 up to R300,000. At least 90% of the funds must be used for solar panels and related expenses such as batteries and inverters.
For individuals, backup energy solutions won’t qualify for the benefit. Only one EBB loan can be taken by an individual customer.
Standard Bank: Standard Bank is negotiating terms with the government to also participate in the EBB Loan Guarantee Scheme. The headline feature of the home solar loan is the offering of a personalised interest rate capped at a maximum of prime plus 2.5%. This is a substantial discount on the prime plus 17.5% maximum stipulated by the National Credit Act and even the average prime plus 7% interest rate offered on personal loans, according to Standard Bank.
For the first half of 2023, Standard Bank disbursed more than R450-million to individuals to install solar solutions or purchase “green-aligned” homes. Green-aligned homes create fewer negative impacts on the environment and they make use of energy or water-efficient technologies.
The bank also disbursed R1.1-billion for business solar installations and to support solar solutions providers. More than R13-billion worth of renewable energy and infrastructure projects is included in the assets under management in the Stanlib Infrastructure fund.
Nedbank: For the six months to June, Nedbank funded R11-billion towards the financing of buildings that include green initiatives, such as green energy, water and waste efficiencies. The bank says its total exposure to renewable energy solutions is R28-billion, and it has “strong pipelines across rooftop solar PV, private generation & REIPPPP [Renewable Energy IPP Procurement Programme] of almost R24-billion”.
Nedbank supported 3.5GW of REIPPPP rounds one to four, out of a total 6.3GW added. The bank says opportunities to date include R13-billion where the corporate and investment business has been mandated on 1.9GW of new commercial private generation, with the opportunity to double that; and more than R750-million for rooftop solar finance.
Discovery: Discovery has developed two products aimed at addressing the potential renewable energy needs of any business. The Green Saver product is for companies that wish to maximise the amount of renewable energy they consume and the financial savings they receive from more affordable renewable energy. The Green Guarantee product provides companies with 100% renewable energy every month without prohibitive costs. The product is limited in its availability and is aimed at companies with a strong environmental commitment.
Absa: Absa’s relationship banking unit (which includes SMEs) had financed more than R1.3-billion of renewable power projects by the end of June 2023 — good progress towards its target of putting R2.5-billion into renewable power projects by 2025. Absa has to date participated in 53% of REIPPP projects, with an output of more than 4.3GW. DM