LONDON — Biotherm Energy, a participant in SA’s first renewable round in 2011, is investing R6,5bn in four new plants after a logjam over the fourth round of tenders was cleared. – Alec Hogg
This special podcast is brought to you by RMB. In this episode RMB and Thebe partnered in Biotherm’s four new renewable plants.
South Africa’s internationally admired renewable energy programme was jump started by the Ramaphosa Administration with the new presidency’s immediate deployment of a new minister helping to accelerate the latest agreement with the private sector. Biotherm Energy is a company that participated in the very first renewables round – that was back in 2011. It returned to the fray for the latest edition. But with round-four dragging on for two-years, when the green light finally came, Biotherm needed a different BEE solution to the one originally proposed. That opened up the way for an opportunity between the company and RMB to introduce its partner and long-standing client, Thebe, to the transaction.
With the funding completed, the construction phase of a R6.5bn investment now begins with four new plants being built which will add 283 megawatts to the South African grid. The solar plants to be established in the Northern Cape are Konkoonsies (an 86 MW plant) and Aggeneys (45 MW), as well as wind generating plants Golden Valley (120 MW) and Excelsior (32 MW) in Bedford in the Eastern Cape and Swellendam in the Western Cape, respectively .
RMB transactor, Mphokolo Makara was intimately involved in shepherding the deal.
We are currently in round four of the Renewable Programme. The first round was initiated in 2011. Going through various rounds, starts and stops, round four took about two years to reach financial close. Considering all the issues that had to be sorted out by various sponsors and government, all parties were quite happy to see this round eventually get to conclusion.

And RMB has been involved from the outset?
In the renewables programme, yes. Many of the sponsors were international players as the renewable energy market was still new in South Africa at the time. It was a steep learning curve from round one in 2011. Over time things like project documents, which came from government, became standardised so we haven’t experienced too many changes in terms of the structure since then. The only changes we’ve seen over the years came in the form of local content requirements and changes to the implementation agreement to make the programme more successful.
We’re going to dig into the transaction that you’ve done with Biotherm Energy. It was interesting to see that they too, have been involved from round one and then didn’t seem to get more engaged until round four. Have you done work with Biotherm Energy before?
This is actually our first transaction that we have closed with Biotherm even though we have been engaging them over the years. I guess everybody had to put their best foot forward to be able to participate in a specific transaction. Also, as you may have seen in the media, the tariffs from round one decreased quite significantly to get to the current round four.
A lot of creative thinking has gone into how we, as financiers participate. While we were quite involved in the previous rounds, we have also moved up the risk curve – moving from pure senior debt finance participation to more equity participation. The Biotherm transaction was quite key for us in demonstrating RMB’s BEE facilitating financing skills in the renewable energy space.
Biotherm itself, is also taking a huge leap here. They were involved in the first round, but those have been pretty small projects, 10 megawatts here, and 27 megawatts there. Nearly 300 megawatts of installed capacity equating to R6.5bn. It is interesting that there’s some names there that South Africans would be familiar with, ex-Eskom Chairman Mpho Makwana, ex-Eskom CEO Allen Morgan so, there’s a lot of expertise sitting in this company.
That’s correct. I think what’s important to remember is that, as I was saying, many of the sponsors that we are seeing in the market have international experience and have done projects elsewhere. So, as much as Biotherm might appear to be moving quite aggressively in terms of the project size, internationally they do have experience in similar projects.
So, for us we also wouldn’t take the leap of faith in a sponsor who doesn’t have the experience and credibility, both from a technology and skills perspective. I think what’s also important is that Biotherm is owned by Denham Capital, which is an international private equity firm with extensive experience in development and construction – operating similar assets globally. So, from a South African perspective it might not be the case but certainly, we’re not talking about a small player.
Now, that’s interesting. So Denham Capital would have been able to provide the funding in a traditional sense. But what happened here, or it seems (reading between the lines) they experienced difficulties to put the BEE side together. Hence the introduction of RMB – what was the story there?
As you may be aware, the implementation agreement is very clear about what the BEE parameters and requirements should be for a project to be short-listed and effectively signed off by the Department of Energy. None of these projects can close if they do not meet government’s BEE requirements. It was therefore quite critical for Denham and Biotherm to get across the line, given the structure that they had put in place. It took a while for these projects to actually reach financial close from the time when the preferred bidder was announced. In the meantime, the world changes as do people’s appetite and access to liquidity. People who ultimately invest in these programmes need liquidity. Once you have that lag between preferred bidder announcement and financial close you’re dealing with various variables.
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What counted in our favour (and probably the reason why Biotherm had faith in RMB) was our extensive experience in these type of transactions over the years. Our involvement in this space also put us in a position to see the likes of Thebe (a strategic client of RMB) playing in the renewable energy sector.
When we saw the opportunity with Biotherm, we thought weknow a BEE player who has the experience, who has the liquidity to put down the equity check and also, who could help bring together the Biotherm projects to financial close by meeting the requirements of the implementation agreement.
To ensure that the BEE conditions and requirements of Biotherm that they put forward in their project documents would not be compromised it was important that we found a partner through Thebe.
Thebe has certainly been supported by RMB as well, in this instance, in the equity capital that you are lending to them. It’s a substantial amount of money that you’re putting in there, ZAR515-m that will go directly into the Renewable Holding Company of Thebe, and then ZAR200-m (the other 25% of the commitment) will go to the top company at Thebe Investments.
When we introduced Thebe, we could not change the shareholding structure that Biotherm submitted to the DoE (Department of Energy), in order for them to be appointed as a preferred bidder. So we had to be quite clever to ensure that the specific structure we would proposed (to include Thebe in the shareholding), would not go against what had already been approved by the DoE in the form of what Biotherm submitted.
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We put in the funding through the BEE Funding SPV, which was a combination of Biotherm’s Community Trust and Thebe. Ultimately our structure was to make sure that of the 37.5% that Thebe would hold in the project, we would not breach the BEE requirements that Biotherm had put in place. So, we had to put in an interposing structure between the BEE Funding SPV, to make sure that we don’t breach those commitments as well as to enable Thebe to fund their 37.5% equity holding across all projects. This funding came to around ZAR677-m to give them that 37.5% equity shareholding. Twenty five percent (25%) (around ZAR170-m) was put down by Thebe themselves and around ZAR508-m of that funding is what we, as an infrastructure business put towards the projects as liquidity to fund Thebe’s equity investment in the project.
How long did it take you to put this very complex structure together?
From the initial discussions, we’d been talking to Biotherm for years to develop the relationship, but for this particular transaction it was roughly a four week process mostly because of the pressure to reach financial close by the end of July from the DoE.
With Thebe as an existing client and the benefit of having visibility of their renewable energy projects, made it easier to ensure that the necessary due diligence processes that had to happen in those four weeks and to get to financial close were not compromised.
The four-week timeline was achievable from the start because we were working with parties who we knew, were comfortable with and had confidence in. It certainly helped a lot.
So, it’s a ZAR6.5-bn investment. Mphokolo, what goes through the minds of people at Biotherm Energy when they decide on locating the different projects? Given that they have two solar plants and two wind plants.
Fundamentally, what goes into that decision is the ability of the sun to shine and to power the PV plants, and the wind resource for the wind projects – the key primary factors to ensure that the plants have energy output to generate power to the grid. I guess, secondary to that would be various issues like the terrain of the site, whether it is easily accessible or not, how far it is from ports or roads and the ability to deliver the construction materials which are required to build the power plants. Then I guess, over time, one is also considering the communities around the area that are going to service the power plants in the form of jobs, and being able to maintain the power plant to operate and generate electricity over the 20-year term of the power purchase agreement.
How many years do these plants continue to produce for?
Effectively, the power purchase agreement (the contract between each power project and Eskom) is 20 years. You will find that in some instances the actual useful life of the equipment could be longer. Contractually as a lender we would want to ensure that the plants would be able to operate and generate the electricity that they have undertaken to at least for the 20-year term that they’re contractually obliged to.
That was Mphokolo Makara – RMB, Transactor.
I’m Alec Hogg. Until the next time, cheerio.