IDC moves from seeding green projects to driving inclusivity

As renewable energy investing keeps growing, the Industrial Development Corporation (IDC) wants a piece of the action. Reginald Demana, its new head of mining, metals, infrastructure & energy, tells Business Day about the lender’s green ambitions.

How exposed is the IDC to renewable energy?

Since 2011, when the government’s renewable energy programme started, we’ve played a prominent role in that space. To date, our exposure to renewable investments is about R14bn, at cost. We’ve supported 61 bids, and received 22 bid awards across all rounds. Our portfolio is spread across the country and the technologies range from solar photovoltaic (PV) to wind, concentrated solar power, as well as hydro. This is a very prized portfolio in the IDC. It’s low risk. It’s high return, we got in early so we took the risk, and for that we’ve been well rewarded. So our equity positions have increased very well. Our debt gets serviced regularly, and we get dividends.

How has the funding of such projects and the IDC’s role changed over time?

We started playing in the debt space during the earlier rounds, because commercial banks wouldn’t really touch it, it was still too risky. They were very cautious. So we funded a lot of those projects and the underlying debt to give confidence to commercial banks. And that is now increasingly evolved towards equity, where we now fund at levels above the project costs, because for debt, commercial banks are now in there, you can easily find that the debt is 10 to 15 times oversubscribed for renewable projects. So there is no need for a DFI [developmental financial institution] to play a significant role at that level. Hence, we have now moved and focused on equity and where we can be most impactful.

Where do you think the IDC can have the most impact?

The theme for us going forward is driving inclusivity and active participation. We want to see BEE parties and communities investing in projects, as well as playing a role in the construction, operation and maintenance. So driving inclusivity and active participation is key. We also want to support the localisation programme, which is the development of the local components industry. I think we missed an opportunity in the earlier rounds of renewable energy, but it is now a key area for us. The other thing we want to pursue aggressively is the private sector IPPs [independent power producers] — mining companies and manufacturing companies who are intensive energy users and want to put up their own projects for their own power consumption, or those who want to also sell to the grid the excess energy.

How does that tie into the IDC’s mandate?

We see ourselves as facilitating a solution for the energy deficit for the country. And, therefore, it makes sense that we fund some of these projects. We would fund the developers and help these projects to be off balance sheet. We will really be solving the bigger national issue of the energy deficit and migration from a fossil fuel-based electricity generation to a greener, cleaner environment. It’s really as basic as that for us.

Does the IDC’s enthusiasm for renewable energy signal a move away from funding coal?

SA still needs the jobs that are generated from coal businesses as we transition towards different sources of energy. So we look at coal from an energy security point of view. Where it makes sense to continue supporting projects that supply coal to power stations, we think that we have to continue to do that to secure energy supply in the country. Naturally, with power stations being decommissioned, it means lower coal production and reduced investment in new projects. Naturally, our portfolio and our exposure will reduce accordingly. The one thing that we are clear about is that as we should not leave our communities behind. We see our role as the IDC in trying to develop and support alternative economic activities [in coaldependent areas].