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Investing in a more sustainable future

The market for energy efficiency, green bonds and environment, social and governance principled-investment may slowly be catching on.

South Africans are starting to invest in a more sustainable future, either through installing solar photovoltaic (PV) rooftop panels and other systems at their homes, or investing in companies that specialise in renewable energy projects.

While environmental awareness has helped to drive the investment, the potential to save money is also a big drawcard.

“The market for energy efficiency services and embedded generation is growing rapidly in South Africa, driven by the increasing cost of grid electricity and the dramatic reduction in technology prices,” says Brigitte Burnett, Nedbank’s head of sustainability.

Burnett says many South Africans are investing in energy efficiency, such as LED lights, solar water heaters and heat pumps, as the first step before investing in bigger projects, such as installing solar panels on their rooftops.

While the move towards embedded generation has been fairly slow over the past few years, moves by municipalities to allow consumers to feed electricity back into the grid should change this; the market should really take off, says Burnett.

The levelised cost of energy for residential solar is about R1.10/kWh to R1.20/kWh, whereas residential consumers can pay as much as R1.80/kWh for electricity.

The Council for Scientific and Industrial Research (CSIR) has calculated that the market for residential rooftop PV could grow to 500MW per year – about 150 000 houses. This would represent a market of about R10 billion per year at current South African prices. It’s hoping to grow the market like other countries have managed to do. If South Africa has even a small share of Australia’s success, it would be a fillip. Rooftop solar in Australia has grown exponentially, with a cumulative total of just over 1.5 million systems (about 4 500 MW) installed in the nine years, from 2007 to 2015.

While the outlay for solar PV can initially appear to be quite expensive, the investment in the long run is expected to be very worthwhile. Burnett suggests that, as with any investment, people should make sure that they know and understand what they are investing in.

“When investing in a solar system at home, it is important to buy quality equipment and make use of reputable installers.”

For investors…

Apart from practically investing in renewables, there are other ways to support sustainability, while at the same time investing in an exciting, growing and potentially-lucrative sector.

Nedbank, which has been a market leader in funding the Renewable Energy Independent Power Producer Procurement Programme (REIPPPP), offers a Green Savings Bond, which is a guaranteed fixed-term investment that requires as little as R1 000 to invest in it. The money invested is earmarked to fund a range of renewable energy projects. Since its inception, R11.8 billion has been invested in the Nedbank Green Savings Bond.

“Nedbank seeks to be a leader in financing solutions to environmental challenges,” says Burnett.To date, Nedbank has committed R88 billion in value to 30 projects toward renewable energy.

“We believe that this strategy is good for our clients, good for society and good for our shareholders,” adds Burnett.

There are currently two listed companies that specialise in renewable energy: Gaia Infrastructure Capital and Hulisani. Burnett says both of these have acquired stakes in REIPPPP projects but are relatively small.

She says that theoretically, people can also invest in some listed bonds with underlying exposure to the REIPPPP, such as Soitec or RMG iNguza, but these are not very actively traded and so have limited liquidity.

Without possibly being aware of it, many people with retirement funds would already have indirect exposure to renewables. The Government Employees Pension Fund, via the Public Investment Corporation, is a big investor in the REIPPPP programme, together with several funds such as Futuregrowth Power Debt and funds from Old Mutual Alternative Investments and Mergence Investment Managers that cater for retirement savings.

Burnett says very few pension plans or retail unit trusts have a deliberate sustainability mandate, but this could change.

“Looking at the experience of other countries, we can expect that many more investment vehicles focused on energy services will come to the market.

The investment industry is also sharpening up its incorporation of environment, social and governance (ESG) principles into investment decision-making. This is exemplified by the Code for Responsible Investing in South Africa (Crisa).

Burnett says there is significant evidence that incorporating ESG factors into investment decisions leads to enhanced performance, with asset owners and fund managers representing US$60 trillion now signed up to the United Nations’ Principles for Responsible Investment.

In South Africa, the Johannesburg Stock Exchange’s launch of its new index series, the FTSE/JSE Responsible Investment Index Series, in partnership with FTSE Russell last year, has also gone some way in helping companies to integrate the principles of the triple bottom line into their business practices.

This article was sponsored by Nedbank

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I did the calculations for a PV system at my home and it would take 23 years to get my money back. Prices of PV equipment needs to fall quite a bit before becoming viable.

The financial case e.g. simple NPV calculation for the installation of renewable power be it domestic or on a commercial basis is conveniently never discussed. This makes me think there is no case.

The NPV is different for every system installed and is dependent many variables that are different for each user. The NPV and IRR are needed to make a good decision and many companies can’t actually do them properly or basically lie / over simplify them to make a sale. That being said, there is a case for PV in many parts of the country for residential and commercial users on a NPV and IRR basis.

End of comments.

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