The energy sector in South Africa remains an important and highly current source of discussion. The nation’s ability to supply energy that meets rising demand has come under regular scrutiny, particularly in the aftermath of a series of blackouts a couple of years back. However, the present situation also offers exciting opportunities for Independent Power Providers (IPPs), which is part of the reason for the formation of Cennergi.
The Centurion-based company was officially launched in April 2012, as a jointly-owned venture between Exxaro and Tata Power. Exxaro is a JSE-listed mining group with a diverse and world-class commodity portfolio in coal, mineral sands, base metals and ferroalloys, and growing exposure to iron ore. The company is one of the best-performing constituents of the JSE’s Socially Responsible Investment (SRI) index.
The initial concept of Cennergi was very much down to Exxaro, as Demetri Pappadopoulos, Special Adviser, explains:
“Cennergi was borne out of Exxaro’s energy initiative and the company wanted to participate in the energy sector in South Africa. Exxaro has its own energy security needs and thought this might be something to look at seriously and started to seriously investigate the industry about 4 or 5 years ago. Its vision was to establish an energy company that could capitalise on the opportunities resulting from energy supply constraints and the move towards a low-carbon economy in the region.
“That gained momentum and Exxaro started putting together a team of 6 individuals from various backgrounds – and we all still work for Cennergi today.” Those individuals are Thomas Garner, Demetri Pappadopolous, Gorden Walters, Wendy Green, Chikoma Kazunga and Brian Day.
Having identified a number of projects, Exxaro took the decision to create a separate entity, forming Cennergi – and then the process began to find suitable shareholder partners, including an established power utility which would be able to help establish a sustainable long-term cleaner energy power supplier.
That was the point when the Tata Power Company Limited (“Tata Power”) became involved through its wholly-owned Mauritian-registered subsidiary Khopoli Investments Limited. Tata Power is India’s largest private sector power utility with an installed generation capacity of over 3,000 MW and a pipeline of over 5,000 MW of projects in early phase of development.
Such experience is supported by a wealth of knowledge and technology infrastructure, which quickly helped the South African Government to identify Cennergi as a viable IPP when the company started to tender for projects forming part of the Department of Energy’s Renewable Energy Independent Power Producer’s Procurement Programme (REIPPPP).
Cennergi further enhanced its reputation with its supplier selection, which has taken into account the black economic empowered companies, working alongside internationally-acclaimed businesses like Nordex and Danish company Vestas – both of whom manufacture turbines.
“Cennergi today is a cleaner energy business but our activities are not exclusive to renewable,” says Pappadopoulos. “We aim to be a generator of power and further down the line, a distribution provider.
“We were successful in the second round of bidding for the REIPPPP and won 2 projects in the Eastern Cape, to deliver a 95 MW wind plant at Tsitsikamma Community and a 134.4 MW wind farm at Amakhala,” he continues.
Cennergi’s Amakhala Emoyeni Wind Farm project is a 134.4.MW installed capacity wind farm located near the town of Bedford in the Eastern Cape. Exxaro had originally purchased the rights to the project from Windlab in 2011, before the launch of Cennergi, which submitted the project in window 2 of the IPPPP on 5th March 2012.
The Tsitsikamma Community Wind Farm project will come to fruition in collaboration with 70 per cent black-owned Watt Energy and the Tsitsikamma Development Trust. The site of the 95.3MW installed capacity wind farm is situated on the Mfengu community land, in the Eastern Cape.
Exxaro invested in the project around 2009. Today, Cennergi owns 75 per cent of the project, Watt Energy 16 per cent and the Tsitsikamma Development Trust, who are also the owners of the land, owns 9 per cent of the project.
Pappadopoulos says that the involvement of community trusts is an essential element to Cennergi’s activities:
“We work very closely with community trusts and the nature of these projects means that we have to meet industry and Government standards and maintain these. We will be monitoring the service performance of each project and part of that process has seen Cennergi create its own community development team.
“Both projects will create jobs and these wind farms should help to uplift these areas and have a positive effect for towns and communities in all manner of ways, including logistics, catering and local shops. The impact is huge and I think that is the objective that the Government had in mind – the direct spin-off for communities and the sheer volume of capital investment.”
He suggests that the investment at these 2 sites will be in the region of R7 billion and that it will take some time for Cennergi to realise a return, given the long-term nature of energy supply:
“Funding was not a problem and we are fortunate to have well developed capital markets and plenty of interested investors because the quality of the projects was of a high standard.”
The power generated will go straight into the National Grid and Cennergi will look to recoup its investment in the ensuing years through residential and business payment for consumption.
“Realising a return takes time and it is the same for all energy projects – much depends on the technology that is being used. Once contracts are in place, the income is consistent over a number of years; these two projects have been built with an initial 20 year lifespan in mind, but that could be prolonged, depending on the Operations and Maintenance (O&M) performance.
“There are risks as to how long it takes to exact a return on your investment, but energy projects have long-term aims, not short-term. The meter reading systems in place these days are highly sophisticated and much will depend on the quality of operations.”
Both projects are already at the point where land clearing operations are underway; Pappadopoulos says that construction should commence next year, with both wind farms scheduled to supply power during 2016.
As for Cennergi, he suggests that a public listing might be a possibility in time “if it made sense for shareholders and if the markets were conducive”.
However one thing definitely on the cards is the prospect of acquisitions that will help the company to expand its footprint across Africa – where energy demands rank as a high priority in many countries.
“It is an exciting time; like any other business it has its challenges and there was a lot of negativity driven by the power outages a couple of years ago. But the Government programme has created a great platform of opportunity for suppliers and the Renewable Energy Procurement Programme is a pre-cursor to wider opportunities.
“The big challenge we face is connectivity and the transmission infrastructure is not within our control, so we have to work closely with Eskom as it impacts on how quickly projects come into operation.”
Cennergi has made giant strides in just over 18 months; already the company has grown to 62 members of staff. An active business development team is scouring Africa for viable acquisitions and new projects:
“We have identified a number of assets that we like both in South Africa and elsewhere and we will look at existing operations and new projects that we can develop from the outset. We have a portfolio of opportunities,” Pappadopoulos concludes.