The sun shines brightly on South Africa for most of the year, providing the ideal setting for the predicted growth of the photovoltaic energy market in the country.
The region is considered a potential high-growth area and according to a study conducted by Pew Charitable Trusts, a US-based research authority, South Africa is a cornerstone of clean energy development for the entire African continent.
However, an important factor in whether or not regional projects go ahead and reach their expected rate of growth is whether they are considered “bankable” – or assured of bringing in a profit.
There has been an increased demand for solar photovoltaic energy in the local market. Last year there was a 20 000 percent annual increase in spending on clean energy to about $5.5 billion (R54bn), with $4.3bn going to solar power. In the South African market, where electricity costs are already very high, there is an increasing need for solar energy, and we expect the market to grow significantly.
The global market, as well as companies that are operating in South Africa, must show they are in a position to get economically solid projects up and running. Only those that have their costs under control and are considered bankable will be able to profit from the expected growth in the business of sunshine.
Since the financial crisis, banks have become even stricter when granting finance and allocating credit. In order to guarantee security and return, borrowers must be able to show that investment and operating costs can be financed and that revenues add up. Yield estimates alone are insufficient for investors. This is why, in the institutional sector, it is bankability that is the central criteria in the ability to attain bank financing for projects.
Decisions are made as to whether a company has sufficient external capital for its projects. In addition, the banks will check the profitability and cash flow against set equity ratios.
By means of profitability calculations, yields and costs will be analysed, particularly the discounted procurement and installation costs. Furthermore, the ongoing operating costs, made up of management and operating expenses, capital costs, interest charges and repayments, will be put under the microscope.
As a result, bankability is a yardstick for the attractiveness, financial feasibility, pricing and future expectations of photovoltaic projects. It affects project developers and component manufacturers to an equal extent.
As bankability is closely related to quality management, and because quality is a term relating to differentiation, bankability is something that can be actively managed by affected parties, particularly manufacturers.
Solar installations have a particularly long lifetime – about 25 years. For this reason, the quality of the components used and the long-term creditworthiness of the manufacturer are key deciding factors in project evaluation.
A certification from banks is far from a certainty for manufacturers, and the requirements in terms of actual market consolidation are likely to rise further.
Talesun Energy works closely with banks, insurers and re-insurers to ensure bankability. Our efforts help the financing of projects, not only on the yield side but also in supporting the evaluation process by the financial institutions.
In addition, the business has been assessed by Allianz Climate Solutions, the environmental division of global insurance company Allianz Group.
According to the assessments by Allianz Climate Solutions, the high level of automation at Talesun’s recently constructed production facility in China, together with the management team’s many years of expertise, have had a positive effect on the evaluation of Talesun’s bankability.
Arthur Chien is the chief executive of Talesun Energy, a leading supplier of solar energy solutions.