Shumba Energy secures first investors for P800m solar project
Mbongeni Mguni | Monday November 15, 2021 08:28
On Tuesday, Shumba Energy managing director, Mashale Phumaphi told BusinessWeek the company expected to finalise funding of the P800 million by the second quarter of next year, leveraging on the renewed global interest in renewables following commitments made recently at the Glasgow climate conference.
The Tati plant, which will sit on a 300-hectare area near Francistown, will target the Southern African Power Pool (SAPP), the region’s common marketplace for electricity.
The equity funding secured recently will go directly into Shumba Renewables Pty Ltd, a wholly-owned subsidiary the company has set up to guide its new focus into cleaner energy. Shumba Energy holds 4.6 billion tonnes of measured and indicated coal resources across licences in Botswana, but has recently shifted its focus to renewable energy.
“The equity commitments we have received are to finalise the technical studies that pave way for processes leading to a financial close,” Phumaphi told BusinessWeek by telephone. “That will allow us to get the project to a state to put in place construction finance and finalise these funding arrangements. “Our 100% ownership of the renewables subsidiary will change as a result, but we expect to maintain our significant majority ownership.”
Shumba Energy’s plant will be the first solar development targetted at the region at that scale and with major project financiers and countries agreeing in Glasgow to stop funding fossil fuels such as coal, the local firm is confident of securing funding. Demand for the Tati project’s output is expected to be strong as the SAPP is also largely powered by fossil fuels and countries are eager to introduce cleaner energy into their procurement.
“We are quite down the path on the funding side and we already have large institutions that we are working with,” Phumaphi said. “There is a good possibility that rather than do the project in two phases, we will be able to do the full 100MW at once. “That is because there is a huge push to get more renewables into the regional grid, especially after COP26 where we have seen the need to fast track renewable efforts for us to meet the targets for greenhouse gases by 2050.”
He added: “This is a really good time to fast track projects of this nature and for Botswana, it is particularly important because 99% of our generation is from fossil fuels".
While Shumba Energy still believes there is a role for its coal resources to play within its portfolio, the company will seek partnerships for fossil fuel’s development, while focussing its 'skills and experience' on the renewable sector, Phumaphi said. He added that with coal prices trading at global highs, there was still a strong value for coal, particularly as countries require baseload power as opposed to intermittent supply offered by renewables such as solar. In addition, coal is expected to provide support for the transition towards greener energy technologies.
When asked whether Shumba Energy would be looking at divesting from coal, the MD said it was still premature to detail how the partnerships around fossil fuel would look like.
“What’s important is that the key focus is on renewables and we believe that as much as coal will play its role, in the long term renewables is where we want to be. “We have always wanted to provide a backbone for supplying sustainable power in the region and what has happened is that a lot of funding for sustainable projects is in renewable energy. “This does not mean coal cannot be mined for other purposes but for electricity, the funding is in renewables. “Even Eskom has announced that new generation going forward will be for renewables and they have raised funds from a number of European financiers to help with that.”
By being the pioneering plant selling solar directly into the SAPP, Shumba Renewables will be the first to test the pricing around renewable energy, at a time when nearly all the power available in the market is coal-fired. However, solar plant capital and operating costs have been sliding in recent years and in some regions are even lower than fossil fuels.