Dear 12J Investors,
It's time for an update on your Section 12J Solar fund investment. The past few months have been quite eventful, but very successful. Let’s delve into the details.
New Projects
In the last quarter of 2023 and the first part of 2024, our focus shifted to the development and implementation of new projects. It was all about making things happen on the following projects:
(a) A 4 Megawatt ground mount grid-tied solar plant near Klerksdorp, producing and selling energy to the Nicolor gold processing plant. This has by far been our biggest project to date - more than doubling the size of our existing asset portfolio.
(b) Two agri-businesses in the Western Cape, namely Malan Agri (313 kWp solar system and 645 kWh battery) and Doornekraal (77 kWp solar system and 123 kWh battery).
(c) Huis Stilbaai, an old age home in Stilbaai, received a 113 kWp solar system and 123 kWh battery. This project, albeit small also required the replacement of certain asbestos roofs and building solar carports.
We are pleased to inform you that all four of the above projects were successfully commissioned. Our technical teams worked tirelessly to meet tight deadlines, ensuring that the projects qualified for the section 12BA tax deductions offered to the 12BA funds which acquired the assets. As a result, our Section 12J fund has benefited from this transaction by realizing development profits and will continue to benefit from the ongoing income generated by these projects.
With these additions, we now manage a total of 11 operational solar sites - something we are really proud of and a sound foundation to build on over the next few years.
Click the video below for drone footgae of the recent Nicolor 4 MW plant commissioned by Futureneers Energy.
Existing Projects
Moving on to our existing projects:
(a) Our Sunderland Ridge site required inverter replacements, which have significantly improved generation performance.
(b) At LimeRoc Business Park, we're in the process of resolving minor disputes regarding meter readings and tariffs. Otherwise the sites are performing well and in line with budgets.
(c) The Klinger site in Johannesburg has faced challenges due to power interruptions by the City of Ekurhuleni and some technical difficulties. In addition the client scaled down on week-end production runs due to the high cost of overtime, all in all leading to inconsistent (up and down months) and underutilisation of solar energy. Frustratingly, we have been unable to feed back excess solar energy into the Ekurhuleni grid although having had numerous discussions on the topic with the Municipality. We will continue to drive this agenda and provide feedback in the next newsletter.
Any “Bad” or “Ugly” stuff?
We are pleased to report that we are not aware of any material challenges facing our fund at the moment. Below are some other things we worry about, but manage constantly:
(a) Finding new and profitable projects is always a challenge. The energy market in South Africa is heating up, with competition intensifying. Big players are entering the scene, and profitability yields are feeling the pressure. We however believe that our efforts are bearing fruit as we slowly are achieving critical mass and bringing more projects online.
(b) Over the last 6 months prices in solar panels dropped significantly as China dumped stock in South Africa. Fortunately for us the bulk of our panel stocks (approximately R14 million) were used in our new projects. We are however still sitting on some older panels to the value of R2 million which will either be used in future projects at the higher costs or be sold at some impairment losses, which we already provided for.
(c) Regarding our attempt to enter the residential space, we faced various challenges and made a strategic call to focus exclusively on the larger sites and commercial and industrial clients going forward. We already sold the bulk of our stock (inverters and batteries), but are still holding slow moving stock of approximately R700,000, which we will be offloading into the market in the next few months.
Dividends
Now, onto dividends. We pay dividends based on the results for the period July 2023 to June 2024. With our new solar sites only coming online effectively from March 2024, their true contribution will only be felt in the 2025 distribution with a small impact now up to June 2024. We remain on track to achieve a 9%-10% gross pre-tax yield (before management fees) calculated on your total 12J investment amount, which equates to 16% to 18% gross yield on your risk capital invested (taking into account the section 12J tax benefit). These are in line with original budgets. Dividends will be declared in July after finalizing the June 2024 accounts and be paid to Investors at the end of July / early August.
Final remarks:
And that’s a wrap for now. Please drop us an email at any time if you have any additional questions.
Kind regards,
The Futureneers Energy and KSE Solar Team