Dear Solar 12J Investors
(This blog has also been distributed via email and SMS).
This will be the final newsletter of 2022. We are therefore grateful to end the year by announcing two exciting “wins” for our solar fund. The one will have an immediate impact on profits, while the other is a long-term project which we envisage will evolve significantly over the next 6-24 months.
WIN #1: QUICK 'BUY-AND-SELL" OPPORTUNITY
As you may recall from our previous email, we mentioned that as entrepreneurial fund managers, we are always looking for new opportunities to increase investor returns and counter the negative impact of load-shedding. To this extent, we have successfully concluded a transaction of R5 million to acquire and fund the construction of an agricultural solar plant in the Western Cape (backed by a Power Purchase Agreement). Once the solar plant is operational, the project is sold at a profit to a trusted "off-taker", which counter-party has already been secured at the time of acquiring the plant.
All the necessary agreements have now been concluded and we expect to realise an annualized pre-tax return of approximately 17% by the end of February 2023 for this transaction. This single transaction will certainly not move the needle for the fund as a whole, but it is our intention to potentially duplicate it going forward (and more importantly leverage the relationship with the off-taker) to enhance cash returns on our balance sheet while managing project risk at the same time.
WIN #2: ENTERING THE 'BULK' RESIDENTIAL SPACE
We are also proud to announce that we have successfully concluded an agreement with a large property developer in relation to a social housing, student accommodation and shopping centre development in Garankuwa, just outside of Pretoria.
As can be seen from the map above, this area is fast developing and is close to universities, colleges and hospitals with a high growth in demand for energy. The total project energy requirements are envisaged to potentially exceed 3 MegaWatt which is 4 times the size of our current largest operational project. Our solar energy will be sold on a prepaid basis to tenants in close co-operation with the rent managers, developer and the prepaid vendor service providers. The solar plant (and potential alternative energy) will be rolled out in a modular manner starting small, and scaling as the project expands. The sizing and future scaling of the plant will be done in line with data collected from the pre-installed bulk check meters and prepaid meters and detailed analysis of actual energy consumption data.
This project is the end result of months of hard work, targeting property developers and working closely with them to incorporate a renewable energy solution into their property development strategy from day one. The model involves partnering with service providers to present a “one-stop-solution” to these property developers and is normally structured as a "partnership-like" arrangement between us as a renewable energy supplier, the developer and key players to control the prepaid cash collection and very important energy data. Although we normally do not play in the residential space, this model is different since we provide an energy solution to the entire estate and control the collection via a prepaid system. We believe this model to be a critical part of the fund’s future growth and hope to duplicate it on multiple projects in 2023.
LOOKING FORWARD TO 2023!
And that’s it from us for this year. 2022 has certainly not been plain sailing and the challenge of load-shedding, a depreciating Rand, escalating solar panel costs and ridiculous Eskom and regulatory inefficiencies certainly did provide some bumps in the road. However, we are very excited about our latest opportunities and the manner in which we expect the energy space to develop in the next few years. The next crucial milestone for the sector is an anticipated Eskom/Municipal tariff increase (which may even exceed 20%), which is to be honest, very necessary to counter the higher costs of building energy plants and the massive impact of load-shedding.
Key focus areas for 2023 will be to:
- Build strong relationships with property developers and key service providers; and
- Remain innovative in the manner we design and proposition our energy solutions; and
- Enhance returns through innovation, carbon credits and other other additional energy revenue streams; and
- Expand research on battery solutions and actively investigate system and data driven opportunities in the renewable energy space.
We also believe that 2023 will be the year where businesses will look at energy sustainability as a key business imperative rather than evaluating solar as a simple saving compared to Eskom tariffs. It is our objective to assist businesses develop and implement their Energy Business Plans.
I want to thank our investors for their continued support and wish you all a great rest over the holiday season, a blessed Christmas and may 2023 be an awesome year. We are certainly going to give it our all to make it a profitable one!
As always our money remains next to yours.
Kind regards
Jaco Gerber
and the Futureneers Energy and Key Solar Exchange (KSE) Team