March 2022 Solar 12J Investment Update

Dear Futureneers Solar 12J Investor,

(This blog post was also distributed via email and SMS).

Today’s email is a bit longer than usual, but I believe it's important to understand how important detailed project feedback is in relation to your ultimate return on investment over 5 years.  Our business model remains to find the best quality solar projects and deploy available cash to these projects.  Although feedback on projects may seem repetitive, project KPI's remain a key investor and communications deliverable.  Please find below a quick business and project update:

Active (Income Producing) Projects

• For now, Sunderland Ridge X29 remains our only active income producing project supplying energy to a number of users via the mini-grid model.  The good news is that we are selling (and more importantly getting paid) 100% of the solar energy we generate reaffirming that the project was correctly designed, structured and sized.
• During the last few months, we have had our first non-paying client (a large printing company within the business park experiencing financial losses as a result of COVD19), but in partnership with our collection partner, TechSitter, energy supply to the client has been interrupted and collection steps put in place.    Fortunately, this has not resulted in any material financial losses.  The benefit of the mini-grid model is now even more evident in the fact that we are able to continue to distribute energy to other clients in the park, even while having a non-paying tenant. 

Projects under construction

• As previously reported we secured Limeroc 1 (commercial business park multi-grid model) and Klinger 1 (multinational client in operation in various countries for more than 100 years) a few months ago.
• Construction on both projects are on track to go “live” and start producing income at the end of May and April respectively.

New Projects Secured (construction to start in the next few months)

• We are proud to announce that Klinger has now awarded us three additional Power Purchase Agreements at three of their other South African sites.  Although these additional sites are operationally substantially smaller (“less energy consumption”) than the original Klinger 1 contract, it represents repeat business from a blue-chip client and reaffirms the client’s trust in the relationship with Futureneers Energy.
• Next objective: secure and conclude at least one more Pipeline client (refer below) in the next 30 days.

Pipeline we are working on

• Building a pipeline of future projects is probably the most important part of the business.  This is also the part of the business which takes the most time and effort and the part that investors seldom hear about. 
• To secure contracts takes months of work, including scoping, proposals, engineering, negotiations, legal and much more. As for any other business, there are no guarantees and even after literally spending hundreds of hours on proposals, such projects may not always be secured for various reasons - rate proposal, competition and in most cases, competing against the client itself (meaning that the client would rather fund the project itself via its bank and buy it (putting the solar asset on its balance sheet - “capex” model) instead of entering into a Power Purchase Agreement with us (“opex” model).
• To further improve our “investor feedback loop” we will now from March 2022 onwards start reporting regularly on progress made on our pipeline of potential future projects. Although these prospects are not secured yet, an active and increasing pipeline is highly indicative of expected roll-out over the next 6-18 months.
• Without disclosing details (normally during this phase there may also be NDA’s in place), the current pipeline includes:
• A gold mine (status and size: 3rd proposal in process | Large Project)
• A large packaging plant in Johannesburg (status and size: 4th proposal and 3rd design, but transaction depending on client purchasing property | Large Project)
• An agricultural mill (status and size: 1st proposals | Medium Sized)
• Manufacturing operation with multiple off-takers in the Western Cape (status and size: 1st proposal in progress | Medium Sized)
• A few other smaller projects.

Any bad news to report on? 

• Fortunately no material bad news to report on.
• As in life, business is not without a few curve balls and we had a lightning strike at our Sunderland Ridge X29 site which will result in some minor repair works and replacement of equipment covered under insurance. 
• In addition, the municipality is investigating the mini-grid model and as a result of its innovative nature, are in the process of requesting additional technical equipment to be installed.  We expect additional costs to be incurred (not budgeted for), but even after such costs, the project is still expected to exceed original investor targets. 

Critical Business matters to watch

• International supply chain and purchases of solar panels from China (and availability of stock) remains challenging.  The good news is that the Rand appears to be strong against the USD as a result of soaring commodity prices.  Let's keep our fingers crossed for a continuation of the strong Rand and improvements in supply chains, especially from China - both these factors have a material impact on the costs of projects.
• Eskom’s latest load shedding creates opportunities in the market with clients considering alternative and off-grid solutions.  However, at this stage, an off-grid battery solution is still too expensive to make financial sense for most clients.  We do however see a growing trend of installing hybrid solar systems, which basically comprise a combination of Solar PV System combined with Generators.
• We have furthermore been in discussions with certain municipalities to understand the process and compliance around “wheeling” and supplying energy into the grid.  It is not our intention to sell energy to the municipalities since the margins at this stage do not make sense.  However, we are investigating this as a backup risk mitigation process and will keep a close eye on this area of municipal regulation and policy and keep you posted.

BUT WHAT DOES IT ALL MEAN FOR YOU AS AN INVESTOR?

Projects drive long-term profitability

• Successfully concluding proposals and securing high quality projects and then effectively (within budget) constructing and implementing them  remain our main business focus.  Please know that - even while we may be silent from time to time, we are always running around chasing good quality projects.
• Pipeline looks positive and projects are growing in project size.  We expect to deploy all our capital in the next 12-18 months as per original forecasts and we are confident that we will meet our original investor forecasts.
• We will continue to make this area of our business our main area to report on to investors and keep you updated on our progress.

On track to declare Dividends in June 2022

• As you may recall, the bulk of our investors came onboard only at the end of June 2021 and the end of June 2022 would really represent our first year of operations as far as the solar fund is concerned.  We therefore intent to declare Dividends every year in June, which will then be paid to investors in July of every year. 
• The June 2022 Dividends are expected to be as per the original investor forecasts.

Should you have any questions, please do not hesitate to contact me or any of the team members at any time.  As always, our money is next to yours and we manage this business as if it was our own.   

Kind regards 

Jaco Gerber and the Futureneers team

CFO: Futureneers Group