Offshore wind: the new gold rush

A variety of factors are making the offshore wind industry a strong candidate for growth, but market dynamics are creating uncertainty. While traditional players are pursuing aggressive growth strategies, new entrants are reshaping the landscape.

The offshore wind industry is gaining momentum thanks to ambitious environmental targets, competitive costs, and huge market potential. This renewable source of energy provides an optimal load factor, minimising the need for electricity storage or complementary dispatchable sources of energy. The public sector has been rushing the field with new players, including oil and gas companies, creating a strong push for investments in the wake of the Covid-19 crisis.

Ambitious national targets

Since the 2015 United Nations Climate Change Conference, most governments have launched energy transition strategies and are adopting a variety of approaches to decarbonize.1 Historically, offshore wind development mostly took place in Europe in the North Sea, and China has set ambitious targets for offshore wind. But so far, the United States has been less ambitious. The European Union (EU) is aiming to install between 230 and 450 GW of capacity by 2050, and China announced 175 GW over the same horizon. Meanwhile, the United States is aiming for only about 85 GW. Although there is less visibility on China’s road map, offshore wind could help accelerate the end of coal power—improving air quality and ensuring energy security along the way.

Competitive economics

The economics of offshore wind are improving as the costs come down and the energy source becomes more competitive with not only fossil fuels but also other renewable technologies, including solar photovoltaics (PV) and onshore wind.2 As wind turbines grow (up to 12 MW and already announced 15 MW), the load factor could reach new records— above 60 percent—making offshore wind technology even more cost-competitive in the future.

The International Energy Agency (IEA) predicts a sharp decline of offshore wind’s levelised cost of electricity (LCOE) until 2040, down from about €150 per MWh to €25 to €45 MWh depending on the geographic setting.3 This has enabled a key change with the emergence of subsidy-free bids (see figure 1).4

Huge energy potential

Despite significant growth over the past several years, mostly in Europe, offshore wind is still a very small share of world power production (68 GWh in 2018, or about 0.3 percent) and installed capacity (28 GW in 2018, or about 0.4 percent).Technical sources offer a power potential of more than 25,000 GW globally, with the United States having the largest offshore wind technical potential both for near-shore and far-from-shore zones (more than 10,000 GW).

Offshore wind capacity is expected to grow by about 25 GW per year over the next two decades, activating a limited share of technical potential.Furthermore, offshore wind is displaying strong resilience amid the Covid-19 pandemic with annual capex expected to equal offshore oil and gas capex both in Europe by 2021 and in the United States over the next decade. 7

Market dynamics are creating new tensions in the offshore wind industry

Attractive growth prospects are creating complexities and challenges in four areas:

Regional specificities with uneven strategies

The development of offshore wind is influenced by local market factors, and countries are adopting a variety of approaches to foster renewables growth:8

Energy security. This is a key incentive for the EU, but the United States is less concerned despite benefiting from the world’s largest source of offshore wind. The EU has defined a clear ambition with a strong commitment from countries and structured supporting policies, including the Green Deal, potentially boosted by the Next Generation EU recovery plan.

Wind turbine manufacturing capacity. This is well-established in the EU, with leading capacities already deployed in the North Sea. In the United States, offshore wind is still an emerging market, with only 30 MW of installed capacity in the first half of 2020. In the United States, despite strong fundamentals such as the technical potential and support mechanisms, full development of the offshore wind value chain is far from achieved and will require structured support. In China, offshore wind should benefit from a centralized administration, adequate infrastructures, potentially huge wind turbine manufacturing capacities, and logistics capabilities. This implies short contracting procedures, government support, and no public acceptance issues.

Power grid flexibility and regulation. These areas could provide additional complexity and embed various integration capacities, such as grid connection technologies, bidding processes and contracts, merit order, and support mechanisms for connection costs. Even if some countries have already reached their integration capacity, the European network is very well integrated, providing additional capacity for offshore wind integration. The US power grid is fragmented and has a limited capacity to deal with a large share of intermittent electricity. China’s power grid is integrated, which would favor the integration of wind power. Finally, large hydro-storage capacities provide the ideal combination with wind offshore.

Larger and more complex scope

This year marked a step-change in the size of wind farms, with the largest wind farm size doubled compared with past years (see figure 2). In addition, hybridisation with other technologies will be crucial for economic and environmental viability. Recent bids show a combination of offshore wind with green H2 (electrolysis). For example, in July, Shell and Eneco were awarded a tender to create a wind farm-powered green hydrogen hub.9

On the technology side, floating solutions can unlock additional upsides. They address the largest technical potential of offshore wind (72 percent of offshore wind’s technical potential is in deepwater) and higher load factors, driven by better wind conditions. In addition, floating solutions enjoy better acceptability and reduce usage conflicts with other sea activities, such as fishing, coastal navigation, and recreation. However, several challenges are yet to be addressed, including the high upfront cost and long project timeline, the infrastructure needed to assemble turbines, and full-scale testing and demonstration (coping with pitching and rolling, resisting harsher weather conditions, and handling cable complexity). The design of floating solutions is also still at an early stage of development.

Wind turbine blades wind their way by train through Denver. (Department of Energy photo by Dennis Schroeder / NREL)

Increasing competition and key players’ strategic moves

The offshore wind landscape is becoming more crowded with several new entrants along the value chain. While traditional players are pursuing aggressive growth to stay ahead of the game, solid new entrants are reshaping the offshore wind landscape.10 The net-zero boom hit the oil and gas majors in 2020, with Equinor followed shortly by most peers. To support their net-zero targets, oil and gas operators are walking the talk with several offshore wind initiatives launched over the past year (see figure 3).

On the project development side, traditional oilfield services and engineering, procurement, and construction (EPC) players are capitalizing on their offshore capabilities and diversifying into offshore wind (see figure 4). Traditionally, oil and gas EPC had been marginally involved in offshore wind projects as subcontractors for specific activities with limited scope, such as installing foundations for pilots or small wind farms. Now, they are repositioning in the value chain to deliver larger, more complex project scope—from subcontracting for large wind farms to taking on engineering, procurement, construction, and installation (EPCI) roles for a defined project scope. In the future, the role of EPC players may evolve to deliver turnkey projects for a full wind farm, with examples so far only seen in Asia.

Potential supply chain bottlenecks

Delivering the potential will most likely stretch the value chain, with bottlenecks for turbine production and logistics. The first question will be about whether original equipment manufacturers (OEMs) have the capacity to expand production to meet demand. Over the past several years, OEMs delivered an annual installed capacity of about 7 MW, but demand will grow to about 20 to 30 MW per year until 2030 (see figure 5). This gap could be even wider depending on OEMs’ financial situation. In parallel, high demand in marine logistics (offshore vessels) could create scarcity and tension on prices.

How to win the new gold rush

As discussed, offshore wind energy is a strong candidate for massive growth in some regions. However, an array of market dynamics are creating tensions that are impacting the value chain and creating potential bottlenecks that could impact the overall outcome of projects. Winning the new gold rush will require taking a systematic and collaborative approach.

Choose your battles

The first priority is to identify the sites that have the highest strategic value for your objectives, including growth targets, the portfolio, and the footprint. It will also have implications for local factors, such as grid connection technologies, bidding processes and contracts, merit order, support mechanism, and time to operations, as well as for regulations, such as the Urban Planning Code authorisation for building turbines of more than 12 MW.

Bidders will need to master the contracting process across countries and regions, including understating the prerequisites and differentiating elements to win the bid. The competition is getting tougher. For example, in the Dunkirk wind-farm award, the top five bidders all scored very closely in the tender criteria, with a slightly bigger difference in the bid price: €44 per MWh for the winning and between €47.5 and €51 per MWh for the others.11

Streamline the wind-farm delivery model

Delivering much larger and more complex wind farms requires moving away from the traditional master–servants project development approach with its many siloed interfaces. Collaborative design optimisation could significantly reduce costs and fast-track the time to market. Offshore could unlock significant value by taking advantage of lessons learned from other industries, such as automotive, aerospace and defense, and electronics. While the oil and gas industry has traditionally struggled to do so, offshore wind has the features needed to be successful, with strong standardisation potential and flexibility for lean design (lacking heavy legacy specifications).

A new delivery approach also requires new business models and new ways of working. Strategic alliances are a win–win for operators, OEMs, and EPC to tackle the following elements:

  • Improve the project economics by working together to address large cost areas, taking on the full envelope of costs and seeking to bring it down as opposed to traditional sourcing requests for proposals (RFPs) that are focused on price and likely to increase with change orders.
  • Reduce cycle time by accelerating execution and avoiding RFP and tender processes.
  • Develop technological synergies with contractors by engaging them in advance to elaborate on designing an optimal solution.

In a capacity-constrained environment, strategic alliances also offer opportunities to secure material and services while giving suppliers certainty about revenues. Oil and gas players (operators and EPC) can also capitalise on their strong offshore experience.

Repurposing assets and reskilling the workforce requires a new cross-business portfolio view and management, such as multipurpose vessels serving oil and gas platforms and wind farms, and talent management, such as sharing resources across oil and gas and wind projects.

Achieve operational excellence

Operators will need to assess and extract the wind farm’s true potential. With more pressure to reduce costs and with subsidy-free bids becoming the new norm, operational excellence is paramount to maximising profitability.

Smart operations are a must to optimise both the top and bottom line by considering a broad set of parameters, such as revenues, cost of spare parts, market dynamics, regulations, turbine downtime, weather forecast, and operations and maintenance costs.

Advanced analytics could allow for precisely predicting the impact on costs and revenues to inform decision-making and optimise profitability.

Predictive maintenance enables striking the right balance between corrective and preventive costs, including the costs of failure, reducing total expenditures, and increasing availability and reliability.

Digital twins can extend the life of assets by combining operational and physical inputs, such as inspection information and mechanical characteristics, with advanced simulation, such as fatigue analysis, inspection plan, and predictive maintenance. In addition, using digital twins in the engineering phase could optimise design and reduce material and installation costs.

Squeeze financial value

Finally, operators will need an integrated approach to optimise their financial value.

Value pools. The boundaries between sourcing, trading, and production are blurring, driven by demand response, batteries, and decentralised generation. New value pools are emerging from all parts of the chain.

Contractual and physical flexibility to match supply and demand and balance the grid, such as capacity contracts, virtual storage, and options and derivatives, drives portfolio optimisation and provides growth opportunities.

The operating model needs to adapt to allow an integrated steering of power assets, such as renewable, storage, and combined cycle gas turbines, and consumption, such as internal and external, by location, minimum and maximum load, and steerable load.

Decision-making. With renewable energy growth, the power market is becoming more weather-driven, and demand for flexibility is moving toward the short term. Consequently, the speed and quality of decisions are paramount to ensure smooth alignment between power assets and consumers, such as scheduling and re-dispatching processes with assets and consumers to avoid imbalance costs and capture market opportunities as well as increased frequency balance to manage renewables generation unpredictability. To support quality and efficient decision-making, information system infrastructure and data management are crucial to achieve the following:

  • Combine massive amounts of data in real-time.
  • Develop robust data analytics for optimization (analytical models with accurate signals, confidence estimation, and visualisation).
  • Define the trade-offs for result accuracy versus computation speed.
  • Ensure seamless interactions between independent information systems and functionalities.
  • Define the trade-offs between multiple performance models versus a full integrated model, such as individual turbines, wind farms, and country-level portfolios.
  • Facilitate internal and external data exchanges.

Get set for the race

Think big and act fast

The economies of scale for large wind farms (more than 1 GW) is the new norm for cost-competitiveness. All players are moving.

To leapfrog the competition and not get left behind, it is imperative to quickly screen and target opportunities. Where to start will depend on players’ maturity. In any case, it is important to accelerate the learning curve. For new entrants, this may mean starting with smaller roles or a smaller scope and quickly transitioning to larger, more complex ones.

Choose your partners, and nurture the collaboration

Winners will play a team game with strategic alliances and collaboration across the value chain. This will ensure delivery capacity, such as turbine production, installation, and footprint as well as best-of-breed skills, such as technology and knowledge while accelerating innovation. A cultural fit and collaboration framework will be essential to success.

1 European Commission Climate Action Tracker

2 Intergovernmental Panel on Climate Change 2018 special report, International Energy Agency, International Renewable Energy Agency

3 International Energy Agency World Energy Outlook 2019

4 Aurora Energy Research, offshoreWIND.biz, European Commission electricity market reports, Kearney Energy Transition Institute

5 International Energy Agency World Energy Outlook 2019; “Wind energy,” International Renewable Energy Agency

6 International Renewable Energy Agency, Global Wind Energy Council, International Energy Agency

7 “Covid-19 monthly update: 2020’s oil demand recovery slows down, road fuels upgraded for 2021,” Rystad, 12 June 2020; “US offshore wind power spending has oil in its sights,” Financial Times, 7 July 2020

8 International Energy Agency

9 Shell media release, 29 July 2020

10 Company websites, press review

11 Commission de Regulation de l’Energie, Deliberation N. 2019-124

Courtesy of Kearney.com

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Netcare and Standard Bank launch Africa’s first sustainability-linked bond

JSE-listed Netcare, which operates a network of hospitals and other healthcare services in South Africa and Lesotho, has launched Africa’s first sustainability-linked bond, in partnership with Standard Bank. 

The coupon rate of these bonds is linked to the issuer’s achievement of certain pre-agreed sustainability performance targets. In Netcare’s case, the group aims to reduce its energy consumption, procure more renewable energy, reduce total carbon emissions, and further improve its water efficiency, partly by increasing its capacity to recycle grey water. In addition, Netcare is developing systems to ultimately convert all infectious healthcare risk waste (HCRW) produced on-site to inert products and achieve zero waste to landfill for waste, outside the HCRW stream, by 2030.  

Dr Richard Friedland, Chief Executive Officer of Netcare says, “Our comprehensive environmental sustainability strategy developed in 2013 is firmly on track to meet our 10-year goals and targets. Netcare is delighted to be part of a global community of healthcare institutions leading the transformation to climate-smart healthcare, and this innovative sustainability-linked bond will further assist us in achieving our longer term goals”. 

On 16 March 2021 Netcare, with Standard Bank acting as Sole Arranger and Sustainability Agent, executed on the continent’s debut sustainability-linked bond (NTCG01). The bond will be listed on the interest rate market of the JSE on the 19 March. Netcare raised a ZAR1 billion, 3-year, unsecured note priced at 5.4% (3 MonthJIBAR +175bps). If Netcare achieves its climate change mitigation and water efficiency targets linked to the bond, it will benefit from a step down in the coupon rate.  

Carl Wiesner, Debt Capital Market Transactor at Standard Bank says, “Through the offering of the sustainability-linked bond, Netcare was able to access a deeper pool of liquidity at a compressed upfront pricing level, with the added incentive of a quantifiable future pricing benefit while investors are able to encourage positive forward-looking sustainable corporate behaviour..” 

Netcare has already made significant progress with its sustainability programme. As of 2020, the company has solar installations capable of generating more than 20GWhof renewable energy, and had achieved a 24% reduction in energy intensity per bed since 2013 against a goal of 22% by 2023. In 2020, scope 1 and 2 carbon dioxide emissions reduced by 37% from 2013.

The progress that Netcare has made towards being a leader in environmental sustainability within the healthcare sector in South Africa, and the world, was recognised when the company achieved the distinction of being the only healthcare institution globally to have received gold awards – the highest accolade – in each of the four categories in the international 2020 Health Care Climate Challenge Awards organised by Global Green and Healthy Hospitals (GGHH). The awards were for Greenhouse Gas Reduction [Energy], Renewable Energy, Climate Resilience and Climate Leadership.  

The company was also awarded the prestigious Association of Energy Engineers (AEE) Sub Sahara African Corporate Company of the Year award in 2019, a global recognition across all industries. 

Nigel Beck, Global Head Sustainable Finance at Standard Bank says, “Over the course of the last 12 months Standard Bank has been working closely with Netcare and institutional investors on a sustainability-linked product offering, advising on meaningful sustainability performance targets aligned to Netcare’s corporate strategy. “We are encouraged by the overwhelming level of interest and demand the market has expressed for sustainable product offerings which was evidenced by the extent to which the bond was oversubscribed.” 

Along with other instruments, such as sustainability-linked loans, green bonds and social bonds, demand for sustainable finance solutions is rising fast in Africa. 

Sustainability-linked corporate financing facilities offer clients an opportunity to directly fund ESG improvements, or to refinance existing general corporate funding with a solution that also delivers an indirect socio-economic benefit for the communities and environments in which they operate. Investor demand is partly being driven by the recognition that companies that operate in a sustainable manner tend to have lower risk profiles and outperform over the long term. 

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MEC David Maynier announces municipalities participating in the Municipal Energy Resilience Project

Here are the six-candidate municipalities participating in the Municipal Energy Resilience Project

17 Mar 2021

When I delivered my Budget 2021 Address in the Provincial Parliament yesterday (16 March 2021), I announced that we will spend R48.8 million over the medium-term and provide a further R20 million in the provincial reserves for the Municipal Energy Resilience (MER) Project in the Western Cape.

I was also pleased to announce that the six candidate municipalities participating in the first phase of the MER Project in this financial year are the:

Drakenstein Municipality 

Mossel Bay Municipality

Overstrand Municipality 

Saldanha Bay Municipality

Stellenbosch Municipality

Swartland Municipality

And, as they are a municipality that has already done excellent work on developing energy resilience, we are also pleased to be collaborating with the City of Cape Town on the MER Project.  

We know that load shedding costs the economy about R75 million per stage, per day in the Western Cape.  
 
When it comes to the economy Covid-19 is a “left hook”, and load shedding is a “right hook”, which together often results in a knock-out blow that risks compromising economic recovery.  
 
Which is why we launched the three-year MER Project last year to support municipalities to take advantage of the new energy regulations to generate, procure and sell their own power so that we can become more energy secure in the Western Cape.
 
The MER Project is spearheaded by our Green Economy unit at the Department of Economic Development and Tourism, who are working in collaboration with the Department of Local Government and Provincial Treasury to enable the development of energy projects and engage with municipalities on multiple fronts.
 
The procurement of energy at utility and municipal distribution scale, such as bulk energy purchases from Independent Power Producers (IPPs), under conditions of developing and evolving policies and regulations is a complex and challenging task. Municipalities may not have the policies, plans, resources, funding, or procurement expertise to procure wholesale electricity from sources other than Eskom, specifically IPPs.

Neither have all municipalities’ electricity distribution systems been technically evaluated to clarify their readiness to support new electricity generation and energy trading.   
 
To identify the candidate municipalities for the MER Project we conducted a readiness evaluation to determine which municipalities were most equipped and met the conditions required to take advantage of the energy regulations to develop their own power generation projects and also procure power from IPPs.
 
Now that the candidate municipalities have been announced, we will be confirming willingness and commitment through a Memorandum of Understanding, and then working closely with them in the first phase of MER Project to identify pioneering energy projects and develop a roadmap to roll out the projects.
 
This process will consider multiple pioneering renewable energy technologies and scales, cost options, scale of investment required, location issues, risks, municipal readiness needs, infrastructure needs, timelines to get capacity onto the grid, transaction and procurement mechanisms and regulatory issues.
 
Any learnings from projects implemented with the candidate municipalities will be applied to future projects in other municipalities. While this project should enable municipalities to be able to buffer residents and businesses from the impacts of load shedding, they will still continue to be connected to the national grid as we won’t be able to meet 100% of energy demand through renewable energy at this stage.

We will also work closely with national government to explore how the new energy regulations could lead to renewable energy generation projects within municipalities in the Western Cape.
 
Other projects that provide continued support to all municipalities in the Western Cape include support to develop and revise SSEG feed-in tariff frameworks and feed-in tariffs for solar PV, engagements with businesses to drive take-up of solar PV, support to municipalities to enable wheeling, support to energy sector businesses; the provision of energy technology and cost options to businesses and municipalities; and support to green economy investors in the Western Cape.

The MER Project is just another example of how we are working hard to become more energy resilient in the Western Cape.  

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Audi, Porsche and Volkswagen use AI to identify sustainability risks

Intelligent sustainability radar for the supply chain: the Porsche, Audi and Volkswagen brands are using Artificial Intelligence (AI) to identify sustainability risks such as environmental pollution, human rights abuses and corruption at an early stage – not only among direct business partners but also at the lower levels of their supply chain.

The basis for this monitoring system is an intelligent algorithm developed by the Austrian start-up Prewave. The technology is capable of identifying and analysing supplier-related news from publicly available media and social networks in more than 50 languages and over 150 countries. If there is any indication of a sustainability risk in the supply chain, the brands are notified.

VW Porsche Audi Sustainability Monitoring with Prewave

Procurement then looks at the facts of the situation and considers initiating countermeasures. In this way, AI provides a proactive early warning system for breaches of the Volkswagen Group’s sustainability requirements. It therefore supplements traditional reactive complaint channels such as mailboxes and ombudspersons. Since the pilot project began in October 2020, the brands have analysed more than 5 000 keywords and are keeping an eye on over 4 000 suppliers.

“Prewave enables us to manage risks in a targeted manner – even in the lower-level supply chains. For us, this is about transparency. Artificial Intelligence simplifies the complex analysis of data, allowing us to address partners directly and request improvements in sustainability. The goal is to achieve this in partnership with suppliers. In the event of escalation, however, termination of business relations is certainly also an option”, says Markus Wagner, Head of Procurement Strategy and Sustainability at Porsche AG. 

“The key advantage of AI is the speed at which it can recognise relevant news online and transmit this in bundled form. This enables us to find out about sustainability risks much earlier on, so we can respond more quickly,” says Marco Philippi, Head of Procurement Strategy at Audi. “AI is an ideal example of how digitalisation can contribute to greater transparency in the supply chain.” 

Ullrich Gereke, Head of Procurement Strategy for the Volkswagen Group, adds: “We are meeting our responsibility for ensuring a sustainable and fair supply chain – we established sustainability criteria for our suppliers on a contractual basis as long ago as 2014. Since 2019, we have checked compliance with our standards as part of the award process. By partnering with Prewave, we now have another tool to uncover and investigate potential violations, thereby contributing to improved social and environmental conditions at our suppliers’ production sites.”

“We are delighted to be working with Porsche, Audi and Volkswagen on this flagship project in the automotive industry. Our technology allows us to screen thousands of globally distributed suppliers for sustainability risks in real time. Machine learning and automated language processing give us a capability we could never achieve manually: continuous risk assessment across the entire supply chain as a basis for procurement departments to proactively approach suppliers,” says Harald Nitschinger, CEO Prewave.

The Volkswagen Group’s sustainability requirements are summarised in the Code of Conduct for Business Partners. The Group takes well-founded reports of violations very seriously and systematically follows up on them. From 2019, the S-Rating – a sustainability rating for suppliers – was successively introduced by the individual Group brands as a mandatory order award criterion. 

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AIIM leads investment in R1,9bn government office project

African Infrastructure Investment Managers (AIIM), through its IDEAS Managed Fund, has acquired a 32.5% stake in a public-private partnership (PPP) to develop new office accommodation for the Department of Agriculture, Rural Development and Land Reform.

“We are extremely proud to participate in this project, says Vuyo Ntoi, Joint Managing Director of AIIM.

“PPPs introduce the possibility of private funding for public infrastructure, which is highly relevant in the South African context, where public budgets are constrained, and the need for investment is significant.”

Vuyo Ntoi, Joint Managing Director of AIIM

The IDEAS Managed Fund is one of South Africa’s largest domestic infrastructure equity portfolios that invests in economic, social and renewable energy infrastructure in the Southern African Development Community (SADC) region.

With consortium partners, WBHO, Bidvest, Vulindlela Holdings and the Tshala Bese Uyavuna Broad-Based Ownership Scheme, this R1,88 billion project will be operated on a 25-year concession.

The terms of the concession will see the Tshala Bese Uyavuna Proprietary Limited Consortium design, build, finance, operate and maintain the new serviced working environment. This facility will accommodate all of the department’s Tshwane-based employees in a single work environment.

Ntoi explains that the PPP agreement removes the financial burden from the fiscus because the capital expenditure will be funded upfront by the consortium during the construction period. “This partnership involves locking in a long-term collaboration between both parties to share the costs, rewards and risks of the project,” he says.

“In addition, the risk transfer aspect embedded in the contract will enforce specific performance from the consortium to ensure the project is delivered on time and within budget. This further limits the risk for the government.”

Other crucial aspects of the concession include a commitment to meeting employment equity and skills development targets. This will see black people, women, and youth involved in management positions within the project company’s executive and governing bodies.

Both the BBBEE and PPP codes of good practice were applied by the department to ensure equitable participation in the project.

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New fund focusing on renewable energy answers a need in South Africa

FUND FOCUSING ON RENEWABLE ENERGY, A SOUTH AFRICAN FIRST

With the saving and retirement industry recognising the important role it can play in bringing about social change by supporting South Africa’s infrastructure needs, there is a dearth of viable options available. As listed companies with a pure or major focus on the South African economy struggle to deliver returns to investors, the managers of retirement funds and other savings are now looking for alternative asset classes to obtain sufficient returns.

Says Dr Hendrik Snyman, chief investment officer at Gaia Fund Managers: “With the local stock exchange having underperformed over the past number of years and with limited options available, it is necessary for asset managers to be innovative in obtaining returns for their investors. Globally, there has been a trend whereby asset managers are looking to alternative assets to provide resilience to negative market movements, price irrationality or a lack of returns.”

“We are proud to offer a novel investment opportunity that combines assured, solid returns with sustainable energy, infrastructure and community ownership.”

Hein Kruger, managing director of Kruger International

Through the Kruger Ci Prudential, Balanced and Equity funds, clients can now invest in the operational wind farm in a safe, regulated and tax-effective way where the impressive returns inherently adjust by inflation each year.

“Kruger’s co-investors in the wind farm near Humansdorp in the Eastern Cape include the Tsitsikamma Development Trust (9%) and Cennergi (75%), a wholly-owned subsidiary of listed company Exxaro Resources. This is a true ESG (environmental, social and governance) investment. The community trust receives investor returns for their shares. The construction has already benefitted the local community through infrastructure upgrades, a new community centre, cattle fencing and bush clearing. Since then, the wind farm contributes 2.1% of its revenue quarterly to enterprise and socio-economic development in the surrounding communities.”

The wind farm is a renewable energy project with an installed capacity of 95 MW, situated near Humansdorp in the Eastern Cape’s Koukamma Local Municipality. It became operational on 17 August 2016, offering a measurable track record in output performance. This project and its various service providers have met and exceeded expectations with the power produced since operations started, surpassing the P50 (base case) forecast. The performance of the project to date reflects the quality of the wind resource, equipment and service providers, according to Snyman.

The listing of the Company’s preference shares, with its focus on clean energy, takes place as the South African Government ramps up the supply of renewable energy to the national electricity grid. On 25 September 2020, the Minister of Mineral Resources and Energy, Gwede Mantashe, gazetted a key determination under national legislation to procure a total of 11 800 MW of electricity, of which 6 800 MW will be from renewable sources.

“This investment contributes to much-needed infrastructure in South Africa and investment diversification in an alternative asset class for us as the investors. We are proud to include Gaia Fund 1, with the wind farm as its first asset, in the Kruger funds,” says Kruger.

Collective Investment Schemes and retail investors have struggled to directly access infrastructure investments for several reasons. First, they are not readily available. Second, they are not usually listed on stock exchanges. Lastly, those options which are listed are subject to deflated prices owing to the lack of a readily traded market that understands the underlying principles of the asset class.

Snyman explains: “Infrastructure as an asset class can provide investors with stable inflation-linked cash returns while preserving their capital. However, the current means of gaining access to these projects includes a daunting and protracted process requiring, among other things, negotiating lengthy contracts. This process is far removed from investors’ ordinary means of acquiring shares on a trading platform and, therefore, acts as a significant investment barrier to entry and exit. In addition to the process, the unlisted equity available in the projects precludes certain Collective Investment Scheme portfolios from acquiring interests in the projects. A listed security removes many of the entry and exit barriers for investors and allows infrastructure to take up its rightful place as an asset class in many investor portfolios.”

As a listed entity, the Fund will enable collective investment scheme portfolios to increase their allocation to infrastructure from an unlisted instrument threshold of 5% to 10%, yet retain the benefits of being unlisted through price stability. The ability to do this will open a unique market opportunity for future collective investment scheme-compliant portfolios to invest in 4AX-listed infrastructure projects through new issuances of preference shares in the Gaia Fund 1.

“Kruger International as an innovative fund manager collaborated with Gaia Fund Managers as a pioneer in the infrastructure investment space in South Africa to come up with a solution to access infrastructure investments for their investors,” adds Snyman. “Kruger International’s funds will hold all of the preference shares, allowing them to accurately mark their value on a daily basis; meaning that as an asset manager, they are less exposed to market irrationality and/or information asymmetry.”

Gaia Fund 1’s A preference shares will be 4AX’s seventh equity listing. 4AX, as a new low-cost, fully licensed equity and debt exchange, took up the challenge with Kruger International and Gaia Fund Managers to list these industry-first preference shares. 4AX provides security for investors, giving the required financial transparency and regulatory oversight without the obstructive burden and costs associated with legacy exchanges. As such, the cost and admin associated with listing are no longer prohibitive.

According to Eugene Booysen, CEO of 4AX: “4AX brings to the market an efficient and alternative regulatory model which reduces regulatory costs and inefficiencies but promotes and adheres to the highly regarded financial regulatory standards in South Africa. 4AX focuses on being a safe and simple digital marketplace redesigning finance and access to capital and thereby enabling inclusive growth.”

Gaia Fund Managers and Kruger International Asset and Wealth Management are pleased to announce the listing of South Africa’s first preference shares with an infrastructure focus on 4 Africa Exchange (4AX).

Gaia Fund Managers, together with Kruger International, plan to list Gaia Fund 1 (the Fund), which complies with Collective Investment Scheme regulations next week Thursday (22 October). The Fund’s A preference shares will trade under the ticker 4AGF1A (ISIN: ISIN ZAE400000101) on 4AX.

The preference shares will be bought by Kruger International’s various funds. The proceeds of the listing will be used by the Company to buy a 16% indirect shareholding in the Tsitsikamma Community Wind Farm.

For more information, visit http://www.gaia.group.

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Increased infrastructure activity needed to boost economy

The decline in manufacturing production, at a time when increased industrial activity is important to revive the ailing economy, is very concerning, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.

SEIFSA Chief Economist Chifipa Mhango said the decline once again highlights the negative impact Covid-19-induced lockdown regulations had on the manufacturing industry and the economy in general, and that this situation needs to reversed urgently. According to figures released by Statistics South Africa (StatsSA), total manufacturing production declined by 3,4% year on year in January, with a slight 0,5% month-on-month increase from December 2020. Total manufacturing sales increased by 1,4% year on year in January 2021 and by 0,9% from December 2020.

However, Mhango welcomed the 5,3% year-on-year increase in January 2021 in the performance of the Metals and Engineering (M&E) sector, which accounts for 29% of manufacturing production. Total sales across the sector’s 13 sub-industries increased by 10,6% to reach R68,3-billion. He said this performance would need to be sustained through the speedy implementation of the Government’s infrastructure plans if the sector and the economy as a whole are to recover.

StatsSA figures also showed that total capacity utilisation in the manufacturing sector was 72,3%, down from 81% in 2019. In the M&E sector, average total capacity utilisation for 2020 was only 68%, again demonstrating how Covid-19 has inhibited production within the sector.

Mhango noted that with the economy has contracted by 7% in 2020, it is imperative that the Government intensifies its efforts to revive the ailing economy and focuses on the implementation of its recovery plans. He said while the Government’s policies were attractive on paper, more needed to be done to speed up the implementation of critical interventions such as the Steel Master Plan in order to benefit both the upstream and downstream of the M&E sector.

Mhango said the current state of the M&E sector remains dire, with declining levels of employment and investment, as well as a weak trading position with the rest of the world. He said with the country’s unemployment rate now at 32,5%, it is important to ensure that the industrial base is not eroded any further. “Fixed investment is key to reviving the sector. To grow the country’s industrial base, the fixed investment share of GDP needs to move to levels above 40%, from the current level where it is below 20%,” he said.

Mhango said while the Government’s commitment to spend R791,2-billion in the next three years on various infrastructure projects is commendable, the slow rate of implementation and the mismanagement of funds have derailed progress towards achieving a higher ratio of fixed investment to GDP.

“The M&E sector is heavily reliant on demand from key Government infrastructure projects to boost its production and sales, especially for products such as steel and other related downstream products such as roofing material. The lack of progress towards the implementation of these projects will only serve as a hinderance to reviving the South African
economy,” Mhango said.

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Women in power: the energy sector is lighting the way

A decade into South Africa’s renewable energy sector’s existence, it has become apparent the sector is still lagging in sufficient gender diversity. Hence the industry is actively giving attention to adjust and improve the levels of gender representation, at all levels, with the launch of its Gender Diversity Working Group.

“Gender diversity means a fair gender representation across all spheres of our industry. A 2020 report by IRENA and the Women in Wind Global Leadership Program shows that women represent only 21% of the global wind energy workforce and only 8% of its senior management. Recognising that the challenge of underrepresentation of women in the wind energy sector is as much a South African challenge as it is a global challenge, we launched a Commitment Statement in 2018, which commits members of the Association to address, amongst other things, issues of gender equality in the sector,”

Ntombifuthi Ntuli, CEO of the South African Wind Energy Association (SAWEA)

This sector Working Group will mainstream gender issues within the renewable energy industry by creating a platform and framework that will actively address gender diversity matters within the energy sector and to hold dialogues around areas of inadequate representation.

This new renewable energy industry Working Group is a collaboration between SAWEA and the solar PV counterpart association, SAPVIA, as both organisations recognise the need to address gender diversity issues from a broader renewable energy industry perspective. Additionally, the collaboration includes WE Connect, an NPO focusing on women empowerment within the renewable energy sector, with the intention of maximising capacity and increasing the programme’s impact by incorporating gender coaching and mentorship. 

“Diversity in the workplace is vital for the future success of every organisation. Countless studies have shown the positive effects gender diversity can have in every industry and we must work together to ensure that South Africa’s renewables sector is truly reflective of the society in which we operate.”

SAPVIA COO, Niveshen Govender

“As a sector our ambition is to deliver a just transition and this must include the upliftment and inclusion of all genders. This is not just because it is the right thing to do – it also makes commercial sense. From widening the talent pool to enhancing collaboration, improving retention, recruitment and reputation, the payback of an inclusive workplace has never been clearer.”

“There could not be a more fitting time than International Women’s Day to bring together this Working Group. The onus is of course on each of us as individuals to challenge the status quo, however with this group we can collectively take proactive steps to drive the change that is so needed in our sector to create a more balanced workforce across the renewables industry.” 

Looking inwards, the wind sector’s governing association is in fact operated under female leadership, and has done so for a number of years. SAWEA has been led by both a female CEO and Chairperson for the past two years and is supported by a women-dominated team.

“Our team is demonstrative of how women display emotional intelligence and innovative thinking that brings a different perspective, as women are naturally visionary forces. Our shared vision has created cohesion and has meant that we have been able to achieve the association’s goals, whilst contributing to a positive culture,” adds Ntuli.

The Gender Diversity Working Group Programme is expected to include a Leadership Acceleration Programme (LAP), which will identify women with leadership potential and place them on an accelerator programme to help bridge the female leadership gap in the sector. This is in addition to the coaching and mentorship programme, led by WE connect, which will pair mentors and mentees and assist them to meet certain objectives.

“Diversity in thought will contribute positively to the thriving and growing renewable energy industry.  Through mentorship, the industry can empower women, bridge the gap between male and female perspectives on equality and promote the concept of giving back,” said Karen de Bruyn, Founder of WE Connect.

Looking beyond the professional space, the programme will also include a ‘Business Opportunities for Women’ initiative, to provide access for women in entrepreneurship activities in the sector and to support women who are establishing themselves as entrepreneurs.

The Working Group also aims to achieve the following: Gender Diversity Performance Reporting, which will include a scoring matrix; Dialogues and Events, as discussion platforms to address common challenges and shared solutions on gender issues; and the launch of a Renewable Energy Industry Gender Diversity Charter – in line with the Industry Commitment Statement.

“Simply put, the ultimate target is to see women in the sector having access to and being considered for all opportunities,” concludes Ntuli.

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Syngenta launches 2021 Leadership Academy for Agriculture Programme

With the right leadership, agriculture can heal South Africa – Twenty-eight agriculturists, from grain producers and agri-researchers to a Brahman stud manager and even a beekeeper, started their journey into leadership mastery.

This group, which represents the rich diversity of South Africa’s agriculture sector, is the 2021 class of the ninth annual Leadership Academy for Agriculture programme, sponsored by Syngenta South Africa. “The Academy is our investment in the future of South African agriculture, especially now when food security is more important than ever as we deal with a global pandemic,” says Ben Schoonwinkel, head of marketing for Syngenta South Africa.

“Our objective is to help shape the future of agriculture by equipping the next generation of leaders across the agriculture spectrum to address the real-life challenges that confront our industry. Judging by the contribution that the more than 200 alumni are making, we are indeed impacting the sector positively.”  

Ben Schoonwinkel, head of marketing for Syngenta South Africa

The Leadership Academy for Agriculture programme is supported by Grain SA and is presented in three modules of three to four days each, during which the candidates work in groups to research and present solutions to topical issues facing the local agriculture sector.

The curriculum is developed and facilitated by Thinking Fusion Africa, with the Northwest University Business School as academic partner. Candidates who complete the course therefore add a highly accredited leadership programme to their portfolio of academic achievements.

The impact and reputation of the programme are attested to by the fact that more than 300 young career agriculturists applied to be included in the class of 2021. Many of them were inspired to do so by alumni who described the programme as “demanding” and “rewarding” in equal measure.

In his address, Jannie de Villiers, CEO of Grain SA, emphasised the importance of the programme being aimed at young agri-professionals. He recalled experiencing the leadership development programme Syngenta presented for senior American producers in August 2011. “I was hugely impressed, but it was clear to me that we shouldn’t pour resources into teaching old dogs new tricks.”

Syngenta South Africa supported De Villiers’ conviction that a leadership development programme for the local agri-market had to focus on the younger generation, says Schoonwinkel.

“We need passionate leaders who have the energy and the courage to accept the challenge to drive change in the sector.”

Professor René Uys from Thinking Fusion Africa, who was recently appointed as a professor of practice at the NWU Business School on the strength of her work with the Leadership Academy, says that personal attributes and diversity were taken into account in the selection process.

“This business leadership development programme serves the entire agriculture sector, and we have seen in previous programmes that the more diverse the group is, the more the delegates are able to engage with real-life industry challenges in innovative ways,” she says.

While the purpose of the programme is to equip agri-professionals with the skills to tackle the industry’s challenges, its dream is for agriculture to be the unifying force and leader of economic growth in South Africa. “I believe that agriculture can heal this country, and my mantra is that leaders make things better,” said De Villiers. This, he said, is achieved when individuals change their mindset and behaviour, learn to listen and are open to participate and develop.

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AECOM fulfils key QS role at Exxaro building to assist with green rating

Sustainable buildings not only benefit the occupants, but also achieve a lower cost of occupancy for clients, while at the same time having a positive impact on the environment. Tenants are now much more aware of the benefits of occupying green buildings, which in turn makes leases more attractive. A healthy lifestyle is not only a priority for modern society, but has become a norm rather than a ‘nice to have’ for medium-to-large corporates in the wake of the Covid-19 pandemic.

An example of this trend is the new Exxaro head office in Centurion by leading developer Growthpoint Properties. “The development manager on the Lakeside project took a very personal approach to achieving Green Star accreditation and wanted the Exxaro building to be a first of its kind. Growthpoint has a strong focus on building sustainable green-rated buildings, with a large emphasis on the health and well-being of its tenants,” explains Kristina Moodley, Associate Quantity Surveyor, Cost Management, Buildings + Places at AECOM.

AECOM was responsible for the structural, civil, geotechnical and quantity surveying (QS) aspects.

The iconic project is one of only a handful of buildings in South Africa to boast an As-Built 6 Star Green Star rating from the Green Building Council of South Africa (GBCSA), the highest level of sustainability accreditation in the country. It is also the first building in South Africa to achieve Silver Level WELL certification for Core and Shell by the International WELL Building Institute (IWBI). The Exxaro head office won the AfriSam Innovation Award for Sustainable Construction at the Construction World Best Projects Awards 2019 and was Highly Commended in the Consulting Engineering Category. It also won in the Projects Greater Than R250 million category at the 2012 CESA Aon Engineering Excellence Awards.

AECOM was actively involved in assisting the green consultant with its budget calculations on the different points strategies required to result in achieving 4, 5 and 6 Star Green Star and WELL ratings respectively. “We are hands-on, constantly managing, monitoring and aligning the construction costs against the budget when implementing Green Star specific initiatives via the main contract and report to the client on a monthly basis,” elaborates Moodley. The premier consulting firm was also part of the Green Star submission process and had to provide QS reports that evaluated and quantified the data used by the GBCSA to ultimately assess the building’s compliance against Green Star point targets.

“From a QS perspective, our experience with green buildings positioned us well in bid submissions, which now expressly call for previous Green Star project exposure as a prequalification criterion. We have successfully built up a substantial portfolio, having had the opportunity to execute projects for esteemed clients such as Growthpoint, Abland and Eris Properties, to name but a few. This has strengthened our already prominent footprint in the QS field. The exposure has given us undeniable and invaluable knowledge to financially manage the most complex of projects successfully,” comments Moodley.

The AECOM team was pivotal in unlocking the project, providing a financial blueprint which balanced the Class 8 dolomitic ground conditions together with various site constraints, market rentals and client aspirations in terms of ‘green’ accreditations and return on investment, enabling the team to deliver a cost-effective, world-class project. Sustainable practices that were incorporated included stormwater attenuation and filtration.

A rainwater system collects water and feeds it into the stormwater filtration system. This water is recycled and re-used by the building for irrigation and sanitary flushing. Leak detection is incorporated in all systems involving the flow of water, such as soil drainage, water supply and stormwater attenuation. These detection methods link back to the Building Management System (BMS), which alerts facilities management of any leaks that may occur, thereby saving on water consumption while complying with dolomitic restrictions.

Looking at the impact of Covid-19 on the property development sector, Moodley points out that large corporates still require expansive office space. However, those who have adapted to working remotely will follow the trend of smaller hot desk workspace setups. AECOM’s QS offering, in particular, specialises in commercial fit-outs.

“AECOM quantity surveyors have the expertise, knowledge and proven track record in unlocking developments for clients across the various commercial, residential, industrial and infrastructure sectors. We pride ourselves in working closely with our clients in making their vision a reality,” concludes Moodley.

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