Moody's spots positive developments in S Africa's renewables debt market

Renewable energy projects in South Africa are becoming less dependent on subsidy, which is a positive for the issuers of project finance, according to Moody's Investors Service.

In a report on Friday, the credit rating agency says that the country's renewables debt market is supported by several credit positive developments that include the significant reduction in the cost of generating electricity from renewable sources and the growth of independent renewable power producers. Another positive development are Moody's expectations for increased participation of institutional investors in the sector, where local banks and development finance institutions have so far played a dominant role.

"South Africa was the continent's largest renewables market in 2015 in terms of asset finance for utility-scale projects, and it saw the highest year-on-year growth globally," said Christopher Bredholt, the report's author.

South Africa targets 17.8 GW of renewable capacity by 2030, compared to 1.9 GW in June 2015, the agency noted.

According to Moody's, key for South Africa's renewables sector going forward will be the country's grid infrastructure, which needs additional capacity, and the broader sovereign credit environment.

In a cautionary note Bredholt said "Eskom has raised questions about the broader electricity generation mix and cost-reflective tariffs are yet to be implemented in the face of Eskom's rising costs from power purchase agreements, considerations which may influence the government's programme."

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