Local community trust debt fund advances social upliftment in renewable energy sector

As the tenth largest producer of coal-generated electricity, South Africa faces significant challenges to realise the country’s global commitments of combatting climate change. Simultaneously, South Africa’s vast solar and wind reserves must be harnessed through initiatives such the Renewable Energy Independent Power Producer Procurement Program (REIPPPP). These transformative targets have to be achieved without raising electricity to unacceptable prices and in a socially just way, while securing large-scale investment for infrastructure and grid capacity.

To reach the country’s goal of 19 GW renewable energy generation by 2030, the first 3.6 GW capacity was financed by the South African fiscus. However, these public funds will not cover the entire 19 GW capacity (Source: WWF SA). Alternative sources of funding such as private investors will bridge a critical financial gap, estimated at an additional R535bn per year to meet the 2030 target (Source: Climate Policy Initiative).

Renewable energy and rural economic development

The REIPPP envisages to allocate a certain amount of the proceeds of a renewable energy power plant towards the development of rural communities in that area and addressing their socio-economic issues and injustices. Supporting and uplifting communities is an essential part of a just energy transition.

Unfortunately to date, even though the renewable energy sector has grown to become a vital economic driver, local communities have not yet seen the brick-and-mortar realisation they were promised.

At high interest rates charged by funding institutions, the dividends community trusts receive from these projects are immediately repurposed to repay the community trust’s loan capital and interest. The result is that no available funds are received over a long term for much-needed community infrastructure, such as school buildings, community spaces, and sanitation.

New community trust provides new hope

To address this concerning issue, Infra Impact, a leading investor across various sectors of the infrastructure asset class, has created the Local Community Trust Debt Fund. By refinancing community equity at much lower interest rates, financial liquidity is made available for community projects. This enables communities to refocus their efforts on implementing social projects that will provide tangible value as community-held assets, instead of simply servicing debt.

The fund successfully concluded its first refinancing transaction, partnering with a local community trust in the Northern Cape to refinance its loans used to acquire its interest in three operational solar PV projects.

Bulelwa Ntshingwa, the portfolio manager for the fund, stated, “We are excited to collaborate with the local community trust in the Northern Cape on our first investment. We look forward to engaging with more Independent Power Producers and helping to create value for Community Trusts and improving the lives of people in communities.”

The fund was launched in December 2023, with the first commitment from the German development bank KfW. A second round of capital raising has started, with the ultimate goal to secure an additional R1,6bn from institutional investors.

About Infra Impact Investment Managers

Infra Impact Investment Managers was founded in 2020. It launched its flagship Infra Impact Mid-Market Infrastructure Fund 1 in the same year and achieved final close on 30 June 2023 when it raised total commitments of circa 2.15 billion and was 43% oversubscribed.

For more information, visit the company website or follow Infra Impact Investment Managers on LinkedIn.