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Q3 2021 - (released November 2021)

SA's quarterly Private Equity & Venture Capital magazine

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Revego stays private, for now

by Michael Avery

South Africa’s power crisis was the subject of intense focus during another period of incessant rolling blackouts in October, as the economy started to open up from the pandemic induced lockdown levels.

But there is some light at the end of the dark loadshedding tunnel. Mineral Resources & Energy Minister Gwede Mantashe, who has been under fire, has breathed new life into the long delayed Renewable Energy Independent Power Producer Programme – six years have elapsed between bid window 4 and 5 – with the awarding of 25 new renewable energy projects that will deliver wind and solar energy at record low prices for the country. A further R50bn will be invested adding to the roughly R200bn that has already been invested to date.

However, the new projects will take roughly 36 months to deliver power to the grid and are therefore not expected to alleviate the supply shortfall any time soon. Once connected, they will add 2,583MW of capacity. Each stage of load-shedding is equal to 1,000MW.

The average cost for wind power was 49c/KWh and for solar 42c/KWh. The low prices put paid to any claim that renewable energy is expensive and that it is threatening Eskom’s sustainability and costing customers high prices. Eskom’s coal costs alone are 42c/KWh, excluding the cost of maintenance and refurbishment of power stations.

It is within this context of a reborn and growing renewable energy market – if the IRP is anything to go by – that the story of Revego Africa Energy Ltd. (this year’s biggest IPO that never was) is a real loss not only for retail investors, but also the JSE, which sorely needs some IPO energy. It makes for a compelling investment case.

If we consider that renewables are set to lead the global electricity sector and that cost reductions and sustained policy support are expected to drive strong renewables growth beyond 2022, it is evident that we need to fast track wider liberalisation in Africa’s electricity generation sectors. While governments can justifiably retain control over the transmission grid to ensure equitable access to electricity, Africa requires a favourable environment conducive to public-private partnerships that can bring additional generation projects online in a short period of time. Enabling policies and financing from the public and the private sectors, along with new business models, can work in tandem with official development finance to play a catalytic role in Africa's clean energy transition.

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Catalyst sat down with Reyburn Hendricks the CEO of Revego Africa Energy (Rael) to talk about the listing false start and his vision for Revego.  

Rael is the sole limited partner in the Revego fund, a private equity fund and is structured as an en commandite partnership, which is a yield-focused specialist BEE investment vehicle that will participate as an equity investor in, predominantly, operational renewable energy assets in sub-Saharan Africa (SSA), with a track record of generating stable cash flows. 

“Effectively, a permanent capital vehicle with the aim of giving institutional investors long-term access to the underlying cash flows,” explains Hendricks.

“The fund manager of the Revego fund is called Revego Fund Managers and they are responsible for sourcing deals recommending these to the investment committee, and the ongoing management of the fund. Revego does have in its mandate the ability to invest a portion of its funds in development assets but, for now, it tends to operate in the secondary market and not the primary market.” 

It is for this reason that the fund offers an attractive dividend yield through a quality initial portfolio of assets that are currently operational, which lowers exposure to development risk.

The underlying investments are renewable assets in unlisted project companies, with minimum correlation to traditional asset classes. This provides a further diversification benefit to investors.

Ongoing economic expansion in the SSA region has made governments more aware of the need for increased electricity generation, leading to a shift towards attracting private investment.

With an increasing focus on the energy sector locally, the company is well placed to take advantage of opportunities, as electricity demand continues to exceed Eskom’s supply capabilities.

Given the high levels of sunshine and wind throughout the year, coupled with vast open land, the SSA region provides great opportunities in the renewable energy space.

The fund’s BEE status allows it to acquire stakes from BEE partners in these projects as well as other private equity players.

Hendricks says the targeted return is a 9% to 10% dividend yield with a yield to maturity or IRR in the range of 12% to 14%.

The secondary market is heating up for a host of reasons, from the primary investors looking to realise their investments after the initial three year lock in periods have expired, to funds like African Infrastructure Investment Managers, the Old Mutual Infrastructure fund, following their pre-emptive rights, Globeleq has entered the market and Hendricks says one is seeing some of the South African construction firms sadly exiting their equity to raise liquidity to deal with their own balance sheet issues as a result of the broader construction malaise. 

“I think there are going to more players in time. Already through rounds 1 through 4, one has seen roughly R100bn capital raised in debt and equity, which has been allocated in this space. That is 6,400 MW and the IRP calls for approximately 20,000MW of renewables up to 2030. This is  excluding the 2,400MW in the RFIPPP (the emergency procurement process running parallel to the IRP),” says Hendricks. 

The cornerstone shareholders in Rael are Investec Bank, UK Climate Investments (UKCI) and the Eskom Pension Fund (EPPF) which have collectively committed R1,5bn to the fund already. 
“UK Climate Investments also recently marked the delivery of its latest project in South Africa – Kruisvallei Hydro – a run-of-river hydropower facility which it part-financed alongside majority black-owned renewable energy investor, H1 Holdings,” says Hendricks. “The project takes the total capacity of renewable electricity financed through the partnership in South Africa to 254 MW.

UK Climate Investments LLP is a joint venture between the Green Investment Group and the UK Government’s Department for Business, Energy and Industrial Strategy. It forms part of the UK’s aid-funded International Climate Finance, which is a UK Government commitment to support emerging markets and developing countries to respond to the challenges and opportunities of climate change.

Managed by Macquarie Asset Management and supported by the wider GIG team, UK Climate Investment’s has committed approximately £70m of UK International Climate Finance over three years, to support the development of clean energy and green finance markets in sub-Saharan Africa.

UK Climate Investments fulfilled its cornerstone commitment of R500m (£25m) on the 18th of August 2021, to help establish Rael as Africa’s first dedicated renewable energy yieldco.


And the fund manager has also invested in the fund to show skin in the game.

The fund acquired stakes in a number of leading wind assets in August, all of which are helping to build South Africa’s clean energy future.

The acquisitions include the Mainstream wind assets, Loeriesfontein 2 Wind Farm, Khobab Wind Farm and Noupoort Wind Farm, situated in the Northern Cape.

Loeriesfontein and Khobab (completed in December 2017) each have capacity of 140 MW and Noupoort (completed July 2016) has a capacity of 80 MW. The assets were built as part of Bid Window 3 of the Renewable Energy Independent Power Producers Procurement Programme (REIPPPP), led by sponsors Mainstream Renewables SA, a leading developer of wind and solar PV projects.

Eskom is the sole off-taker for all power produced by the three wind farms through a 20-year Power Purchase Agreement (PPA) as part of the REIPPP. The PPA is backed by the Government Support Framework Agreement (GSFA), whereby the South African government provides support to Eskom in an event of default.

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Revego has purchased the wind assets from Metier, one of Africa’s leading private equity fund managers, and Lereko, who jointly manage the Lereko Metier Sustainable Capital fund. The acquisition fits in with Revego’s strategy to take stakes in operational renewable energy assets in sub-Saharan Africa that have a track record of generating stable cash flows, and that deliver an above-inflation dividend yield over an extended period.

Metier’s Sustainable Capital practice targets investments in energy efficiency, renewables, water and waste management businesses, as well as projects supporting Africa's development objectives and environmental commitments.

“We are pleased to have played a part in three of the largest wind assets in South Africa and their contribution to building a thriving renewable energy sector in the country” said John Hannig, a principal in Metier’s Sustainable Capital practice.

Revego’s portfolio now consists of three wind and one solar asset, and it has secured a wind and a solar asset, all of which have 20-year PPAs with Eskom, thus providing the long-term, stable cash flows that investors seek. In addition to the three mainstream wind assets noted above, Revego’s assets will include:


Aurora Wind Power – a 94MW wind farm located in the Western Cape, built as part of Bid Window 2 of the REIPPPP, and led by sponsor, Engie Energy International, one of the largest energy players globally, with extensive experience in developing and operating renewable energy plants. Aurora became operational in June 2015 and has a PPA with Eskom until June 2035.

Kathu Solar Park – a 100 MW concentrated solar power thermal energy project located in the Northern Cape. It was built as part of Bid Window 3 of the REIPPPP, led by sponsor, Engie Energy International. 
The project became operational in February 2019, with a 20-year PPA, valid until February 2039.

Bokpoort CSP – a 50MW concentrated solar power (CSP) thermal energy power plant located in the Northern Cape. It was developed by Metier and built as part of Bid Window 2 of the REIPPPP, led by sponsors ACWA Power, one of the largest energy players globally with extensive experience in developing and operating renewable energy plants. The project became operational in March 2016 with a 20-year PPA, valid until March 2036.

“We are pleased to have rapidly built up scale within Revego in some of South Africa’s most important renewable assets, and to be able to provide our investors with the basis to meet their sustainability and return goals,” concludes Hendricks. 

Hendricks reveals that the reason that the IPO, which was planned for April 2021, was cancelled at the eleventh hour was due to engagements with large institutions indicating that Revego had yet to achieve the sort of scale that would assuage any liquidity concerns that larger institutional investors were expressing reservations about. 

But the interest from the market was substantial, according to Chantal Marx, who heads equity research at FNB Wealth and Investments.  

Despite the risk of policy uncertainty and regulatory delays to the development of further power capacity in South Africa and in SSA generally, much of the company’s success depends on the quality and cash-generating capability of assets acquired; therefore, the risk of making poor investments exists. However, with the quality of the team behind Revego, this is hardly a concern for the market, and investors will be eager to get their chance to invest in this exciting and growing new asset class, hopefully via a JSE listing in the not too distant future. 

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