ENGIE, a French multinational electric utility company, has secured over $600m (R9.2bn) in loans for construction of the Kathu Solar Park in South Africa’s Northern Cape.

The project is financed with a combination of debt and equity.

The debt is funded by development finance institutions and a group of local South African banks - Rand Merchant Bank, Nedbank Capital, ABSA Capital, Investec and the Development Bank of South Africa.

Futuregrowth Asset Management is part of the lender consortium, providing the project with inflation-linked debt.

“This debt enables the project to better match its debt repayments to the tariff received from generating electricity as both are linked to the Consumer Price Index (CPI).  As such, the project is better able to optimize its capital structure, thus enabling it to charge a lower energy tariff to Eskom,” said Futuregrowth.

Kathu Solar Park is 48.5%-owned by ENGIE, whereas SIOC Community Development Trust, Investec Bank, Lereko Metier and Public Investment Corporation hold the rest.

Kathu Solar Park is a 100 MW greenfield concentrated solar power (CSP) project with parabolic trough technology and equipped with a molten salt storage system that allows 4.5 hours of thermal energy storage and thus limits the intermittent nature of solar energy.

ENGIE has signed a 20-year Power Purchase Agreement (PPA) with Eskom – South Africa’s state owned power utility – making it possible for construction at the site to begin.

The Kathu project was awarded preferred bidder status in the Round 3 CSP bidding window of South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP).

Bruno Bensasson, CEO of the ENGIE Africa Business Unit, commented: “This is an important milestone for our first Concentrated Solar Power project in the ENGIE Group. The Kathu Solar Park project supports South Africa’s strategy of increasing the contribution of renewable power and also underlines our commitment to be a key partner in achieving sustainable energy generation in Africa.”

In Africa, ENGIE has interests in two operational wind farms, the 94 MW West Coast 1 wind farm in South Africa and the 301 MW Tarfaya wind farm in Morocco.

Additionally in South Africa, the Group owns and operates two thermal power peaking plants, the 670 MW Avon plant (under construction) and 335 MW Dedisa plant (in operation).

It is estimated that the Kathu Solar Park will save six million tones of CO₂ over 20 years and will further promote local economic development through various projects such as a local community trust for the benefit of communities in the John Taolo Gaetsewe District Municipality situated in the Northern Cape and sourcing of other services from local entrepreneurs.

Approximately 1,200 jobs will be created during the construction phase.

According to Futuregrowth, investing in this project via an inflation-linked debt instrument gives clients the advantage of protecting purchasing power while earning appropriate risk-adjusted returns.

“Given that the inflation outlook in South Africa in the medium term is around 6%, this remains an important consideration for our pension fund clients,” the asset manager said.