TIDMNCCL
RNS Number : 0343M
Ncondezi Energy Limited
06 May 2020
News Release
US$5.5m C&I Pipeline Secured
6 May 2020: Ncondezi Energy Limited ("Ncondezi" or the
"Company") (AIM: NCCL) is pleased to announce that it has finalised
a binding agreement with GridX Africa Development ("GridX") for a
pipeline of solar and battery storage projects in the Commercial
and Industrial ("C&I") sector.
Highlights :
-- Ncondezi and GridX have signed a binding Relationship
Agreement under which Ncondezi has the right (but not the
obligation) to fund a pipeline of GridX C&I solar and battery
storage projects in Mozambique (the "Projects")
-- Ncondezi has a right of first refusal to fund 100% (up from
50%) of the Projects up to a total of US$5.5 million (the
"ROFR")
-- Projects include a diversified portfolio of 7 identified
potential projects with a combined potential installed solar
capacity of 2.8 MWp and 4.5 MWh of battery storage (the "Initial
Projects")
-- Initial Project investments into qualifying projects, subject
to funding, represent an annuity revenue stream potential of over
US$750,000 per annum
-- Projects to be funded on a project by project basis and must
meet strict minimum KPIs to be eligible for funding including:
o Signed offtake agreement
o Use of proven technology
o All consents and permits to commence construction
o Meeting minimum credit requirements
o Generate an ungeared equity post tax IRR to Ncondezi of at
least 10%
-- GridX responsible for all costs incurred up to a Project
meeting the KPIs and Ncondezi exercising its right to invest
-- ROFR to be managed under newly formed subsidiary Ncondezi Green Power
-- Initial Projects are at an early stage of development with
first funding requirement not expected until Q4 2020 / Q1 2021
-- The Relationship Agreement replaces the Term Sheet signed
with GridX announced on 5 April 2019
Ncondezi Chief Executive Officer, Hanno Pengilly said: "We are
pleased to have finalised the Relationship Agreement with GridX and
believe it provides an optimal structure for Ncondezi to build out
its C&I solar and battery storage strategy, bringing a focused
portfolio of potential projects in Mozambique, which we will have
full control over, in a jurisdiction we know well.
This structure provides the opportunity for a phased and low
risk entry point into the sector, with GridX responsible for the
development and delivery of construction ready projects for
investment consideration and, over time, a diversified portfolio
approach spreading investment risk across multiple projects.
The Initial Project pipeline includes 7 potential projects
covering a diverse range of sectors from hospitality and tourism to
food and drink manufacturing and retail centres ensuring a wide
range of potential offtakers and securing against any downturn in a
single industry. These projects, along with our existing solar and
energy storage facility currently under construction, represent a
combined installation potential of 3.2 MWp of solar PV and 5.5 MWh
of storage with potential revenues of over US$950,000 per annum.
The Initial Projects are expected to be developed in a phased
approach with no immediate funding requirements until the end of
the year.
This is an optimisation of the original proposed structure with
GridX announced on 5 April 2019 and requires no additional fee
payments from Ncondezi. All projects will be housed under the
Company's newly formed renewable energy subsidiary Ncondezi Green
Power.
We believe the C&I solar and battery sector continues to
represent a significant opportunity for the Company, and the
Relationship Agreement allows us to develop our presence in the
sector as we progress our flagship 300MW integrated coal to power
project to Financial Close."
Relationship Agreement Summary
Ncondezi has signed a binding Relationship Agreement with GridX
giving Ncondezi a right of first refusal to fund up to US$5.5
million of GridX developed Projects in Mozambique.
Under the agreement, GridX has identified 7 potential Projects
under development with a combined potential installed PV capacity
of 2.8 MWp and 4.5 MWh battery storage. Capital costs range from
US$250,000 to US$ 2.1 million. Should these Initial Projects meet
the minimum KPI's and Ncondezi exercise its right to fund, it would
represent a potential annuity revenue stream of over US$750,000 per
annum.
Each Project must meet a minimum set of KPIs before being
presented to Ncondezi for funding. These minimum KPIs include:
-- Project must be located in Mozambique;
-- Project size between US$100,000 and US$10,000,000;
-- Use of proven technology;
-- Minimum post tax unlevered equity IRR of at least 10% to Ncondezi;
-- Minimum credit requirements met;
-- Bankable offtake denominated in US $;
-- Completion of credit checks on potential clients with
additional credit support in place where required
-- Finalised Engineering Procurement and Construction and
Operations & Maintenance contracts in place; and
-- All consents and permits required to start construction in place
Ncondezi will have the right to fund 100% of each Project's
equity requirement, and Projects will be accessed for funding on a
project by project basis. Ncondezi will look to identify the
optimal financing strategy for each Project, particularly with
respect to securing funding at the Ncondezi Green Power subsidiary
level, and will look at both debt and equity options with gearing
of up to 50%. Discussions with potential investors and debt
providers to date have been positive as investment mandates and
appetites to fund energy access and renewable power projects
continues to grow.
The first Projects are anticipated to be presented for funding
review during Q4 2020 / Q1 2021 .
Even if a Project does meet the minimum KPIs, Ncondezi has the
right not to fund that Project. without any penalty. However,
should Ncondezi elect not to fund any further Projects that meet
the minimum KPIs, it will lose its ROFR over the remaining
Projects. If a Project does not achieve the KPIs within the
proposed time frame allocated, GridX has the ability to substitute
that Project for alternative projects.
As part of the Relationship Agreement, GridX has agreed to
forego payment of the final amount of the GridX Fee (US$130,000)
payable under the previous arrangement, and this is no longer due
for payment. Other than the capped development fee and profit
sharing fee which may be due to GridX if Ncondezi elects to fund a
Project, there are no further cash payments to be made to
GridX.
In addition, GridX Africa AssetCo ("GridX SPV"), a special
purpose vehicle setup specifically for the Company's first solar
and battery storage project investment, will become a wholly owned
subsidiary of Ncondezi Green Power through the purchase of all
GridX's A class shares at par value totalling US$100. Following the
acquisition, GridX will no longer have any management or
acquisition rights in the GridX SPV, but will continue to provide
management services Furthermore, GridX has agreed that as soon as
it becomes the owner of any plant and materials relating to the
first solar and battery project currently under construction, it
shall immediately transfer ownership of such plant and material to
GridX SPV for no additional consideration.
As part of its ordinary course business as a developer, GridX is
entitled to a capped development fee for each Project that Ncondezi
funds, included as part of the Project capital cost.
GridX is expected to provide Operations & Maintenance
services for each of the Projects that achieves financial close in
accordance with market-related commercial terms for projects of a
similar nature, contracting directly with the power offtaker.
Certain incentives to encourage GridX to achieve the best
returns for each Project, will be paid through a profit sharing
mechanism where an equity IRR hurdle of above 10% is achieved by
Ncondezi.
The Relationship Agreement will expire at the earlier of
Ncondezi financing US$5.5m of Projects or 36 months.
Advantages to Ncondezi
The Company Directors believe the Relationship Agreement with
GridX has the potential to deliver a number of benefits to Ncondezi
namely:
Complementary to existing Ncondezi Project
Provides diversification from coal baseload power generation
into captive solar & battery storage small scale renewable and
energy storage projects. From a cash flow perspective the smaller,
easier to install solar and battery storage projects potentially
provide near term cash flows before the Ncondezi Project target
commissioning in 2024. The smaller capital cost requirements also
negate the need for a large strategic partner.
ROFR Structure
ROFR structure provides minimal distraction and additional
resources to the Company, as GridX will take full responsibility
for development work and costs to deliver construction ready
projects for funding review. The decision to fund only projects in
Mozambique allows Ncondezi to focus on a geography and jurisdiction
that it has expertise in again minimizing distractions from the
main project.
Strong Market Fundamentals
Solar and battery storage projects have become economically
competitive with traditional captive power solutions (diesel
generators), and further reductions in the cost of solar and
battery storage will ensure competitiveness continues into the
future. Added to this, the ancillary benefits (noise and emission
reductions etc.) and increased pressure for sustainable energy
sourcing further strengthen customer investment rational to invest
in these solutions.
Potential low risk annuity businesses with significant growth
potential
Ncondezi has an option to fund 100% of potential US$5.5m GridX
project portfolio, with 7 potential Projects already identified. At
the time of presentation to Ncondezi these are expected to be
construction ready projects with attractive US$ denominated 10-15
year bankable offtake contracts significantly reducing risks. In
addition, over time, the diversified portfolio approach has a
de-risking effect on portfolio level returns which is potentially
attractive to external investors in the future.
Attractive project fundamentals and target returns
C&I projects are generally low capex and will usually be
expected to generate cash flows within 12 months. The minimum 10%
unlevered post tax equity IRR KPI sets a projected return floor for
each project. These returns represent a premium return when
compared to those in more developed power markets and it is
expected that this can be improved further through higher delivered
project IRRs and gearing.
First mover advantage
The African market is at an early stage of development with
annuity income investors, utilities and oil companies seeking to
enter the sector but slow to move. As Ncondezi builds a diversified
portfolio of renewable C&I projects in one structure, the
Company believes that this could ultimately represent an attractive
investment opportunity to development funding institutions, annuity
income renewable energy funds, utilities and energy companies and
private equity funds.
Enquiries
For further information please visit www.ncondezienergy.com or
contact:
Ncondezi Energy Hanno Pengilly +27 (0) 71 362 3566
Liberum Capital Limited Andrew Godber, Edward Thomas, +44 (0) 20 3100
NOMAD & Joint Broker Kane Collings 2000
Novum Securities
Limited +44 (0) 20 7399
Joint Broker Colin Rowbury 9427
Pimlico Advisory
Ltd +44 (0) 777 56 55
Investor Relations Elizabeth Johnson 927
Note:
The information contained within this announcement is deemed by
the Company to constitute inside information as stipulated under
the Market Abuse Regulation ("MAR"). Upon the publication of this
announcement via Regulatory Information Service ("RIS"), this
inside information is now considered to be in the public domain. If
you have any queries on this, then please contact Hanno Pengilly,
Chief Executive Officer of the Company (responsible for arranging
release of this announcement) on +27 (0) 71 362 3566.
About Ncondezi Energy
Ncondezi is an African power development company with an
advanced staged, integrated 300MW thermal coal power plant and mine
project located in the Tete Province, Northern Mozambique.
The Company is focused on providing reliable, affordable and
accessible baseload energy to Mozambique and secure against the
effects of water drought and intermittency of new renewables. This
project supports Mozambique's energy strategy of universal
electricity access by 2030. According to the World Bank, only 30%
of the Mozambican population had access to energy in 2017. The
Ncondezi Project would provide 300MW of reliable and available
power helping to close the infrastructure gap of the region and
serving as a catalyst for economic development.
The power plant will be designed to be equipped with
state-of-the-art emissions controls technologies that will reduce
local air pollutants, minimizing the plant's impact on the
environment and ensuring its compliance with the most stringent
emission standards
In 2019, the Company entered into the Commercial and Industrial
("C&I") renewable and battery storage sector and in October
2019 announced its first investment in an off grid solar battery
project. The Company has also secured the right to fund a US$5.5m
C&I project development pipeline in Mozambique through a
Relationship Agreement with GridX Africa Development announced in
May 2020. The move into the C&I solar and battery storage
sector offers a significant opportunity for the Company to
complement the existing large-scale baseload power project and
access near-term low-risk annuity income streams which have
significant growth potential.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
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