GridX Africa Development (GridX) has finalised a binding agreement with Ncondezi Energy Limited for the development of US $5.5m renewable energy projects in Mozambique that include a pipeline of solar and battery storage projects, in the Commercial and Industrial (“C&I”) sector.
The agreement
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 $2.1m. 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 $10m
- 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 dollars
- 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
- 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.
According to Ncondezi Chief Executive Officer, Hanno Pengilly the company is 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 they will have full control over, in a jurisdiction they 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,” he added.