South Africa: Gaia launches specialist REIT investing in solar solutions

Gaia Fund Managers announced the launch of South Africa’s first specialist real estate investment trust (REIT) investing in on-site private electricity generation for commercial and industrial clients.

In a first round of fundraising, Gaia Renewables REIT – as the fund is called – aims to attract R500 million (c. $27.4 million) from institutional investors, high-net-worth individuals, and family offices.

Setting up Gaia Renewables REIT follows the liberalisation of South Africa’s electricity generation sector; the government has removed the historical 1 MW cap on power generation by private companies and individuals. The government’s response came amid rolling power blackouts, which have plunged households and businesses into darkness for up to 10 hours a day.

“Factories, mines and other businesses need electricity to operate,” says Renier de Wit, managing director of Gaia Fund Managers. “Currently, electricity supply is unreliable, and it does not look like it will improve; it is only going to get worse. We have seen the impact of rolling blackouts on South Africa’s GDP in the fourth quarter of 2022: it shrank by 1.3%.”

Ever since the government lifted the cap on private power generation, businesses and households have scrambled to install solar power at their premises in a bid to cushion the blow from Eskom’s failure to supply enough reliable electricity.

However, the cost of installing solar power and energy storage solutions can be prohibitive to many businesses. A brand-new system demands a hefty capital outlay and when megawatt systems enter the fray, it strains cash flows by tens of millions of rands. In addition, power generation is not part of the core operations of most businesses.

This conundrum presents a unique opportunity to provide businesses with a renewable energy power solution owned by a third party, with predictable cash outflows over the medium term. “They will have certainty of supply and maintenance of the solar system while assured they can, well ahead of time, budget their electricity expenses,” explains De Wit. “In other words, it creates a predictable cash flow outcome for businesses; even more predictable than Eskom’s double-digit tariff increases that will come into effect this year and next. Also, it is a cheaper alternative to dirty gas-guzzling power generators, which can cost four times more than grid power and are susceptible to high oil prices.”

Hence, Gaia Renewables REIT is partnering with Blue Energy Africa, an on-site developer of bespoke, integrated clean energy solutions for commercial and industrial clients. Blue Energy has a well-developed pipeline of projects that aims to take a selective portion of the total market for commercial and industrial renewable energy, which is estimated to be worth over R200 billion (c. $11 billion).

Says De Wit, “Blue Energy was founded and is led by a combination of seasoned engineers, entrepreneurs and energy experts with experience in marketing to and managing large corporates’ off-balance sheet equipment needs.”

In terms of the structure, Gaia Renewables REIT will issue batches of preference shares, aimed to be listed on the Cape Town Stock Exchange, and open to qualified investors to trade it freely. The REIT will fund the on-site solar power projects. The first batch of preference shares – which will be listed after the current fundraising round – targets a listing in June 2023.