Visiting the city centre of a South African city like Cape Town or Johannesburg may feel like being in a major European or North American city. Yet this is a country where large swathes of the population have no power supply for up to 12 hours at a time, on a regular basis.

These centrally managed outages, called “load shedding”, are the result of decades of underinvestment in power capacity. Much of what exists is coal fired, aging and inefficient and new projects are insufficient to close the gap, while the need for new sources of energy is expanding by the day.

Copenhagen Infrastructure Partners (CIP) is tapping that market opportunity with the acquisition of a majority of Mulilo Energy Holdings, a leading South African renewable energy developer based in Cape Town, in March 2023 through its Growth Markets Fund I.

Mulilo is a platform with proven track record and significant growth potential, which can be accelerated with the support of CIP’s expertise and financing.

It was founded in 2008, since when it has grown substantially to reach an 8% market share in the South African renewable sector. To date, it has developed and successfully delivered 440 MW of operating wind and solar projects and it also has an extensive pipeline of projects with total capacity of more than 30 GW, across onshore wind, solar PV and storage.

Renewables are a cost-competitive solution for South Africa’s energy gap. Also, the infrastructure needed to develop and invest in renewables is in place, with a functioning regulatory framework, local expertise and bank financing available at scale.

There are some factors for an investor in South Africa to be aware of and mitigate against. There is a level of political instability, with associated possibility of changes in policy, and a highly unequal society with unemployment of 33%* and exacerbated by energy shortages. There is also a not insignificant macroeconomic risk, as South Africa has a BB-credit rating, and the national utility Eskom has been in troubled waters for years.

Black Economic Empowerment (BEE), a government policy to enhance economic participation of black people and minorities, requires that government power purchasing agreement (PPA) tenders must have up to 30% black ownership in projects, and some private offtakers request up to 51%. BEE investors are frequently underfunded, requiring the project consortium to support with equity funding.

But the potential rewards are certainly there: because South Africa is one of most polluting countries, with energy generation based mostly on coal, the impact of renewables will be very significant in terms of CO2 reduction. There are public tenders for renewable energy projects, which are expected to scale up significantly, and private procurement, offering two proving grounds.