S. Africa's renewables debt market supported by positive credit developments: Moody's

South Africa's debt market for renewable energy projects is supported by several credit positive developments, including a significant fall in renewable electricity costs, the growth of independent renewable power producers and the likely increased participation of institutional investors, Moody's Investors Service (Moody's) said in a report on Friday.

"The South African renewable energy market has grown rapidly over the last five years or so and there is rising demand for renewables debt," said Christopher Bredholt, a Moody's Vice President -- Senior Analyst and the report's author.

South Africa was the continent's largest renewables market in 2015 in terms of asset finance for utility-scale projects, and it saw the highest year-on-year growth globally.

The country's renewable energy projects are becoming less dependent on high levels of subsidy, helped by reductions in the price of equipment and installation costs and the country's abundant natural resources, particularly solar power.

Although coal still provides around three-quarters of South Africa's energy, the government aims to increase the country's renewable capacity to around 17.8 gigawatts by 2030, compared to 1.9 gigawatts in June 2015.

The development of South Africa's renewables sector will be shaped by the country's transmission infrastructure, which needs additional capacity, as well as the broader sovereign credit environment, the Moody's report said.

While local banks and development finance institutions have played a dominant role in financing South Africa's renewable energy projects, Moody's expects increasing participation of institutional investors in the sector, said the report.

The South African government has stated its long-term policy commitment to renewable generators and to the extent it builds a longer term track record of administering its support programme, a move seen as a positive sign for project issuers.

However, the state-run electricity utility Eskom has raised questions about the broader electricity generation mix and cost-reflective tariffs which are yet to be implemented in the face of Eskom's rising costs from power purchase agreements, considerations which may influence the government's programme, Bredholt said.

The research is an update to the markets and does not constitute a rating action, the report said.

Moody's issued the report amid speculations that the ratings agency would downgrade South Africa's credit rating in weeks' time. Endit