BioTherm gets $150M to address energy crisis in S. Africa

Boston-based Denham Capital said today it plans to invest ZAR 1.5 billion ($150 million) in equity in BioTherm Energy to address the energy shortfall in South Africa.

Johannesburg, South Africa-based BioTherm plans to develop, own and operate about 300 megawatts worth of renewable and clean energy generation projects during the next several years.

The company is in negotiations for about eight projects using biomass, biogas, steam energy and waste heat in South Africa and one project in southern Africa, co-founder and CEO Charles Liebenberg told the Cleantech Group.

"South Africa is experiencing an electricity capacity crisis, which will endure more than 10 years," he said. "There's more than enough market opportunity in South Africa for us, and being a South African company we want to address those issues." 

A government report issued in May said state-owned utility Eskom has had progressively had more difficulty meeting demands since January 2006, shedding as much as 4,000 MW of load during peak demand. Those outages have disrupted businesses, traffic, industry, hospitals, homes, and schools—even forcing the major mining groups shut down operations due to safety concerns in January 2008.

The load shedding cost the South African economy about ZAR 50 billion, according to the report by the National Energy Regulator of South Africa.

Through a partnership with South Africa's Black Economic Empowerment (BEE), BioTherm invests about 70 percent of each project, while BEE contributes 30 percent. With project debt financing, the $150 million investment by Denham could unlock enough funds for the partnership to complete $800 million in projects, Liebenberg said.

BioTherm currently operates a 4.2 MW biogas plant at the PetroSA facility in Mossel Bay, east of Cape Town. When it began operations in September 2007, the $6 million facility was the first private-sector renewable energy project in southern Africa funded through carbon credits received under the Clean Development Mechanism of the Kyoto Protocol. The company received about $750,000 in subsidies.

The energy landscape has changed dramatically since BioTherm first began negotiating that project three years ago, Liebenberg said. Industrial electricity rates are still low (about $0.04 per kilowatt-hour) but have increased more than 30 percent, and the government's Power Conservation Programme plans to mandate energy reductions of 10 percent starting in January, accompanied by stiff fines (about $1 per kWh).

"We managed to get our first plant commissioned in very, very adverse market conditions," Liebenberg said. "The market changed entirely last 12 to 14 months, as the government and regulators admitted we have huge problems, such as blackouts."

Much of that problem was caused by too-low energy rates that did nothing to encourage efficiency and didn't account for the impending need to replace aging electricity infrastructure, Liebenberg said.

Now the government has recognized the need, but building fossil fuel power plants is expected to take seven to 10 years, while BioTherm is projecting up to two years to complete projects.

BioTherm plans to build the projects at the site of energy-intensive industries—such as smelters, sugar refineries or sawmills—and then sell the energy either to the host or to the electric utility. In South Africa, Eskom is responsible for 92 percent of energy generation.

It's the first major funding for BioTherm, which has no plans to raise more capital.

The current economic instability didn't make the financing process harder, Liebenberg said.

"Denham is a reasonably patient investor, and throughout the global economy, whilst it may end up in recessionary phase, demand for electricity won't go to zero," he said. "Given that South Africa is in such an energy deficit, it has to act now."

Denham Capital has about $4.3 billion of invested and committed capital in all segments of the energy and commodities value chain, including oil and gas, mining, timber, power, carbon assets and energy-related infrastructure and services.

Typical investments range from $50 million to $250 million in the U.S., Canada, South America, Europe, Russia, Asia and Australia.

"Our investment in BioTherm reflects our strong belief in the potential for innovative solutions to the South African power crisis," said Scott Mackin, a partner at Denham.

In August, Denham announced $60 million in equity for Beach Island, S.C.-based VitAG, which converts municipal biosolids into a high-nitrogen fertilizer product (see Water, materials and biofuel get some cash).

In July, Bend, Ore.-based Vulcan Power announced it received $145 million from Denhman to develop geothermal projects in the western U.S. with the potential to generate 900 to 2,000 MW (see Vulcan Power gets funding for geothermal).

Many companies see South Africa as an entry point into the the African market (see Plug Power sells 120 fuel cell power systems in South Africa). Much of the focus there has been on water or transportation technologies (see Biofuel from algae startup on shaky ground and Finavera selecting site for 20MW South African wave project)

In September, the South African government has announced plans to spend ZAR 400 million ($49.3 million) on research into hydrogen and fuel cells during the next three years (see S. Africa to invest $49M in fuel cells, hydrogen).

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