Africa’s sustainable energy post COP28: Bridging the climate finance gap
Over 80,000 delegates from various parts of the world attended the recently concluded annual United Nations Climate Change Conference (COP28), held in Dubai this year. For participants from African countries, the focus was on advocating for more climate finance and financial mechanisms to accelerate green energy projects, given the historical lack of support for the region in energy transition financing. In 2019, only 2.4% of the total global climate finance was directed towards sub-Saharan African countries, a region where approximately 15% of the world’s population resides. While climate financing for the rest of the world has increased by about 225%, Africa still needs to catch up.
The limited financial funding has adversely impacted the development of the energy sector in the region, hampering the progress of energy security. In South Africa, the state-owned company Eskom, which relies heavily on coal plants for power generation, has faced energy challenges. These issues have resulted in households and businesses experiencing power outages for up to 13 hours daily, attributable to various constraints on the coal plants.
South Africa’s energy crisis has not only been a significant hindrance to its economic growth over the years but has also presented an opportunity for the country to expedite its energy transition. This transition could position South Africa as one of the leading countries in Africa in terms of the development of alternative energy sources.
Renergen is an integrated alternative and renewable energy business that invests in early-stage energy projects across Africa and emerging markets. The company, founded on September 30, 2014, has its headquarters in Johannesburg, South Africa. It was listed on the Johannesburg Stock Exchange (JSE) in 2015, but its performance has yet to be successful, with an all-time return of nearly -50%.
Renergen Ltd. functions as an investment holding company and operates through three main segments: Corporate Head Office, Tetra4, and Cryovation. The Corporate Head Office segment serves as an investment holding entity with a specific focus on investing in promising green projects. Tetra4 engages in the exploration, development, and sale of natural gas to the South African market. The Cryovation segment encompasses the Cryo-Vacc technology, enabling the secure transportation of vaccines and biologics at extremely low temperatures without the requirement for electrical power.
In the financial year ending February 28, 2023, Renergen posted a remarkable revenue growth of 299.82%, reaching $686.37k compared to $171.67k in the previous year. This substantial increase in revenue was a result of a pivotal moment for the company, marked by the commencement of liquefied natural gas (“LNG”) production in September 2022 and the successful production of liquefied helium (“LHe”) in January 2023. The company, which previously exclusively sold compressed natural gas (CNG) with significantly lower margins, experienced a noteworthy improvement in its gross margin. Over the past six years before the commencement of LNG production, Renergen’s gross margin averaged -111.42. However, in the recently concluded financial year, the gross margin surged dramatically to a positive 8.09, primarily attributable to the shift to LNG production. The company has discontinued CNG production, redirecting its focus entirely to LNG and LHe operations.
In the second quarter of the fiscal year ending August 31, 2023 (Q2’24), Renergen reported an 88% increase in LNG production, reaching 1,564 tons compared to 823 tons in the previous quarter. Simultaneously, the company’s gross margin stood at 29.04, underscoring the significant positive impact of LNG production on the company’s financial performance.
Source: Company’s Annual Report
LNG, despite being a fossil fuel, is considered a cleaner source of energy compared to coal and oil, positioning it as a key player in the ongoing energy transition toward renewable energy. The demand for LNG experienced a significant increase, particularly when the European Union implemented a ban on Russian gas. This ban prompted the EU to seek alternative gas supplies, presenting a substantial opportunity for African oil and gas countries with abundant gas resources, such as Mozambique, Angola, and Nigeria.
In the African region, the demand for LNG, helium (He), and other alternative energy sources is on the rise, driven by ongoing efforts to transition to cleaner energy. South Africa’s energy crisis has compelled numerous companies to explore alternatives to the conventional grid for powering their operations. This shift has notably heightened the demand for LNG, attributed to its low carbon footprint and versatility in providing stable energy around the clock.
Helium prices have consistently exceeded previous records, and with limited new suppliers anticipated to come online in the next few years, coupled with existing suppliers facing challenges in maintaining a consistent supply, prices are likely to remain elevated.
Renergen is poised to emerge as a significant player in both the local LNG and international helium markets, leveraging its exceptionally high helium concentrations and relatively low extraction costs. The company is making strides in the second phase of its Virginia Gas Project, with new gas wells indicating signs of gas before reaching the target depth. This will significantly contribute to lowering the nation’s carbon footprint by replacing diesel in trucks and catering to the needs of commercial users.
Source: Company’s Annual Report
Despite Renergen Ltd. not consistently achieving positive returns due to revenue levels trailing expenses, the company is actively engaged in significant strategic investments divided into two phases (phases 1 & 2). Phase 1 marked the commencement of commercial LNG operations in September 2022, transitioning the company from an explorer to a producer by generating liquid hydrocarbons. The helium module achieved its inaugural liquid production in January 2023. Phase 2 for the company involves expanding its current authorized operations. This includes drilling around 350 additional slant wells over the next three to four years, constructing an additional 450 kilometers of natural gas gathering pipelines, and building a considerably larger processing and liquefaction facility capable of producing 34,400 GJ/day of LNG and 4,200 kg/day of liquid helium. These expansions are expected to enhance not only the company’s operational activities but also drive a substantial increase in its earnings and profitability.
Renergen Ltd LNG can serve two primary demands, the first being the supply of reliable energy as an alternative to the grid as companies diversify their energy supply, and the second assisting in reducing the country’s overall carbon footprint from its electric generation portfolio, which is currently predominantly coal. Additionally, Helium plays a crucial role in various modern industries due to its chemical and electrical inertness. In its liquid state, it holds the title of being the coldest substance on Earth at 3 degrees Kelvin (-270.15 °C). Consequently, it finds applications in purging laboratory or manufacturing environments, propelling cryogenic fuels, and facilitating deep cryogenic cooling. Its versatile uses span space exploration, rocketry, high-level physics experiments, medical science through MRI devices, fiber optic cable production, commercial diving gas, specialized welding, coolant for nuclear power stations, lifting balloons, and semiconductor manufacturing. The company has raised South Africa to join the exclusive group of only seven other nations producing this vital and valuable commodity.
The company’s shift from exploration to becoming a developer/producer of LNG and Helium in Africa is occurring at a pivotal moment, not only due to the Eastern Europe conflict but also to its vital role in driving carbon emission reduction. The transformation aligns seamlessly with the focal points discussed at the recent Climate Change Conference (COP28) and holds the potential to reshape Africa’s renewable energy industry narrative.
