Blu Label Unveils 400MW Electricity Generation Plans
The company secures agreements for 180MW but hasn't begun generating power yet.
The Full Story
Blu Label Unlimited Group has made significant strides in its energy strategy by securing about 400MW of generation capacity for Blu Energy, its power unit. At a recent media briefing following the group's annual results, Co-CEO Mark Levy outlined the framework for this ambitious initiative, highlighting that out of the total capacity, 180MW has already been contracted with existing power-purchase agreements and grid connections. Notably, none of the projects are currently online.
The initial phase of their energy generation plans will kick off with rooftop solar installations, leveraging already existing sites. Two specific projects are set to move forward: one with a capacity of 9MW and another of 19MW. Following this, ground-mounted solar plants with capacities of 50MW, 20MW, and 12MW are lined up, alongside a further 70MW under consideration.
Levy anticipates that deployment of the rooftop solar projects will begin in the third or fourth quarter of this year, with ground-mounted works progressing simultaneously. Levy has emphasized that the 400MW capacity is merely a starting point, expressing the group's commitment to expanding its capacity over time. The strategy focuses on creating smaller plants of 10 to 40MW that can feed individual municipal substations, rather than relying on a single large facility.
He indicated that building a 200MW plant would typically require around four to five years and an investment of R4 billion to R5 billion, whereas distributing the same capacity across multiple nodes could see the power operational within 15 months, reducing the risk associated with concentrating resources. Each site identified for this expansion must meet specific requirements, including securing a power-purchase agreement with the relevant municipality, obtaining land within a five-kilometre radius of the substation, and receiving environmental approvals. Levy mentioned the company is keen to initiate construction before the December holiday season.
Funding for these projects is expected to come from infrastructure lenders and green energy funds, rather than its own balance sheet. Blu Label's subsidiary, Cigicell, which already collects electricity payments for municipalities, gives prospective funders insight into cash flows and creates opportunities for escrow arrangements. In addition to electricity generation, Blu Energy holds a multi-year electricity trading license from Nersa, permitting it to buy, sell, and trade power.
However, Levy noted that trading activities will be contingent on market conditions. Further diversifying its services, Cigicell has already deployed over 50,000 smart meters and committed to an additional 10,000 to 15,000. This rollout is either through a national treasury contract or via direct arrangements with municipalities.
The structure is designed to deliver quick revenue, mostly realized in the first year of deployment. Levy also pointed out a significant opportunity in revenue assurance, estimating that as much as 30% of electricity distributed by municipalities is lost or unbilled. The company collaborates with municipalities to establish a baseline for collections, utilize geo-coding for properties, and rectify billing discrepancies.
Notably, a pilot project in Tshwane uncovered hundreds of millions of rands in potential recoverable revenue, with similar efforts set to commence in Ekurhuleni and Johannesburg. The group is even expanding its expertise into water services management, where infrastructure issues differ from those in electricity. Levy concluded that while Blu Label sold R46.2 billion worth of prepaid electricity in the year leading up to May 31, it earned 13% less in commission, highlighting the need for this energy expansion to mitigate losses in its current business model.
Why It Matters
Blu Label's venture into electricity generation is pivotal as it seeks to address energy shortages and inefficiencies in municipal electricity distribution. This move could reshape the energy landscape in South Africa, promoting sustainable practices and enhancing local energy security.
What's Next
Construction for rooftop solar installations is expected to begin in late 2023, with ground-mounted projects rolling out simultaneously. The company's strategy will continue to evolve as it explores additional funding and municipal partnerships.