Blu Label Unlimited Group has provided its energy division, Blu Energy, with approximately 400 MW of generating capacity. For 180 MW of this capacity, sites, power purchase agreements, and grid connections are already in place, but none of the projects have started generating power yet.
Details of this plan were presented by Co-CEO Mark Levy at a press briefing following the group's annual results publication on Wednesday. This is the first time Blu Label has presented quantitative figures for projects under its strategy, which was first announced in February.
The first to be implemented will be rooftop solar panels, as the corresponding sites already exist: contracts have been signed for two projects of 9 MW and 19 MW. This will be followed by ground-mounted installations, for which contracts have been signed for projects of 50 MW, 20 MW, and 12 MW, with another 70 MW also identified. Deployment on rooftops is planned for the third or fourth quarter of this year, running parallel to work on ground-based facilities.
Levy emphasized that 400 MW is a starting point, not a limit, and stated that the group will continue to increase capacity. The strategy outlined by Levy in February involves building facilities ranging from 10 to 40 MW to power individual municipal substations, rather than creating one large facility. He noted that building a 200 MW capacity would take four or five years and cost between 4 and 5 billion rand. However, the same 200 MW capacity, distributed across 10 or 20 nodes, could operate for 15 months, eliminating concentration risk.
Visibility of cash flows
Each facility requires a power purchase agreement with the municipality, a land plot within about 5 km of the substation, an assessment of the viability of that substation over the project's 10- or 20-year lifespan, and environmental permits. Implementation timelines depend on which of these steps are conducted in parallel and which are not. Levy reported that the group aims to start construction before the winter shutdown in December.
Funding must come from infrastructure lenders and green energy funds, not from Blu Label's balance sheet. The group's advantage is that its subsidiary for collecting payments in municipalities, Cigicell, already collects electricity payments from municipalities. This provides financiers with transparency in cash flows and allows them to use escrow agreements based on this data.
Blu Energy also holds a multi-year electricity trading license from Nersa, obtained during the financial year. This license grants it the right to buy, sell, and trade energy, as well as supply energy to large consumers. Trading is limited by market conditions, and Levy clarified that the division will trade when the opportunity arises.
The second component is Cigicell. The company has installed over 50,000 smart meters and has another 10,000–15,000 planned. Meters are implemented either under the transversal contract of the national treasury RT29, in which Blu Label is one of six participating companies, or directly with municipalities via a commercial agreement. Revenue is received at the beginning of the period, with most of it recognized in the first year.
The third aspect, revenue assurance, described by Levy as a 'sleeping giant,' is estimated by Blu Label to represent a potential loss of about 30% of electricity distributed by municipalities due to theft, losses, or lack of billing. The group enters into a basic collection agreement with the municipality, sends commands for object geocoding, replacement of damaged meters, matching them with corresponding bills, tariff verification, and restoration of billing history, after which it retains a agreed portion of the recovered amount. If it cannot exceed the established baseline, no funds are paid out. Debts can be claimed for the last 36 months.
Levy mentioned a pilot project in Tshwane covering 300 customers, which uncovered hundreds of millions of rand that should have been billed but were not. A pilot project in Ekurhuleni, involving about 2,200 customers, is about to begin, and work is underway in Johannesburg. The group has also begun testing a similar approach in water supply, where infrastructure leak issues present a different picture—a power line failure stops the flow, but a pipe failure does not.
Trading margin for fee recovery
The development of the energy business is a response to an existing problem. A year before May 31, Blu Label sold 46.2 billion rand of prepaid electricity, which was 4% more, and received 13% less commission for it. Levy simply explained the mechanism on Wednesday: the commission is calculated on kilowatt-hours, not on turnover. Therefore, when tariffs rise, the same 100 rand buys 8 kWh instead of 10, and Blu Label receives payment for eight.
He went further than the group had previously done by stating that Blu Label is willing to accept a reduction in trading margin because the money recovered from detected lost electricity is more valuable than what it loses on tokens. None of the energy businesses currently generate income. Blu Label's annual reports only indicate that Blu Energy is moving towards receiving its first contractual revenues. A note regarding the upcoming IFRS 20 accounting standard gives the clearest picture of the model: contracts are calculated based on the unit of consumed energy, not a fixed sum for the contract period.
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