The IPPPP RFP Debate: Renewable Energy in South Africa - Private and confidential
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Private and confidential
The IPPPP RFP
Debate: Renewable Energy in South Africa
23 August 2011Contents 1
Section Page
1. Overview of Standard Bank 2
2. SA Renewables Market 4
3. Overview of IPPPP 10Private and confidential
Section 1
Overview of Standard BankStandard Bank - Natural partner in Africa 3
Key points Most comprehensive network in Sub-Saharan Africa
On-the-ground presence in 17 African countries
On-the-ground
presence in 17
Nearly 150 years of experience in Africa
African countries
Largest bank in Africa
– Over 40,000 employees in Africa
– Over 8,000 bank branches headquartered in
Johannesburg
Growth on the continent is a key strategic focus area
Unrivalled
knowledge of sub- Investment banking presence across the region and in key
Saharan Africa markets strengthened by recent acquisitions:
through on ground
presence – IBTC Chartered Bank, Nigeria
– CFC Bank, Kenya
– Recent banking license awarded - Angola
Standard Bank
Strong product
teams in
Johannesburg, Angola (33.3 million) Lesotho (1.7 million) Nigeria (154.7 million) Zambia (14.6 million)
Lagos, Nairobi and
Botswana (1.8 million) Malawi (12.8 million) South Africa (47.4 million) Zimbabwe (13.1 million)
London
DRC (63.6 million) Mauritius (1.2 million) Swaziland (1.1 million)
Ghana (23.1 million) Mozambique (20.3 million) Tanzania (37.8 million)
Kenya (34.7 million) Namibia (2.1 million) Uganda (27.6 million)Private and confidential
Section 2
SA Renewables MarketSA Renewables Sector
Key points Introduction
SA is presently one of the world‟s most exciting renewables markets, adopting renewables late but with a high growth
IRP 2010 has rate
significantly
increased
disclosure of SA’s IRP 2010 is the SA Government‟s 20 year sector master-plan, issued for public consultation (October 2010); Cabinet
material power approved on 16th March 2011 and promulgated on 6th May 2011.
challenges
42% (17.8 GW) of new generation in IRP 2010 is proposed to come from renewable energy - 8.4 GW from solar PV, 1
GW CSP and 8.4 GW will come from wind;
Standard Bank believes new build wind will achieve SA grid parity with the blended wholesale tariff by 2014/2015 and
new build solar may achieve grid parity by 2018/2019. NT is expected to introduce carbon taxes by 2012, wherein the
exposure of the blended Eskom portfolio exposure is an additional R0.12 – R0.14 kWh (SB calculations)). This will
further boost renewable energy (no CO2 charge) competitiveness within SA.
The IPP REFIT was the planned renewables route to market. This has been replaced by the IPP Procurements Programme
Procurements („‟IPPPP’‟), which was released on 3 August 2011 and asks for 3,725 MW of which 91% relates to Wind and Solar. This
Programme, which
Programme relates to renewable energy IPP‟s and uses a revised tariff as a cap, with competitive price bidding taking
was released on 3
August 2011, relates place up to the cap
to renewable energy
IPP’s and uses
revised tariffs as a Comments on the First Bid Submission Phase are due 31 August 2011 with First Bid Submission due 4 November 2011.
cap, for a Selection of preferred bidders is scheduled to take place on 25 November 2011, with the projects reaching financial close
competitive bidding on 19 June 2011. Phases 2 – 5 follows accordingly.
process.
Bidders for the First Submission Phase should be capable of beginning commercial operation by June 2014, with any
other Submission Phase capable of beginning commercial operation no later than end 2016Potential New Electricity Generation 6
Key Geographical Overview
Gas-fired Power North-Eastern SA renowned for large coal deposits
Wind Power Potential
Coal Power Potential Medupi
Shale Gas potential being
Solar Power Potential evaluated in the Karoo Basin ROMPCO gas pipeline
Utilised and sold by
CCGT/Shale Gas Potential Sasol
New Nuclear Sites
Kusile
New/Discard Coal SA has exceptional DNI Mozambique
levels Secunda
New Gas High Solar PV, CPV and
CSP potential
Existing Gas Pipeline
Natural Gas deposits
found on the west Ibhubesi
coast of South Africa
Piped onshore and
used as a feedstock
for Gas-fired power
plants
Koeberg
Onshore wind in the Eastern / Western Capes
Thyspunt Strong potential
Bantamsklip
3 potential new nuclear sitesIRP 2010 - Summary 7
Key points Overview Consultation Process
The promulgated IRP2010 features the below energy mix The consultation process that ensued after the publishing
IRP2010 is a targets for 2030, in terms of new build: of the draft IRP2010 allowed for stakeholders to address
landmark public Nuclear 23% their concerns and make suggestions (479 submissions
policy document received). The below two graphs depict the major
that will change the Coal 15% positive impact that the process had on renewables:
SA energy
landscape
Imported hydro 6%
After consultation process
OCGT for peaking 9%
Imported gas 6%, and
Renewables 42% or 17,800MW, of which:
– PV: 8,400MW
– Wind: 8,400MW
– CSP: 1,000MW
In context
IRP2010 has hugely Changes to the IRP2010 include:
increased SA’s
The increased allocation of Renewables to the overall
projected
Pre- consultation process
renewables total – to energy mix plan for the 20 year period
17.8 GW over 20 The defined technology split of the Renewables
years
allocation.
The further technology split and allocation of solar into
PV and CSP
Reduction in planned initial allocations of Peak-OCGT
and an increase in Natural Gas-Fired CCGTTariffs - Grid Parity is nearing 8
Key points Tariff Paths: IRP 2010 vs. Medupi/Kusile vs. Solar PV vs. Wind
4.5 Eskom National Blended Tariff (as per
Policy-Adjusted Scenario) + Carbon
SA electricity tariffs Tax
are increasing at a 4.0
Eskom National Blended Tariff (as per
fast rate from a low Policy-Adjusted Scenario)
base 3.5
Onshore Wind - IPP Procurement
3.0 Programme (Phase 1 Tariff Cap) -
Inflation at 2% for Opex
2.5 Kusile + Enviromental Levy + Carbon
Tax
2.0
Kusile + Enviromental Levy
Note the central IRP 1.5
projections exclude Medupi + Enviromental Levy + Carbon
1.0 Tax
the introduction of
Carbon Taxes (dealt
with as a scenario 0.5 Medupi + Enviromental Levy
although scheduled
to be imposed from 0.0
2012) Solar PV / CSP - IPP Procurement
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 Programme (Phase 1 Tariff Cap) -
Inflation at 2% for Opex
The YELLOW line is the Policy-Adjusted Scenario („‟PAS’‟) from IRP 2010 (nominal money). The RED line is the PAS from IRP
2010 (nominal money), plus a potential price increase resulting from the proposed carbon tax
The GREEN and BROWN lines are potential tariff paths for Medupi/Kusile (calculated from public information), calculated with and
without carbon taxes. The costs of each project are highly material in terms of Eskom‟s assets and lead to Eskom envisaging two
further 25% tariff increases over the 2013-2015 period, before inflationary increases are expected
The PURPLE line is the wind IPPPP Price cap line indexed at 2% p.a.
The BLUE line is the PV / CSP IPPPP price cap line indexed at 2% p.a.
Clearly, in the medium to long-term, Wind and Solar PV are set to become highly competitive in the SA energy space.
We assume that future IPPPP price caps will be reduced in line with future equipment price trendsWhat will underpin IRP tariff increases?
Key points Bank/Utility Credit Support as a Percentage of Country 2010 GDP
90.0%
81.1% Note: The bailouts of financial
The magnitude of
Bailout % of 2010 Country GDP
80.0% institutions in the UK, USA and
the support of
Eskom - 16.9% of 70.0% Ireland are reflected from 2008 –
2010 GDP shows the 2010, while the other statistic
60.0%
importance of the represents the funding/credit
SA power sector 50.0% support by SA Govt of Eskom.
40.0% The Irish bailout reflects the recent
November 2010 bailout
30.0%
16.9% The bailouts represent 81.1%, 5%,
20.0%
8.1% and 16.9% of the 2010 GDP‟s
8.1%
10.0% 5.0% of Ireland, the USA, the UK and
0.0% South Africa respectively
Ireland USA UK Eskom
UK , USA, Ireland and Eskom Bailouts 2008 – 2010
Eskom’s loans are Eskom is a 100% State owned Enterprise. Under duress to fund its massive new build programme until tariff increases make its
intended to be financial position sustainable, Eskom has been provided with massive financial support from the SA Government
serviced from
increased tariffs Maximum R 350bn of loan guarantees + R[60-80]bn of shareholder loans / equity = R[410-430]bn (USD 59-61bn)
We have compared the size of Eskom‟s “support” (total loan guarantees and shareholder loans) with the “banking bail outs” of USA,
UK and Ireland which are the nearest global precedents.
Eskom‟s total support (R430bn) represents 16.9% of 2010 SA GDP. This is higher than the equivalent banking bail-outs for their
2010 economy – for the USA (5%) and the UK (8.1%), but not for Ireland (81.1% - incl. Nov 2010 Bailout)
The SA Government has stated that tariffs have to increase in order for the loan guarantees not to be called. This issue is
supplemental to DOE‟s IRP 2010 price path (previous slide), and effectively calls upon the independent regulator (NERSA) to
approve future tariff increases, which may be increased by the reimbursement of carbon taxes paid by Eskom to its upstream
suppliers (coal miners)Private and confidential
Section 3
Overview of IPPPPSA Renewables Overview 11
Overview IPPPP Tariff Caps v Eskom 2012-2013
SA‟s Renewable Energy scheme will be a competitive bid scheme
(IPPPP), with the tariff caps as per the diagram alongside. The scheme Eskom 66
includes the following technologies: onshore wind, small hydro, Landfill Small Hydro 103
Gas (LFG), biomass (solid), biogas, photovoltaic systems and CSP. Landfill Gas 60
IRP 2010 requires 300 MW solar PV per year from 2012 to 2024, 400 Biogass 80
MW wind from 2014-2023, 200 MW solar CSP by 2015, with 100 MW Biomass 107
p.a. through to 2025 Solar… 285
The IPPPP aims to kick-start the process of reaching the IRP 2010 Onshore Wind 115
targets, with the allocations represented in the diagram below. Concentrated… 285
Eskom will be the buyer of the power produced by signing the PPA,
acting through its Single Buyer Office (SBO). 0 100 200 300
ZAR Cents / KWh
Government will provide support for PPA payment obligations through
the Implementation Agreement with DoE Concentrated Solar Power
IPP Procurement Eskom
Programme
IPP Procurement Programme MW Allocations Current IPP Procurement Programme Structure
2000 1850
Generation Licence
1450 RE IPP NERSA
1500
Electricity
MW
1000
Money Regulates national
500 200 PPA tariffs, enables cost
12.5 12.5 25 75
pass through
0
Concentrated Onshore Wind Solar Biomass Biogass Landfill Gas Small Hydro
Solar Power Photovoltaic
Money Single Buyer Office
Consumers
(Eskom)
IPP Procurement Programme MW Allocations - Procurement Targeted on/before June
2014 (CSP June 2015) ElectricityProcess & Structure 12
Key points Timing
1st Bid Submission First Bid Submission Phase
Date – 04 November Selection of
2011 Bidders to Preferred Preferred
notify the Evaluation of Bidders in Bidders to Signing and
DoE of Bid Responses respect of finalise their effective
2nd Bid Submission First Bid
required for 1st phase of First Bid contractual date of
Date – 05 March Submission
Issue of project Bidders’ REFIT Submission arrangements Project
2011 Date
RFP information Conference 7 November – Date 28 November Agreements
4
3 August 31 August 14 September 25 November 25 November 2011 – 22 19 June
November
2011 2011 2011 2011 2011 May 2012 2012
DoE does not 2011
guarantee that
there will be a August
2 , 3 , 4 or 5 2011
nd rd th th
Bid Submission
Date
November
2011
Notification by Second Bid Evaluation of Bid Selection of Preferred Bidders Signing and
the Department Submission Responses for 2nd Preferred to finalise their effective date
of Second Bid Date phase of REFIT Bidders in contractual of Project
Submission 5 March 6 March 2012 – 11 respect of the arrangements Agreements
Date 2012 May 2012 Second Bid 15 May 2012 – 13 13 December
25 November Submission November 2012 2012
2011 Date
14 May 2012
Second Bid Submission PhaseProcess & Structure 13
Key points Qualification Criteria
1st stage – all bid
responses will be Project participants: equity participants, Price (full indexation and partial
assessed using the Structure of the lenders, contractors, equipment suppliers, indexation), financial standing of project
Project black enterprises and local community Financial Criteria sponsors, robustness and deliverability of
Qualification Criteria
members and Evaluation funding proposal, robustness of financial
to determine
models
whether they are
Compliant Bids
Only compliant bids Fully developed shareholders agreement, Proven technology, energy resource
will make it to the acceptance of project agreements (i.e. availability, generation forecast, project
Legal Criteria and Technical Criteria
2nd stage PPA, Implementation Agreement, Direct schedule, cost and timing of grid
Evaluation and Evaluation
Agreement etc), Statements by Members, connection, deliverability of project, water
Key subcontracts consumption
Title deeds, notarial leases, land use 40% SA entity participation: Job creation,
Land Acquisition Economic
consents including consents for local content, black ownership including
and Land Use Development
connection works local communities, preferential
Criteria and Criteria and
Evaluation procurement, enterprise development,
Evaluation
socio-economic development
Environmental consents namely a positive Bid submission : R100,000 per MW,
Environmental Record of Decision from the Department Preferred Bidder status: R200,000 per
Submission of Bid
Consent Criteria of Environmental Affairs MW, Development fee: 1% of total project
Guarantee
and Evaluation costProcess & Structure 14
Key points Evaluation Criteria
2nd stage –
Compliant bids will
PRICE 70%
be evaluated based
on PRICE and
ECONOMIC
DEVELOPMENT Two prices to be provided (1) full CPI indexed and (2) partial CPI indexed per Bidder‟s election
The base date for the CPI rate shall be April 2011 and adjusted annually (based on previous year‟s CPI)
Total points 100
2 step process to calculating the Equivalent Annual Tariff („‟EAT‟‟)
– Calculating the EAT for each price based on formula provided and discounted back to the base date
– Each Bidder‟s EAT will be calculated by reference to the lowest EAT for the same technology
70/30 PRICE/,
ECONOMIC
DEVELOPMENT
weighting
ECONOMIC DEVELOPMENT 30%
Job creation 25%, local content 25%, ownership 15%, management control 5%, preferential procurement,
10%, enterprise development 5%, socio-economic development 15% total 100% total points 30
Wind ownership targets: shareholding by black people in Project Company [12% - 30%], shareholding by
local community in Project Company [2.5% - 5%], shareholding in contractor responsible for construction [8%
- 20%], shareholding in operations contractor [8% - 30%],
PV ownership targets: shareholding by black people in Project Company [20% - 40%], shareholding by local
community in Project Company [2.5% - 5%], shareholding in contractor responsible for construction [8% -
20%], shareholding in operations contractor [8% - 40%],Grid Connection 15
Key points Overview
If the Bidder intends to connect to the Transmission System, the Grid Provider will be NTC.
Non-negotiability of
Connection
Agreement i.e. If the Bidder intends to connect to a Distribution System, the Grid Provider will either be the “Distribution”
Transmission business unit of Eskom, or a municipality, depending on the location of the point of connection
Agreement /
Distribution Shallow Connection Works:
Agreements
Grid Provider
1
undertakes the connection works
Transmission /
Distribution
Agreements to be
concluded prior to Grid Connection Options Bidder Self Build
2
or simultaneously for shallow connection works and transfer to Grid Provider
with the conclusion
of the PPA
Bidder Self Build
3
and Bidder retains ownership
Deep Connection Works:
– The Department will provide clarification to the Bidders in relation to the cost of and process for
undertaking "deep connection" by way of a Briefing Note to be issued by the Department during the IPP
Procurement Programme
If a number of Projects all intend to connect to a common substation, and the available capacity of the
substation is insufficient to accommodate all of the Projects, the DoE will comparatively rank these bids
against each other and the highest ranking bids will be awarded preferred bidder statusIPPPP Analysis and Conclusion 16
Renewables Development
Feedstock 2-year Value – All-in/MW Value – Equity Bidder Guarantee Preferred Bidder Development Fee
RFP MW (USDm) (USDm) (30%) – USDm Req’d (ZARm) Guarantee Req’d (ZARm) (1%) – USDm
Wind 1,850 2.0 3,700 1,110 185.0 370.0 37.0
PV 1,450 3.7 5,365 1,610 145.0 290.0 53.65
CSP 200 7.0 1,400 420 20.0 40.0 14
Biomass 12.5 3.7 46 14 1.25 2.5 0.46
Biogas 12.5 2.5 31 9 1.25 2.5 0.31
Landfill Gas 25 1.7 43 13 2.5 5.0 0.43
Small Hydro 75 2.0 150 45 7.5 15.0 1.5
Total 3,625 - 10,735 3,221 362.5 725 107.35
Key Requirements Areas of Uncertainty
PPA is not able to be marked up, but remain as-is
High SA shareholding (including BEE) Clarification needed on some elements of PPA, e.g. Force Majeure
Request for Proposal (RFP)
Evaluation discount rate likely to be lower than inflation
High local content (Manufacturing, O&M etc.)
“Own Build” & Deep grid connection still being finalised
Requirements
Estimated USD [10-11] bn of committed capital SBO and NTC remain part of Eskom
expenditures up to 2013 (Financial Close) DBSA BEE support likely to be unacceptable to Lenders
Transfer of interest rate risk post bid given financial market reality and CPs
not within Bidder‟s control
Associated USD [3-3.5] bn equity requirements
300 day duration of bid validity risk Can EPC prices be held this long?
Would PV bidders want to contract at a price that will almost certainly
Capped tariffs seen as enabling equity investments reduce in 300 days?
Scope of pricing differentials and BAFOs (CSP?)Disclaimer 17
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