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Private and confidential
The IPPPP RFP
Debate: Renewable Energy in South Africa
23 August 2011
1Contents
Section Page
1. Overview of Standard Bank 2
2. SA Renewables Market 4
3. Overview of IPPPP 10
Private and confidential
Section 1
Overview of Standard Bank
3
Standard Bank
Angola (33.3 million)
Botswana (1.8 million)
DRC (63.6 million)
Ghana (23.1 million)
Kenya (34.7 million)
Mozambique (20.3 million)
Lesotho (1.7 million)
Malawi (12.8 million)
Mauritius (1.2 million)
Namibia (2.1 million)
Nigeria (154.7 million)
South Africa (47.4 million)
Swaziland (1.1 million)
Tanzania (37.8 million)
Uganda (27.6 million)
Zambia (14.6 million)
Zimbabwe (13.1 million)
Most comprehensive network in Sub-Saharan AfricaKey points
On-the-ground
presence in 17
African countries
Unrivalled
knowledge of sub-
Saharan Africa
through on ground
presence
Strong product
teams in
Johannesburg,
Lagos, Nairobi and
London
On-the-ground presence in 17 African countries
Nearly 150 years of experience in Africa
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
Investment banking presence across the region and in key
markets strengthened by recent acquisitions:
– IBTC Chartered Bank, Nigeria
– CFC Bank, Kenya
– Recent banking license awarded - Angola
Standard Bank - Natural partner in Africa
Private and confidential
Section 2
SA Renewables Market
SA is presently one of the world‟s most exciting renewables markets, adopting renewables late but with a high growth
rate
IRP 2010 is the SA Government‟s 20 year sector master-plan, issued for public consultation (October 2010); Cabinet
approved on 16th March 2011 and promulgated on 6th May 2011.
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.
REFIT was the planned renewables route to market. This has been replaced by the IPP Procurements Programme
(„‟IPPPP’‟), which was released on 3 August 2011 and asks for 3,725 MW of which 91% relates to Wind and Solar. This
Programme relates to renewable energy IPP‟s and uses a revised tariff as a cap, with competitive price bidding taking
place up to the cap
Comments on the First Bid Submission Phase are due 31 August 2011 with First Bid Submission due 4 November 2011.
Selection of preferred bidders is scheduled to take place on 25 November 2011, with the projects reaching financial close
on 19 June 2011. Phases 2 – 5 follows accordingly.
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 2016
Key points
SA Renewables Sector
IRP 2010 has
significantly
increased
disclosure of SA’s
material power
challenges
Introduction
The IPP
Procurements
Programme, which
was released on 3
August 2011, relates
to renewable energy
IPP’s and uses
revised tariffs as a
cap, for a
competitive bidding
process.
6
Key Geographical Overview
Kusile
Medupi
Thyspunt
Bantamsklip
Koeberg
Ibhubesi
Onshore wind in the Eastern / Western Capes
Strong potential
Natural Gas deposits
found on the west
coast of South Africa
Piped onshore and
used as a feedstock
for Gas-fired power
plants
Shale Gas potential being
evaluated in the Karoo Basin
North-Eastern SA renowned for large coal deposits
3 potential new nuclear sites
ROMPCO gas pipeline
Utilised and sold by
Sasol
Mozambique SA has exceptional DNI
levels
High Solar PV, CPV and
CSP potential
Gas-fired Power
Wind Power Potential
Coal Power Potential
New Nuclear Sites
New/Discard Coal
New Gas
Solar Power Potential
CCGT/Shale Gas Potential
Existing Gas Pipeline
Secunda
Potential New Electricity Generation
7
Key points
The promulgated IRP2010 features the below energy mix
targets for 2030, in terms of new build:
Nuclear 23%
Coal 15%
Imported hydro 6%
OCGT for peaking 9%
Imported gas 6%, and
Renewables 42% or 17,800MW, of which:
– PV: 8,400MW
– Wind: 8,400MW
– CSP: 1,000MW
IRP 2010 - Summary
Overview Consultation Process
The consultation process that ensued after the publishing
of the draft IRP2010 allowed for stakeholders to address
their concerns and make suggestions (479 submissions
received). The below two graphs depict the major
positive impact that the process had on renewables:
Afte
r co
nsu
ltatio
n p
roc
es
s
Pre
-c
on
su
ltati
on
pro
ce
ss
In context
Changes to the IRP2010 include:
The increased allocation of Renewables to the overall
energy mix plan for the 20 year period
The defined technology split of the Renewables
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 CCGT
IRP2010 is a
landmark public
policy document
that will change the
SA energy
landscape
IRP2010 has hugely
increased SA’s
projected
renewables total – to
17.8 GW over 20
years
8Tariffs - Grid Parity is nearing
Tariff Paths: IRP 2010 vs. Medupi/Kusile vs. Solar PV vs. WindKey points
SA electricity tariffs
are increasing at a
fast rate from a low
base
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 trends
Note the central IRP
projections exclude
the introduction of
Carbon Taxes (dealt
with as a scenario
although scheduled
to be imposed from
2012)0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030
Eskom National Blended Tariff (as per Policy-Adjusted Scenario) + Carbon Tax
Eskom National Blended Tariff (as per Policy-Adjusted Scenario)
Onshore Wind - IPP Procurement Programme (Phase 1 Tariff Cap) -Inflation at 2% for Opex
Kusile + Enviromental Levy + Carbon Tax
Kusile + Enviromental Levy
Medupi + Enviromental Levy + Carbon Tax
Medupi + Enviromental Levy
Solar PV / CSP - IPP Procurement Programme (Phase 1 Tariff Cap) -Inflation at 2% for Opex
UK , USA, Ireland and Eskom Bailouts 2008 – 2010
Eskom is a 100% State owned Enterprise. Under duress to fund its massive new build programme until tariff increases make its
financial position sustainable, Eskom has been provided with massive financial support from the SA Government
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)
Note: The bailouts of financial
institutions in the UK, USA and
Ireland are reflected from 2008 –
2010, while the other statistic
represents the funding/credit
support by SA Govt of Eskom.
The Irish bailout reflects the recent
November 2010 bailout
The bailouts represent 81.1%, 5%,
8.1% and 16.9% of the 2010 GDP‟s
of Ireland, the USA, the UK and
South Africa respectively
Key points
81.1%
5.0%8.1%
16.9%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Ireland USA UK Eskom
Bailo
ut
% o
f 2010 C
ou
ntr
y G
DP
Bank/Utility Credit Support as a Percentage of Country 2010 GDP
What will underpin IRP tariff increases?
The magnitude of
the support of
Eskom - 16.9% of
2010 GDP shows the
importance of the
SA power sector
Eskom’s loans are
intended to be
serviced from
increased tariffs
Private and confidential
Section 3
Overview of IPPPP
11SA Renewables Overview
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
includes the following technologies: onshore wind, small hydro, Landfill
Gas (LFG), biomass (solid), biogas, photovoltaic systems and CSP.
IRP 2010 requires 300 MW solar PV per year from 2012 to 2024, 400
MW wind from 2014-2023, 200 MW solar CSP by 2015, with 100 MW
p.a. through to 2025
The IPPPP aims to kick-start the process of reaching the IRP 2010
targets, with the allocations represented in the diagram below.
Eskom will be the buyer of the power produced by signing the PPA,
acting through its Single Buyer Office (SBO).
Government will provide support for PPA payment obligations through
the Implementation Agreement with DoE
Current IPP Procurement Programme Structure
RE IPP
Single Buyer Office
(Eskom)
NERSA
Consumers
Generation Licence
Regulates national
tariffs, enables cost
pass through
Electricity
Electricity
Money
Money
PPA
IPP Procurement Programme MW Allocations
200
1850
1450
12.5 12.5 25 75
0
500
1000
1500
2000
Concentrated Solar Power
Onshore Wind Solar Photovoltaic
Biomass Biogass Landfill Gas Small Hydro
IPP Procurement Programme MW Allocations - Procurement Targeted on/before June 2014 (CSP June 2015)
MW
285
115
285
107
80
60
103
66
0 100 200 300
Concentrated …
Onshore Wind
Solar …
Biomass
Biogass
Landfill Gas
Small Hydro
Eskom
Concentrated Solar Power EskomIPP Procurement
Programme
ZAR Cents / KWh
12
Timing
Process & Structure
Key points
1st Bid Submission
Date – 04 November
2011
2nd Bid Submission
Date – 05 March
2011
DoE does not
guarantee that
there will be a
2nd, 3rd, 4th or 5th
Bid Submission
Date
Evaluation of Bid Responses for 1st phase of REFIT
7 November –25 November 2011
Signing and effective date of Project Agreements19 June 2012
Bidders’ Conference
14 September 2011
First Bid Submission Date
4 November 2011
Preferred Bidders to finalise their contractual arrangements28 November 2011 – 22 May 2012
Issue of RFP
3 August 2011
Bidders to notify the DoE of required project information 31 August 2011
Selection of Preferred Bidders in respect of First Bid Submission Date
25 November 2011
Signing and effective date of Project Agreements13 December 2012
Preferred Bidders to finalise their contractual arrangements15 May 2012 – 13 November 2012
Second Bid Submission Date5 March 2012
Evaluation of Bid Responses for 2nd
phase of REFIT6 March 2012 – 11 May 2012
Selection of Preferred Bidders in respect of the Second Bid Submission Date14 May 2012
Notification by the Department of Second Bid Submission Date 25 November 2011
November 2011
August 2011
Second Bid Submission Phase
First Bid Submission Phase
13
Qualification Criteria
Process & Structure
Key points
1st stage – all bid
responses will be
assessed using the
Qualification Criteria
to determine
whether they are
Compliant Bids
Technical Criteria
and Evaluation
Proven technology, energy resource
availability, generation forecast, project
schedule, cost and timing of grid
connection, deliverability of project, water
consumption
Legal Criteria and
Evaluation
Project participants: equity participants,
lenders, contractors, equipment suppliers,
black enterprises and local community
members
Title deeds, notarial leases, land use
consents including consents for
connection works
Financial Criteria
and Evaluation
Economic
Development
Criteria and
Evaluation
Submission of Bid
Guarantee
Structure of the
Project
Land Acquisition
and Land Use
Criteria and
Evaluation
Environmental
Consent Criteria
and Evaluation
Environmental consents namely a positive
Record of Decision from the Department
of Environmental Affairs
Bid submission : R100,000 per MW,
Preferred Bidder status: R200,000 per
MW, Development fee: 1% of total project
cost
Fully developed shareholders agreement,
acceptance of project agreements (i.e.
PPA, Implementation Agreement, Direct
Agreement etc), Statements by Members,
Key subcontracts
Price (full indexation and partial
indexation), financial standing of project
sponsors, robustness and deliverability of
funding proposal, robustness of financial
models
Only compliant bids
will make it to the
2nd stage
40% SA entity participation: Job creation,
local content, black ownership including
local communities, preferential
procurement, enterprise development,
socio-economic development
14
Evaluation Criteria
Process & Structure
Key points
2nd stage –
Compliant bids will
be evaluated based
on PRICE and
ECONOMIC
DEVELOPMENT
Total points 100
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)
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
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%],
PRICE 70%
ECONOMIC DEVELOPMENT 30%
70/30 PRICE/,
ECONOMIC
DEVELOPMENT
weighting
15
Overview
Grid Connection
If the Bidder intends to connect to the Transmission System, the Grid Provider will be NTC.
If the Bidder intends to connect to a Distribution System, the Grid Provider will either be the “Distribution”
business unit of Eskom, or a municipality, depending on the location of the point of connection
Shallow Connection Works:
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 status
Key points
Non-negotiability of
Connection
Agreement i.e.
Transmission
Agreement /
Distribution
Agreements
Transmission /
Distribution
Agreements to be
concluded prior to
or simultaneously
with the conclusion
of the PPA
Grid Connection Options
for shallow connection works
Grid Provider
undertakes the connection works
Bidder Self Build
and transfer to Grid Provider
Bidder Self Build
and Bidder retains ownership
1
2
3
16IPPPP Analysis and Conclusion
Feedstock 2-year
RFP MW
Value – All-in/MW
(USDm)
Value –
(USDm)
Equity
(30%) – USDm
Bidder Guarantee
Req’d (ZARm)
Preferred Bidder
Guarantee Req’d (ZARm)
Development Fee
(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
Req
uest
for
Pro
po
sal
(RF
P)
Req
uir
em
en
ts
High SA shareholding (including BEE)
High local content (Manufacturing, O&M etc.)
Associated USD [3-3.5] bn equity requirements
Estimated USD [10-11] bn of committed capital
expenditures up to 2013 (Financial Close)
Capped tariffs seen as enabling equity investments
Renewables Development
PPA is not able to be marked up, but remain as-is
Clarification needed on some elements of PPA, e.g. Force Majeure
Evaluation discount rate likely to be lower than inflation
“Own Build” & Deep grid connection still being finalised
SBO and NTC remain part of Eskom
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
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
reduce in 300 days?
Scope of pricing differentials and BAFOs (CSP?)
Key Requirements Areas of Uncertainty
17Disclaimer
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