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2RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 2
Presentation Overview
REFIT Guidelines
• REFIT Guidelines is to identify and discuss the key components and steps for the successful REFIT program
• REFIT Rules is to provide further guidance on the operationalization of Zambia’s REFIT program
• Amendments to the generation license to facilitate RE generation facilities
• A standardized Power Purchase Agreement to speed up contractual process
REFIT Rules
Generation License
PPA
4RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 4
REFIT Support Mechanisms
• Success of REFIT program is contingent upon a
range of factors including:
– Political, Socio-economic Technical ,Commercial,
Financial, Legal, etc.
• To assist Zambia the Consultant provided REFIT
Guidelines in respect of the following areas:
Program ‘Building Blocks’
Alignment of Policy, Legislation
Regulations
Development of processes, procedures and agreements
6RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 6
Support Area Brief Description
REFIT Policy Articulate Government support for RE
Conducive Legislation Ensure no legal barriers and where appropriate
support through legislation to enable:
• Formalization of RE procurement program,
• REFIT Rules and Cost Pass-Through
• ZESCO to be designated buyer, etc.
Structure & Term of Program Phases, dates, technologies, limits, off-taker, tariffs
REFIT Procurement Process Responsibilities of institutions and clear process and
timelines
Procurement Evaluation
Criteria
Evaluation criteria should transparent and upfront
Integrated Resource Plan Provide for RE capacity to facilitate licensing process
Implementation Agreement
Direct Agreement
Clearly articulate what support will be offered
Government Support
7RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 7
REFIT
• Approval of tariff arrangement
Power Purchase Agreement
• Develop integration solution and cost
• Enter into agreement with willing developer
Generation License
• Approval of standard Generation license
Cost Pass Through
• Approve a mechanism of cost pass through with a commitment to allow ZESCO to include in Revenue Requirement
Grid Connection Guidelines
• Guidelines to steer the grid connection process including: principles, application process, cost allocation connection charges
Regulatory Support
8RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 8
Power Purchase Agreement
• Willing and able to counter-sign
• Provide support as per agreement
Connection Agreement
• Develop integration solution and cost
• Enter into agreement with willing developer
Create Connection
• Facilitate connection in accordance with Connection Agreement
Direct Agreement
• Enter into a Direct Agreement if required
Utility Support
10RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 10
REFIT Rules
The purpose of the REFIT Rules is to provide further guidance on the
operationalization of Zambia’s REFIT Policy by expanding the following areas:
REFIT Principles
REFIT Governance Structures
REFIT Technology
Limits
REFIT Tariff Arrangements
REFIT Power Purchase
Arrangements
REFIT Technical Requirements
Application & Selection process
REFIT License application &
evaluation
REFIT Oversight
11RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 11
Key Principles … 1
a) Applies to projects within the borders of Zambia,
b) Clear roles and responsibilities of key institutions,
c) Meet policy criteria (e.g. technology and capacity
limits),
d) Fair & transparent selection process,
e) Reasonable tariff for a fixed duration,
f) Dedicated power off-taker (purchaser) with a take-or-
pay obligation,
g) Reasonable access to the network
12RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 12
Key Principles … 2
h) Develop & integrate streamlined processes and procedures to reduce time and costs:
i. Standardized PPA, Standardized Generation License,
ii. Standardized Connection Agreement, Suitable Implementation Agreement,
iii. Provision of REFIT capacity in the National Integrated Resource Plan,
iv. Updated legislation and regulations where appropriate ,
i) A dynamic mechanism that reflects market, economic and political developments,
j) REFIT program sustainability through automatic cost-pass through to electricity consumers,
k) RE projects that do not qualify under the REFIT program may be developed through bilateral negotiations with the appropriate authorities and institutions.
13RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 13
DOE - custodian of the REFIT program and developer of policy for RE
procurement within context of integrated resource planning
• e.g. Establishment of a committee to coordinate GOZ efforts,
mandating ZESCO as off-taker, potentially signing Agreements with
developers and lenders, updating Zambia’s REFIT policy from time
to time
ERB - creates an enabling environment for REFIT program through
appropriate regulatory instruments
• e.g. issue and review generation license and fees, establish tariff
structure for RE tech, develop and review the REFIT guidelines,
develop and manage regulations for grid connection (Grid Code),
mediate disputes
ZESCO - electricity off-taker and will enter into PPAs with qualifying and
licensed RE generators from the REFIT program. Shall connect licensed
RE generators to the T&D network in line with agreed cost estimates,
timelines and grid connection agreement
REFIT Governance(Roles & Responsibilities)
14RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 14
REFIT Technology Limits(as per Draft Policy)
Procurement limits per technology (in MW):
• 100 MW for hydro (Max 20MW per project)
• 50 MW non-hydro (Max 20MW per project)
• 10 MW for micro generation
15RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 15
• A single-part energy-only tariff (kWh)Tariff Components
• Base tariff: USDTariff Currencies
• [*] USD/kWh with base date of 1 July 2015Base REFIT
• Annual indexation of the full Base REFIT Tariff for changes in the US inflation rate
Indexation
REFIT Tariff Arrangements … 1
16RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 16
REFIT Tariff Arrangements … 2
• Cost Pass Through
• The ERB’s current tariff methodology provides for full cost pass through of the PPA purchase costs
• ZESCO to include the full purchase cost of REFIT IPPs in its revenue requirement
• ERB shall allow the REFIT IPP costs in ZESCO’s revenue requirement and in the tariff determination
• Cost Recovery of REFIT Power Generators
• REFIT generators are allowed to recover costs through a range of other options including: green electricity sales, donor support, international climate change funds; and carbon finance
17RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 17
REFIT Technical Requirements … 1
• General Conditions - All projects must comply with Zambia’s
relevant technical, legal & regulatory requirements, and
national standards for connection, operations and reporting
• Connection Obligations and Arrangements
• ERB - responsible for developing Grid Connection Guidelines
• IPP - responsible for applying for connection from ZESCO in accordance with Grid Connection Guidelines
• The IPP will pay for costs of interconnection (e.g. cost of construction, upgrading of transmission/distribution lines, substations, & assoc. equipment)
• The IPP will pay interconnection costs upfront
18RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 18
REFIT Technical Requirements … 2
• Connection Obligations and Arrangements
• ZESCO—responsible for processing the grid connection
application in accordance with Grid Connection Guidelines
• The IPP and ZESCO’s Grid Connection Agreement will
govern technical, commercial, regulatory and legal aspects
of the IPP’s connection
• Grid Code Compliance—RE projects that connect to national
grid shall comply with requirements in The Electricity (Grid
Code) Regulations,
19RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 19
REFIT Selection Process
• Competitive bidding process for REFIT
• Bidding will be overseen by MMEWD with transparent
rules to be developed that determine the basis for
project selection and needed criteria;
• Modalities of bidding process to be developed by DOE
in consultation with ERB, ZESCO and other
institutions.
20RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 20
REFIT Oversight
• ERB - responsible for overall monitoring and evaluation of the REFIT
– Annual monitoring review at end of each financial year with evaluation of technology, installed capacity and location
– Program Review to take place at least every 3 years
– Maintain a database and report annually on REFIT program including energy produced, economic impact, and progress
– Act as Secretariat for an interdepartmental steering committee (e.g. ERB, ZESCO, the MoF, MoE, and Mineral Development)
• ZESCO - Monitor and report to ERB annually on REFIT program statistics
including RE generator count, energy purchased, costs, performance, Grid
Code compliance.
• Renewable Energy Generators - report to ERB as it may request, eg. capital
investment, generation performance, O&M costs, fuel costs (if applicable);
report to system operator on relevant info in compliance with the Acts
22RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 22
ZAMBIA REFITREFIT Generation License
• Is intended to provide a pro-forma licence for
submission by a REFIT developer to ERB.
• Is aimed at renewable energy projects (e.g. less
than 20MW). It is acknowledged that developers
of larger renewable energy projects would
require a dedicated licence.
• Only deals with the requirements of the Energy
Regulation Act and the Electricity Act and related
requirements (e.g. Grid Code)
23RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 23
ZAMBIA REFITKey features of Licence (1)
Feature Comments
Technology Solar, Min-hydro, Wind, Geothermal
Period of Validity Aligned to PPA (20 years from COD)
Lapses of financial close not obtained within 365 days
Effective Date Date of issue – full force and effect on COD
Licensed Rights Right to construct, operate and maintain power plant
Right to sell generated power (to ZESCO only ito REFIT)
May only sell to ZESCO
Licence Conditions Sufficient funds and resources to carry out licensed activities
Comply with Grid Code,
Compliance with other laws (including Competition aspects)
Ring fencing of licensed activities
Comply with standards set by Zambia Bureau of Standards
24RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 24
ZAMBIA REFITKey features of Licence (1)
Feature Comments
Licence Transfer ERB Approval required
Selling of Equity ERB must be informed if more than 5% owners interest sold
Selling of Assets Prior approval of ERB if more than 5% assets sold (materiality test)
Licence
Amendment
Unilaterally by ERB in limited circumstances –
- Change in Law
- Order of competent court
- If provided for in authorizing legislation
On application by licensee
Licence Suspension
and Revocation
- Breach of licence payment obligations (suspend)
- Non-payment of fines (suspend)
- Fails to comply to a notice of breach (suspend)
- Repeated transgressions (revoke)
- Licensee does not commence with licensed activities within two years
25RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 25
ZAMBIA REFITKey features of Licence (1)
Feature Comments
Licence Fees Payable to ERB as provided for in the Act
Licence Renewal Possible at end of period upon application to ERB
Provision of Information - As the ERB may reasonably consider necessary for the
purpose of performing its functions – compliance monitoring
- Other contracts with other licensees or customers
- Changes to PPA and other agreements related to the
generation and sale of power
- Exports of power (if applicable and allowed)
27RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 27
Standard PPA
The latest draft PPA :
1. Is intended to set guidance for further discussions and negotiations between the Parties with respect to the development of a definitive PPA which shall be subject to internal approvals by both parties.
2. Is principally aimed at small to medium size renewable energy projects (e.g. less than 20MW). It is acknowledge that developers of larger renewable energy projects may want to negotiate custom designed PPAs
3. Does not contain all matters upon which agreement must be reached in order for the transaction to be completed.
4. Is the latest version accommodating stakeholder comments to date
5. A binding and enforceable contract can only result from the execution and delivery of a mutually satisfactory PPA
28RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 28
Key features of PPA … 1
Feature Comments
Buyer ZESCO (primary responsibilities include: evacuate energy, make payment,
facilitate connection)
Seller Preferred renewable energy IPP (primary responsibilities include: build and
operate power plant, deliver agreed energy, fund grid connection)
Effective Date The PPA come into force on the date of last signature but Effective Date is
the date on which all of the Conditions Precedent have been satisfied or
duly waived
Commercial Operations
Date (COD)
COD means the date on which the complete Power Plant is duly
commissioned pursuant to the Commissioning Schedule, deemed
commercial operations date if Power Plant able to deliver but Byuer not
able to off-take with Deemed Energy payments
Term of PPA 20 years from COD
Sale Energy (kWh) delivered at the Delivery Point
Deemed Energy Energy that was capable of being produced and delivered but Buyer was
unable to evacuate will be deemed sold – possibilities – deemed COD, after
COD,
29RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 29
Key features of PPA … 2
Feature Comments
Tariff Single energy rate only – no capacity charges
Currency USD
Indexation US Consumer Price Index (annual indexation)
Point of Delivery At the power plant (Buyer responsible for line losses & imbalances)
Metering device The Seller shall install and maintain a meter at or before the Delivery Point.
Buyer has the right to install check meter
Operating Regime Self dispatch with coordinated scheduled maintenance and information
exchange
Invoicing & Payments Monthly invoices (7th), Monthly payments (30th)
Testing Power plant to comply with Grid Code and connection to comply with
connection agreement before COD, sign off by independent engineer
Change in Law and Tax Financial stabilization clause to be provided in IA to ensure Seller is covered
for Change in Law and Tax
Change in Control Limited change in control allowed subject to prior approval
30RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 30
Key features of PPA … 3
Feature Comments
Force Majeure (FM) New FM clauses with difference between political force majeure and other force
majeure – termination after prolonged force majeure – different regimes in terms of IA
for different types of force majeure & depending on who terminates
Termination Termination for Seller Default, Buyer, Default, Force Majeure, if by Long Stop Date
Financial Close has not been obtained
Compensation in
event of Termination
To be defined in the Implementation Agreement
Dispute Resolution Negotiate – Mediate –Arbitrate (under UNCITRAL rules); expert determination for
technical issues (e.g. metering disputes)
Applicable Law Law of Zambia
Insurance Seller responsibility in accordance with prudent practices
Credit Support Seller responsible to procure and maintain credit support [Letter of Credit, Escrow
account, etc.]
Carbon Credits Belongs to developer
Expiration of the PPA Continued ownership (BOO); re-negotiated PPA
PPA Amendment Prior approval of regulator needed
31RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 31
PPA – Key Dates
•
Effective Date
(Connection
Agreement)
Target COD Last COD Termination
Date
[x] months
Actual COD
[18] months
20 years
Terminate
[12] months
Signature
Date
Last Stop
Date for FC
Terminate
Day-for-Day
extension
due to Force
Majeure
[12] months
Force
Majeure
event
Terminate
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