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Republic of South AfricaIPP Procurement Programme

IPPs: An Investor & Community Perspective

Maduna NgobeniDepartment of Energy of South Africa

Introduction

• In August 2011, the Minister determined that 3725MW of renewable energy be procured by IPPs in five different rounds (“Bid Windows”), subsequent to which the DOE initiated the procurement process.

• In December 2012, in a trio of further determinations, the Minister determined that a further 3200MW of renewables generation capacity was to be procured from IPPs, as well as IPP procurement of coal, gas, hydro and cogeneration generation capacity under the Baseload Programme and the Medium Term Risk Mitigation Project.

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Introduction (cont’d)

• To-date, the Department has: – Under renewables Bid Window 1, entered into 28 agreements on

5 November 2012 totaling 1416MW generation capacity;– Under renewables Bid Window 2, entered into 19 agreements on

9 May 2013 totaling 1044MW generation capacity.

• With regards to renewables Bid Window 3:– Received 93 bids on the 19 August 2013– Appointed 17 preferred bidders totaling 1456MW generation

capacity– The Department was pleased to note the competitive pricing

offered in the bids received

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Introduction (cont’d)

Technology MW capacity determined MW capacity already procured

Renewables 6 725 3 916

Small Renewables (≤ 5MW) 200 0

Coal 2 500 0

Gas 3 126 0

Hydro 2 609 0

Cogeneration 800 0

Total 15 960 3 916

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PROCUREMENT

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Procurement documents*

•Part A: General Requirements and Rules•Part B: Qualification Criteria•Part C: Economic Development

Request for Proposals

•Contract between the IPP and the Seller•Wind PPA•Solar PPA•CSP PPA•Other technologies etc.

Power Purchase Agreement

•Contract between the IPP and the Department•Obligation for IPP to deliver on economic development obligations•On buyer default – Department to pay the IPP

Implementation Agreement

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Procurement Process Background

* Subject to variation across each programme.

Request for Proposal (RFP)*

• Requirements• Rules

RFP Part A

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Procurement Process Background

* Subject to variation across each programme.

COMPARATIVE EVALUATION

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Price70 %*

30 %ED

Job creation Socio economic Local content

Project costRand/MWh

Bidders with the highest combined price and economic development scores that fall within the capacity allocation per Bid Window are awarded preferred bidder status.* Subject to variation across each programme.

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Contractual Arrangement

IPP

GovernmentEskom

Government Framework Support Agreement

Implem

entation

Agreem

ent (IA)P

ower

Pur

chas

e

Agr

eem

ent (

PPA

)

• Bidders are issued standardised agreements as part of the RFP. PPAs are issued on a per technology basis.

STRUCTURE OF AN IPP

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Project Structure• Majority of bidders in the renewables programme use a project

finance structure.

• Project finance debt is generally more expensive than corporate debt as the only collateral is the project assets.

• However, a project finance structure shields the equity sponsors from harm should the project fail.

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Renewables Programme Bid Window 1 Bid Window 2 Bid Window 3

Project Finance Preferred Bidders 27 18 11

Corporate Finance Preferred Bidders 1 1 6

Average Debt-Equity Split for Project Finance Preferred Bidders 71:29 75:25 72:28

Typical Shareholding Structure*

• Smaller South African players have the opportunity of teaming up with large international players to form a project company.

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Project Shareholding0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Lead Member 60%

RSA Member 20%

RSA Member/DFI 15%

Local Community Trust 5%

* A typical shareholding structure on the renewables programme. Shareholding structures may be substantially different in other programmes.

Funding Packages

• The DOE wishes to optimise the involvement of black people in the IPP projects and ensure that capacity is built within shareholders which are owned or controlled by black people or local communities to enable them to participate in the energy sector. In support of this, the DBSA may offer a funding package (in the form of a loan) to eligible candidates.

• The IDC and PIC may also provide loans to South African shareholders.

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RENEWABLES & SMALL RENEWABLES

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Focus on ED• The DOE is committed to furthering economic development in South

Africa as can be seen by the 30% weighting assigned to ED in the scoring mechanism of the renewables programme. The table below illustrates some of the criteria on which the ED scoring is based in the renewables programme:

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Criterion Outcome

Job CreationA bidder is incentivised to create jobs for South African citizens with further incentives to hire black citizens, skilled blacks citizens and citizens from the local community.

Local Content At least 40% to 45% of the construction cost spend of a project must be local. This encourages local manufacturing growth.

Socio-economic development

A project is required to spend at least 1% of gross revenue earned during operations on socio-economic development.

Small Renewables Fund

• The DOE, with National Treasury, is looking to set up a fund to assist small, new developers with financing, as well as reducing the cost and complexity to bid.

• KfW (German Government development bank) has offered a 34 million euro loan to contribute to the fund.

• The DOE will seek to involve commercial banks (the DOE has already received commitment from the commercial banks to contribute to the fund) and other funders to create a fund large enough to cater to the market.

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Small Renewables Fund (cont’d)

• The fund may well offer standardised documents and panels of EPC and O&M contractors and equipment suppliers (these are the primary participants in an IPP project); this will assist small new developers to become involved and will further the Department’s aim of encouraging local developers.

• This fund will take some time to create which means that the small renewables programme will need to shift timelines to move in line with the fund’s creation. However, this will allow more local developers to participate which is desirable to the DOE, the greater Government, the country and local communities.

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RENEWABLESFACTS & FIGURES

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Total Project Funding per MW

Technology Bid Window 1 Bid Window 2 Bid Window 3

Solar PV 36.6 28.9 18.7

Wind 21.0 19.4 21.6Concentrated solar power with storage (min 3 hrs per day) 75.8 89.7 89.7

Small hydro (≤ 40MW) 44.1

Landfill gas 16.0

Biomass 64.3

All figures nominal in R’millions/MW

Total Jobs Created*

Technology Bid Window 1 Bid Window 2 Bid Window 3

Solar PV 8 498 6 079 9 632

Wind 4 271 4 025 11 118Concentrated solar power with storage (min 3 hrs per day) 3 265 2 344 4 812

Small hydro (≤ 40MW) 553

Landfill gas 246

Biomass 336

* One job = 12 person-months

Figures represent totals during construction and operations combined.

All Renewables Locations

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THANK YOU

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