Republic of South Africa IPP Procurement Programme IPPs

Republic of South Africa IPP Procurement Programme IPPs: An Investor & Community Perspective Maduna Ngobeni Department of Energy of South Africa 1

Introduction • In August 2011, the Minister determined that 3725 MW 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 3200 MW of renewables generation capacity was to be procured from IPPs, as well as IPP procurement of coal, gas, hydro and cogeneration capacity under the Baseload Programme and the Medium Term Risk Mitigation Project. 2

Introduction (cont’d) • To-date, the Department has: – Under renewables Bid Window 1, entered into 28 agreements on 5 November 2012 totaling 1416 MW generation capacity; – Under renewables Bid Window 2, entered into 19 agreements on 9 May 2013 totaling 1044 MW generation capacity. • With regards to renewables Bid Window 3: – Received 93 bids on the 19 August 2013 – Appointed 17 preferred bidders totaling 1456 MW generation capacity – The Department was pleased to note the competitive pricing offered in the bids received 3

Introduction (cont’d) Technology MW capacity determined MW capacity already procured Renewables 6 725 3 916 200 0 Coal 2 500 0 Gas 3 126 0 Hydro 2 609 0 800 0 15 960 3 916 Small Renewables (≤ 5 MW) Cogeneration Total 4

PROCUREMENT 5

Procurement Process Background Procurement documents* Request for Proposals Power Purchase Agreement Implementation Agreement • Part A: General Requirements and Rules • Part B: Qualification Criteria • Part C: Economic Development • Contract between the IPP and the Seller • Wind PPA • Solar PPA • CSP PPA • Other technologies etc. • Contract between the IPP and the Department • Obligation for IPP to deliver on economic development obligations • On buyer default – Department to pay the IPP * Subject to variation across each programme. 6

Procurement Process Background Request for Proposal (RFP)* RFP Part C RFP Part B Qualification RFP Part A • Environment • Land • Economic Develop • Finance • Technical • Price • Capacity Comparative Evaluation • Price • Economic development • Job creation • Local content • Preferential procurement • Enterprise development • Socio-economic development • Requirements * • Subject to variation across each programme. Rules 7

COMPARATIVE EVALUATION Price Project cost Rand/MWh 70 %* 30 % ED Job creation Socio economic Local content 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. 8

Contractual Arrangement Eskom n tio nta IA) me ent ( ple Im reem Ag Po Ag wer ree Pu me rch a nt (P se PA ) IPP • Bidders are issued standardised agreements as part of the RFP. PPAs are issued on a per technology basis. Government Framework Support Agreement 9

STRUCTURE OF AN IPP 10

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. 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 11

Typical Shareholding Structure* 100% 90% Local Community Trust 5% RSA Member/DFI 15% 80% 70% RSA Member 20% 60% 50% 40% 30% 20% • Smaller South African players have the opportunity of teaming up with large international players to form a project company. Lead Member 60% 10% 0% Project Shareholding * A typical shareholding structure on the renewables programme. Shareholding structures may be substantially different in other programmes. 12

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. 13

RENEWABLES & SMALL RENEWABLES 14

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: Criterion Outcome Job Creation A 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. 15

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. • Kf. W (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. 16

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. 17

RENEWABLES FACTS & FIGURES 18

Total Project Funding per MW All figures nominal in R’millions/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. 6 Concentrated solar power with storage (min 3 hrs per day) 75. 8 89. 7 Small hydro (≤ 40 MW) 44. 1 Landfill gas 16. 0 Biomass 64. 3

Total Jobs Created* Figures represent totals during construction and operations combined. Technology Bid Window 1 Bid Window 2 Bid Window 3 Solar PV 8 498 6 079 9 632 Wind 4 271 4 025 11 118 Concentrated solar power with storage (min 3 hrs per day) 3 265 2 344 4 812 Small hydro (≤ 40 MW) 553 Landfill gas 246 Biomass 336 * One job = 12 person-months

All Renewables Locations 21

THANK YOU 22