A E Solution Utility & Municipal Energy Services. Reg no 2007/ /07

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1 SMART BUSINESS CASE FOR PHOTO VOLTAIC PANELS

2 Solar Energy available in South Africa 2x10

3 Perceptions exist in South Africa that renewable energy is only suitable for small-scale scale applications, where it would be too expensive to supply conventional forms of energy. In fact, renewable energy can be suitable for both small/local and large/centralised applications. Closed mind- sets are therefore a barrier to the adoption of renewable energy technologies The White paper on the energy policy of the republic of South Africa 1998 Government s medium-term (10-year) target is: GWh (0.8 Mtoe) renewable energy contribution to final energy consumption by 2013, to be produced mainly from biomass, wind, solar and small-scale scale hydro. The renewable energy is to be utilised for power generation and non-electric technologies such as solar water heating and bio-fuels. This is approximately 4% (1667 MW) of the projected electricity demand for 2013 (41539 MW) White Paper on the Renewable Energy Policy of the Republic of South Africa November 2003

4 In developing a smart business plan, consideration must be given to stumbling blocks, barriers as well as perceived barriers

5 What is Solar PV? It is a panel consisting of technology that converts solar energy directly to electricity The Technology can be used with or without storage

6 Overall developmental objective facilitation of the development of Independent Power Producers (IPPs) through the development of PV solar farms. Local economic development Job creation SMME development Reduction of the municipal carbon footprint Energy security within the municipal area If land is utilised, there could be an income to the municipality Short term tourism potential The Promotion of awareness of renewable energy sources

7 Financial Sustainability Assumptions Cost per panel 1.8 per Watt Cost of inverter 0.5 per Watt Land rental 1% of turnover Exchange rate R11/ Cost of Capital 10.5 % Establishment cost R5m per MW Total cost per MW R 30.3 per MW Debt /Equity Ratio 80/20

8 At a PPA price of R3.94 per unit with no escalation over 20 years, the project realises an ungeared IRR of 16%

9 At a PPA price of R3.94 per unit with an annual 5% escalation over 20 years, the project realises an ungeared IRR of 27%

10 Long term Financial model could be built on one or a combination of the following 3 models 1. National REFITT Program - At least a 20 year PPA with an annual escalation clause 2. A so called REFITT At least a 20 year PPA with an annual escalation clause. In the case of the NMBM a 1 MW solar PV farm would lead to an increase in overall tariffs of about 0.3% - NERSA approval will be required. 3. The ity buying the electricity for own usage. In the case of the NMBM the additional cost on the overall budget would be about R6.5m per annum

11 OWNERSHIP The following options can be considered No Ownership Local community co-ownership through equity shares of the solar farms, e.g % free-carry equity. Where municipalities are currently involved in community farming for food security, a solar pv farm could be complementary to such venture. At tariff levels related to the published REFITT tariff of R3.94 per unit a solar farm is viable and can simply be viewed as an investment. Share-holding through bonds /stocks in the solar farms, e.g Rand shares to the general public and / or local community Local private sector co-ownership through equity shares of the solar farm

12 Job Creation The project can lead to job creation in the following ways Activity- Task description Level of local employment Manufacturing of panels Mechanised in overseas countries - imported none Quantity per MW none Manufacturing of grid Local products still Potentially high level Potentially 2-5 tied invertors expensive Manufacturing of frames and structures Installation of the solar farm Maintenance of facility low tech Maintenance of facility high tech Should be locally manufactured All activities except for specialised high tech Washing of panels, housekeeping,ground keeping,security Technical supervision, monitoring and repairs Skilled/ semi skilled level Unskilled to skilled Unskilled to semi skilled High level 2-3

13 Approvals and permits ity Provincial Government NERSA Independent System operator( ISO) Possible rezoning of land to industrial or special purpose Approval of the Environmental Impact Assessment Granting of a Generation Licence Possible signing of PPA for REFITT Amendment of Electricity supply By law Approval of building plans Possibly signing of a PPA

14 Technical specification Type of Technology Mono Crystalline - efficiency 18% - smaller per watt - more expensive per watt Amorphous Silicon - efficiency 11% - larger per watt - cheaper per watt Thin Film technology - efficiency 9% - larger per watt - cheaper per watt

15 Technology Tracking or Non Tracking Two or one dimension possible manual inclination adjustments

16 Feeding into the network Grid tie inverters Banks Large single invertors

17 Barriers to Implementation Cost competitiveness * Intermittency Scale Governance and structure of electricity industry Public Awareness and Entrepreneurship Implementation Capacity* Legal Framework*

18 COST COMPETITIVENESS Renewable energy is viewed as much more expensive than Eskom coal generated electricity- considerations- The Eskom price is based on historic generation capacity some built 40 to 50 years ago. The cost of generating at the new Medupi coal fired station will be about 80 c per kwh. The external environmental cost is not included New conventional generators need primary fuel for the whole years of their lives. If these costs are considered, many renewable generation resources eg Small and micro scale hydro, landfill site methane generation and some wind generating facilities are actually cheaper than new conventional sources. The whole picture is distorted by Eskom blending the cost of old and new generation facilities on a historic cost base. If the cost comparison is done over the years of economic life of such new generation facilities, a modest 20% is added for the non-accounted external environmental cost and the primary fuel source price is escalated over the economic life of the project, the picture is vastly different.

19 Implementation Capacity Renewable energy sources are energy non intensive and decentralised. By default, such projects will be numerous, on average small and decentralised. The implementation capacity needed per unit of generation will be much higher than that of conventional power stations

20 Legal Framework The following are seen as barriers in the legal framework Overregulation of the Industry in a centralised way Licensing of small generators Interpretation of certain MFMA Requirements Certain processes in the MFMA By- Laws Environmental authorisation Non consumptive water rights

21 PROVISIONAL RECOMMENDATIONS That in order to promote renewable energy from an environmental perspective SALGA accepts the following policy: The principle of comparing the cost of renewable generation with the long terms Eskom marginal new generation cost inclusive of 20% additional external environmental cost. That all ities must purchase 5% of their total cost from renewable resources by 2014 That all Government( National, Provincial and Local) purchase 10% of their energy requirements from renewable resources by 2014 All ities within the Eastern Cape Province must be compelled to include Section 39 (2) of the proposed draft By-Laws for electricity distribution in their respective electricity distribution By-Laws immediately. This will allow for embedded generation to be linked into the municipal grid.

22 PROVISIONAL RECOMMENDATIONS(2) DEDEA should consider immediate steps to amend the requirements of the Regulations dealing with environmental impact assessments, where such areas are clearly outside of potential environmentally sensitive, areas to Allow the installation of temporary wind monitoring masts outside urban areas and areas affected by air flight operations without the need for an impact assessment. Reduce the requirement from the need to conduct a full EIA for a PV solar- or wind farm covering areas between 1 and 10 hectare to that of a basic assessment only. Speed up the processing periods for Assessments of renewable energy projects. Exempt the establishment of renewable energy generation facilities on landfill sites, as well as on water reclamation works from a full EIA process and only subject such activities to basic assessments.

23 Provisional Recommendations ( 3) SALGA should request the Minister of Energy to Regulate : In terms of Section 9 of the Electricity Regulation Act that generation facilities with an annual output capacity below 5 GWh not to be needing a generation licence in the case of private generators for private clients and to below 10 GWh for generation into municipal networks In terms of Section 9 of the Electricity Regulation Act that ities be allowed to purchase up to 10 % of their energy requirements from renewable energy sources and that an average local tariff increase of up to 3%, to make up for the higher cost of renewables, in the short terms (5 to 7 Years) be allowed. For such facilities a generation licence not be needed. That it further become common practice for ities to be allowed a 3 % tariff margin to purchase renewable energy.

24 Provisional recommendations (4) Request clarifications, regulations or amendments to the MFMA from the Minister of Finance to : stipulate that Section 33 of the MFMA not be applicable in the buying of renewable energy clearly rule that electricity generated from renewable energy not be compared with that of conventional generation (coal fired / nuclear) in terms of section 11 of the MFMA, but that renewable energy be considered as a separate commodity. Allow ities to purchase up to 10% of their usage from embedded generators without having to follow section 33 or all the requirements of section 11 of the MFMA

25 PROVISIONAL Recommendations ( 5) Request the Minister of Energy to: Ensure that the Proposed Rules on the Selection Criteria for Renewable Energy Projects under the REFIT Programme clearly define solicitation as a process which includes unsolicited offers from potential small IPP generation entities throughout the country and not a centralised call for proposals. It must be a bottom up process

26 THE END