Globally active PV market Ghana Situation today Ulrike Brückner, Kai Imolauer Hamburg 04/08/2013 1
Agenda 01 Company Profile Rödl & Partner 02 Current Energy Supply Situation 03 LCOE & Own consumption 04 Regulatory Framework 05 Conclusion 2
Rödl & Partner Interdisciplinary Services worldwide Tax Consultants Cornerstone of our dynamic development: 1977 Opening of the first office in Nuremberg Auditors Today: Present in nearly all major industrialized countries Offices in Germany 24 Offices abroad 65 Attorneys Professionals 2012: 3,200 Business Consultants 3
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Agenda 01 Company Profile Rödl & Partner 02 Current Energy Supply Situation 03 LCOE & Own consumption 04 Regulatory Framework 05 Conclusion 5
Current Energy Supply Situation Average growth of 7% over the last 10 years Source: Worldbank Peaks of 1,654 MW in April 2011 Average Electricity consumption growth for last 10 years at 6% p.a. Expected average Electricity growth for next 10 years at 7% p.a. Source: I-SEE 2012 6
Current Energy Supply Situation Electrification Rate (2010) 7,976 GWh in total Urban 85.0 % Rural 23.0 % Total 65.0 % Average Electricity End User Tariff (Cent/kWh) 2009 2010 2011 Average End User Tariff 5.77 8.22 9.55 Source: National Energy Statistics Ghana 7
Current Energy Situation Structure of the Power Sector in Ghana and General Market Situation Industry Energy Commission (EC) Imports Exports Ministry of Energy Volta River Authority (VRA) Ghana Grid Company (GridCo) Bulk Costumers Electricity Company of Ghana Public Utilities Regulatory Commission (PURC) Independent Power Producer (IPP) Northern Electricity Department (VRA) Residential, Commercial, Industrial Structure of the power sector in Ghana: Liberalization of the structure of the power sector First entering of an IPP in 2000 Unbundling of the VRA in 2008 PURC: economic regulator EC : technical regulator General market situation Political stability and good governance Strong and independent institutions The rule of law Free and independent press Transparency and accountability Commitment to fight corruption and crime Vibrant private sector A strong civil society 8
Agenda 01 Company Profile Rödl & Partner 02 Current Energy Supply Situation 03 LCOE & Own consumption 04 Regulatory Framework 05 Conclusion 9
Levelized Costs of Electricity Opportunities of PV Residual load has to be provided by grid or redundant system (e.g. Diesel) Source: Rödl & Partner PV can substitute the purchase of power and support redundant systems (e.g. Diesel) 10
Levelized Costs of Electricity Levels of LCOE Household customer VAT Fully EEG (renewable energy law) share in costs Fully license fees Fully network charges Trade Industry Power plant Possibly reduced license fees Network charges (possible reduced or complete exemption for large scale consumers) EEG share in costs (possible reduced or complete exemption ) License fees (possible reduced) Production costs Sales volume Grid connection costs Electricity tax (possible electricity tax exemption) 11
Levelized Costs of Electricity State of the art Comparability of several technologies to generate electricity Different methods of calculating and comprehension of different costs Basics: Sum up of all costs during operation period divided by generated sum of electricity during operation period NPV method as basis to calculate: Discounting of respective costs with discount rate (e.g. WACC = weighted average costs of capital ) AO: annual operation costs DR: discount rate RV: residual value N: lifespan SDR: system degradation rate Source: European Photovoltaic Industry Association (September 2011) LCOE: Specific LCOE represent all costs incurred per generated electricity unit during the whole operation of the project (always check assumptions and method) 12
Levelized Costs of Electricity Total Project LCOE Generation Transmission & Distribution Delivery Taxes (also tax shield) (Re) Investment Financing conditions Planning and permission costs Maintenance/Outage time Controlling of production Project LCOE Net fees Intermediate storage Net management Access / Concession Taxes, allocations Balancing demand/production License Operative costs PPA terms strategic costs / management Currency/ exchange rate risks Total Project LCOE Project LCOE usually applied but enough for state perspective 13
Levelized Costs of Electricity Sensitivity analysis of Project-LCOE: Assumptions Assumptions Investment O&M Period Base case: 2,000 /kwp 2 % of invest (5 % inflated) 20 years Solar Irradiation 1,900 kwh / m² / a* Power output Re-invest during period 1,600 kwh / kwp converter Discount rate (base) 10 % Gearing 100 % equity http://www.nrel.gov 14
Levelized Costs of Electricity Estimate: PV Project-LCOE and cost level of energy from the grid Project LCOE Small Trade Energy consumption kwh/a 500,000 max. capacity kw 90 Power purchase at Cent/kWh 17.97 Inflation electricity price 8-9 % during last 3 years Investment / kwp 2,250 2,000 1,750 Discount rate 7.5% Cent/kWh 17.9 15.9 13.5 Discount rate 10.0% Cent/kWh 20.6 18.3 16 Discount rate 12.5% Cent/kWh 23.4 20.8 18.2 Source: PURC 06/2011, Rödl & Partner Grid Parity for small trade achieved: capitalizing fuel costs Hedging of purchase price inflation possible 15
Levelized Costs of Electricity Estimate: PV Project-LCOE and cost level of energy from the grid Project LCOE Small Industry Energy consumption kwh/a 2,000,000 max. capacity kw 500 Power purchase at Cent/kWh 10.38 Inflation electricity price 8-9 % during last 3 years Investment / kwp 2,250 2,000 1,750 Discount rate 7.5% Cent/kWh 17.9 15.9 13.5 Discount rate 10.0% Cent/kWh 20.6 18.3 16 Discount rate 12.5% Cent/kWh 23.4 20.8 18.2 Source: PURC 06/2011, Rödl & Partner Small industry: Hedging of purchase price inflation possible Corporate perspective decisive not project finance 16
Agenda 01 Company Profile Rödl & Partner 02 Current Energy Supply Situation 03 LCOE & Own consumption 04 Regulatory Framework 05 Conclusion 17
Regulatory Framework Renewable Energy Act, 2011 (Act 832) Ghana Targets 10 % of energy from Renewable Energy sources (about 380 MW based on 2009 estimates) from Renewable Energy Sources by 2020 (Wind, Solar, Mini hydro) Renewable Energy Purchase Obligation For power distribution utilities and bulk electricity consumers Percentage level specified by PURC Connection to Transmission and Distribution Systems An Operator of transmission or distribution system shall: connect electricity generator from Renewable Energies upgrade the transmission or distribution system enter into a connection agreement with a generator of Renewable Energies Costs associated with connecting installations to the metering point of the grid shall be borne by the generator of electricity from Renewable Energy Sources Net-metering exists, but fees for usage of the grid could be possible in the future 18
Regulatory Framework Renewable Energy Act, 2011 (Act 832) Ghana Renewable Energy Fund Provision of financial incentives, Feed-in-Tariffs, capital subsidies and equity participation for: Grid interactive renewable electricity Mini-grid and Off-grid renewable power systems for remote areas and islands Renewable projects for non-electricity purposes Capacity building Promotion for Research and Development Feed-in-Tariff Shall be guaranteed for a period of ten years and subsequently be subject to review every two years To be set by the PURC to guarantee the price for electricity generated There is still no general Feed-in-Tariff implemented for IPP s. Discussions particularly about how to finance it are ongoing. 19
Regulatory Framework Renewable Energy Act, 2011 (Act 832) Ghana Renewable Energy Promotion Policies: The RE Act mandates the EC to make recommendations for exemption from customs, levies and other duties on equipment and machinery necessary for the development production and utilization of Renewable Energy Sources Capital subsidy, grant or rebate: subsidies funded by the GEDAP (multi-donor funded Project, put out by the Ministry of Energy) which mainly supports the electrification of rural areas with Solar PV- Systems, which are not connected to the grid and will not be in near future. Tax incentives: In order of promoting solar energy resources, Ghanaian government arranged attractive pricing incentives for solar technologies, e.g.: Generating sets and rotary converters (Solar-powered) Solar cells whether or not assembled in modules or made up in cells Source: ECG Energy Policy Import duty VAT/NHL ECOWAS EDIF Processing Fee 0% 0% 0.5% 0.5% 1% 0% 15% 0.5% 0.5% 1% 20
Regulatory Framework Key Challenges Incertitude concerning Land Rights in Ghana High cost of power generation from Renewable Energies Framework for the realization of the RE Act has to be created first + regular adaptation of FIT High cost of connection to communities with low population and no access road (There exist over 2000 lakeside and island communities not likely to be connected to the national grid in the foreseeable future) Quality/Efficiency of the grid Provide decentralized energy options with renewable energy Off-grid Mini-grid Local Debt is difficult to utilize (due to high rates and short funding periods) 21
Agenda 01 Company Profile Rödl & Partner 02 Current Energy Supply Situation 03 LCOE & Own consumption 04 Regulatory Framework 05 Conclusion 22
Conclusion Impact of RE Act / Feed-In-Tariff on the sector Regulatory Framework creates legal certainty; attracts investors Introduction of Feed-In-Tariff would create certainty for the financial scheme of the project; facilitation of financing Alongside a liberalization of the market and an investor-friendly environment, the introduction of a Feed-In-Tariff can mean the boost of a new sector! But to what extent the implementation of a Feed-in-Tariff (compared to public procurement/tenders in RSA) is suitable for the start of the sector in a developing country, has still to be figured out. Due to stable environment and the relatively high prices for energy it is already possible to enter the market with innovative (financial) concepts 23
Conclusion LCOE / Market Market entrance should head for small industry or commerce fuel LCOE: price stability of RET is not reflected in one value if compared to fossil plant & take care of assumptions Substituted purchase, support of redundant system are main aspects IFI could play an important role as partner for self-consumption plants enabling financing (Funds or guarantees) Sales models should integrate innovative financing models and not focus on typical project financing 24
Your contacts Kai Imolauer Economic Engineer Associate Partner Rödl & Partner Nürnberg Äußere Sulzbacher Str. 100 D-90491 Nürnberg Telephone +49 (911) 9193-3606 kai.imolauer@roedl.com Ulrike Brückner Attorney-at-law Rödl & Partner Berlin Rödl & Partner Johannesburg 1 Eastgate Lane Bedfordview 2007 Johannesburg Telephone +49 (30) 206 06 86-11 Telephone +27 (11) 479 30 00 ulrike.brueckner@roedl.pro Each and every person counts to the Castellers and to us. Human towers symbolise in a unique way the Rödl & Partner corporate culture. They personify our philosophy of solidarity, balance, courage and team spirit. They stand for the growth that is based on own resources, the growth which has made Rödl & Partner the company we are today. Força, Equilibri, Valor i Seny (strength, equilibrium, valour and common sense) is the Catalan motto of all Castellers, describing their fundamental values very accurately. It is to our liking and also reflects our mentality. Therefore Rödl & Partner embarked on a collaborative journey with the representatives of this long-standing tradition of human towers Castellers de Barcelona in May 2011. The association from Barcelona stands, among many other things, for this intangible cultural heritage. 25