COGENERATION PROJECT AT FOUR RAND WATER SITES PRESENTED BY IVEEN MBHELE 29 MAY 2012
PRESENTATION INTRODUCTION RAND WATER CONCEPTUAL DESIGNS ESKOM AND NERSA INITIATIVES IMPLEMENTATION STRATEGY FINANCIAL MODEL STRATEGIC IMPLICATIONS PROJECT CHALLENGES RISKS SEQUENCE OF EVENTS SINCE PROJECT INCEPTION
INTRODUCTION South Africa is experiencing power supply shortages and Eskom has embarked on an extensive capital investment programme to build new power stations. The two coal fired power stations currently being built by Eskom are Medupi and Kusile; these would however take a number of years to complete. Eskom and NERSA has in the short term embarked on a number of initiatives including power conservation and load shedding together with industry and other stakeholders.
INTRODUCTION Rand Water has identified four sites within its current water transfer infrastructure where hydropower can be generated. ZOEKFONTEIN KLIPFONTEIN BRAKFONTEIN HARTEBEESHOEK Location 8 600 m downstream from the Vaal Dam Chloorokop, Kempton Park Midrand Rosslyn Pressure (m) 23-15 65 70-75 150-155 Flow (m 3 /s 13.8-23.86 5.7-6.9 2.3-2.76 1.38-1.61
INTRODUCTION Location: Zoekfontein site
INTRODUCTION Location:n: Klipfontein, Brakfontein and Hartebeeshoek sites
INTRODUCTION CONVENTIONAL HYDROPOWER PLANT:
INTRODUCTION TYPICAL HYDROPOWER PLANTS WITHIN PIPELINE NETWORK:
ZOEKFONTEIN SITE: RAND WATER CONCEPTUAL DESIGNS
RAND WATER CONCEPTUAL DESIGNS ZOEKFONTEIN SITE: HYDRAULIC MODELING
KLIPFONTEIN SITE: RAND WATER CONCEPTUAL DESIGNS
BRAKFONTEIN SITE: RAND WATER CONCEPTUAL DESIGNS
HARTEBEESHOEK SITE: RAND WATER CONCEPTUAL DESIGNS
ESKOM AND NERSA SUPPLY SIDE INITIATIVES Pilot National Cogeneration Program (PNCP) - launched in 2007. Renewable Feed-in Tariff (REFIT) scheme launched in 2009 Renewable Bid-in Tariff (REBIT) scheme launched in 2011
ESKOM AND NERSA INITIATIVES Pilot National Cogeneration Program (PNCP): Eskom launched the PNCP in May 2007 for organisations to build power generation capacity for cogeneration with Eskom. Eskom would contract to purchase the energy from sites with more than 1MW. The contract period with these organisations would range from 7 to 15 years. Eskom also offered an early completion incentive to bidders and a premium price for power generated between April 2008 and April 2013; this being the most critical period of the power shortages in the country. Rand Water submitted its bid prices of 45c /kwh for all sites.
ESKOM AND NERSA INITIATIVES Renewable Feed-in Tariff (REFIT) scheme : The National Energy Regulator of South Africa (NERSA) introduced the Renewable Energy Feed-in Tariff (REFIT) scheme with the aim to harvest 10,000 GWh of Renewable energy in South Africa by 2013. In order for a project to qualify for Renewable Energy, the electricity should be produced by means of naturally occurring, non-depletable sources of energy such as solar, wind, biomass, hydro, tidal, wave, ocean current and geothermal. Small hydro power plant of less than 10MW qualifies. Feed-in Tariffs were, in essence, guaranteed prices for electricity supply rather than conventional consumer tariffs. A tariff of 94 c/kwh was offered by NERSA for hydro power.
ESKOM AND NERSA INITIATIVES Renewable Bid-in Tariff (REBIT) scheme : Due to concerns with legality of REFIT scheme, the Department of Energy introduced the REBIT scheme (2011). REBIT follows similar process as PNCP where companies submit bids with prices for approval. It is based on competitive price bidding.
IMPLEMENTATION STRATEGIES Own Use Rand Water generates power and wheels it through Eskom or Municipality networks. This power is discounted against power used at Rand Water sites (Under this option Rand Water funds the project). BOOT An Independent Power Producer (IPP) is appointed to generate and sell power to the market in exchange for royalties to Rand Water (Under this option, the IPP funds the project, REFIT prices used). Rand Water/IPP Partnership Rand Water forms a partnership with an IPP but Rand Water ownership is limited to 49% and is liable to pay tax. (Electricity is sold under the REFIT scheme)
COMPARISON OF IMPLEMENTATION STRATEGIES Parameter Own Use IPP/Partnership BOOT Speed of implementation Relatively quick and simple Project finance structure required and more complicated Dependent on IPP Cost of funding Advantage of strong credit rating Funding based on project finance and expensive Does not affect Rand Water Source of funding Could be local or international Could be local or international Does not affect Rand Water Term of funding Term could be shorter Long term funding Does not affect Rand Water Impact on Rand Water borrowing capacity Return on investment Will impact due to utilization of credit lines Would expect utility level return of about 8% Lesser impact due to limited shareholding Would expect IPP return in the region of 20% Does not affect Rand Water Does not affect Rand Water Transaction cost Low transaction cost High transaction cost Does not affect Rand Water Legal complexity Relatively simple Complex set of legal requirements to ring fence Construction risk Operation and maintenance Risk lies with Rand Water but mostly can be passed on to the EPC contractor Rand Water retains responsibility and ensures its core function is fulfilled. Most risk can be passed on to the IPP Responsibility mostly lies with IPP and requires contractual agreements Multitude of agreements to secure concessions If risks are to high can lead to project failure Responsibility fully lies with IPP and requires contractual agreements
FINANCIAL MODEL Objectives of the financial model Compare the Own Use business model against other models. Determine return on investment per site. Determine return on investment per tender per site.
ASSUMPTIONS: FINANCIAL MODEL
FINANCIAL MODEL RESULTS COMPARISON: Own Use IPP Partnership BOOT NPV (R, million) 303 476 63 IRR (%) 17 26 - Payback (years) 8 6 -
FINANCIAL MODEL OWN USE MODEL PER SITE: Average Power generated (MW) Average Cost c/kwh over 20 year period Zoekfontein Klipfontein Brakfontein Hartebeeshoek Total 5.6 3.4 1.8 2.2 13 69 38 85 60 61 Average Capital 180 61 64 58 364 outlay (R, millions) Discount rate 10% 10% 10% 10% 10% NPV (R, millions) 103 132 16 52 303 IRR 15% 24% 12% 17% 16 Payback years 8 6 10 8 7
FINANCIAL MODEL COST PER UNIT GENERATED: Zoekfontein Klipfontein Brakfontein Hartebeesthoek Total hours (22x365) Total kwh per annum Annual O & M cost (Rands) Operating cost per kwh Total Cost per kwh 8 030 8 030 8 030 8 030 40 150 000 24 491 500 13 249 500 15 257 000 3 504 675 1 192 669 1 249 389 1 131 170 R0.08 R0.05 R0.1 R0.08 R0.61 R0.27 R0.61 R0.43
FINANCIAL MODEL CAPEX, REVENUE, AND OPSA & MAINT, NET PROFIT (OWN USE):
NPV (OWN USE): FINANCIAL MODEL
CUM NPV (OWN USE): FINANCIAL MODEL
STRATEGIC IMPLICATIONS ENERGY SAVING: Cogeneration is an energy saving opportunity that can offset the high energy costs. The average of 13 MW generated equates to an annual energy saving of 7% of total Rand Water power consumption. Rand Water has the potential to save up to 20% of energy should all other viable sites be fully explored). In addition to the financial benefit, there would be an increased operational reliability due to reduced reliance on power supplied by Eskom or municipalities.
STRATEGIC IMPLICATIONS ESKOM REBATE: Eskom in collaboration with NERSA has a rebate system for energy saving initiatives. Eskom has recommended that an application for rebate be submitted only for the Zoekfontein site. The estimated rebate from Eskom will be about R26 million based on net power generated from Zoekfontein. Eskom has also indicated that this scheme would be valid until March 2013.
STARTEGIS IMPLICATIONS CARBON CREDITS: Carbon Credits (CC) are traded internationally as a commodity for initiatives that result in the reduction of environmentally unfriendly emission gases. Based on the estimated combined capacity of 13 MW for this project, there is a potential of generating up to R10 million per annum over a period of 10 years. This amount may be used to cover Operation and Maintenance costs. The financial viability of this project has been assessed without the influence of potential income derived from the sale of CC.
PROJECT CHALLENGES PATENT CLAIM: Rand Water received notification that it should refrain from the project due to an alleged infringement. An individual registered a South African patent in 2009 on hydro power generation in pipelines. A comparison between the patent and the Rand Water designs was drawn and it was found that the method Rand Water intends to generate power with is the same method as used elsewhere in the world for many years. The expert opinion also further confirmed that the infringement has no basis.
PROJECT CHALLENGES SERVITUDE AGREEMENTS: Zoekfontein Rand Water is currently negotiating with the land owners of Zoekfontein to obtain permission to erect a hydro power plant and transmission line in the area within the Rand Water servitude. Klipfontein, Brakfontein and Hartebeeshoek The hydropower plants on these sites will be based within the reservoir area which is owned by Rand Water, and therefore there is no need to obtain servitudes agreements. Servitudes agreements will, however, be needed for transmission line areas.
PROJECT CHALLENGES POWER GENERATION LICENCE: The power generation licence application to is being prepared for submission to NERSA. WHEELING: The framework regarding the cost (use of system charges) for wheeling of power through Eskom or municipal network cost has been issued by NERSA. Negotiations with Eskom and Municipalities are in progress.
PROJECT CHALLENGES ENVIRONMENTAL IMPACT ASSESSMENT: GDARD indicated that Basic Assessment and WULA applications will be necessary for Zoekfontein site only. Klipfontein, Brakfontein and Hartebeeshoek may not need EIA application. An EIA consultant was appointed and the application has been submitted. Authorization is expected in November 2012. NOISE POLLUTION: Water inlet to reservoirs is controlled with Larner Johnson valves. When reservoirs are full, a loud siren like noise is emitted, polluting the environment. By installing the turbines this noise pollution will be minimized.
PROJECT CHALLENGES OPERATION AND MAINTENANCE The cogeneration tender provides for a two year plant operation and maintenance service. Because these plants will be highly integrated in the Rand Water network, skills transfer during the contract period will be prioritised. This will ensure that Rand Water s primary operations are not compromised when the contract ends. It is also envisaged that these plants will be largely unmanned and fully automated; only to be attended to if there is a problem.
RISKS Risk item Impact Probability Mitigation Pressure surges High Medium Hydraulic surge analysis during design phase Reservoir isolations Medium High Design to provide for flow with an isolated reservoir Turbine isolations Medium High Isolation valves to allow normal water flow when turbine isolated. Interest rate fluctuations Medium High Financial model provides CPI linked energy rates Exchange rate fluctuations Medium High Provision made in the financial model Wheeling cost changes High Medium Contract agreements with municipalities and Eskom to be expedited. Authorizations / Licenses delays High Medium Construction period will take 2 years and this time will be used to expedite applications.
SEQUENCE OF EVENTS SINCE PROJECT INCEPTION 2006 High level investigation on hydro power generation carried out by Rand Water. June 2007 SSI appointed as Consultant for the four hydro power stations. May 2008 Rand Water board approves Rand Water participation in Eskom s PNCP scheme. January 2009 REFIT scheme launched and proves to be more attractive than the PNCP scheme. May 2009 Investigation started on appropriate business model for Rand Water. December 2010 Trans African Energy (Pty) Ltd submits a report on implementation strategy for Rand cogeneration project. March 2011 The tender for the cogeneration project issued. July 2011 The tender closed with four tenders received. November 2011 Tender evaluation process completed. April 2012 - Tender for cogeneration cancelled due to non- responsiveness of tenders & budget review.
Thank you
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