Overview of the South Africa s Independent Power Producers Procurement Programme A partnership between: Department of Energy National Treasury Development Bank of Southern Africa - Enabling Renewable Energy in South Africa: Assessing the REIPPPP, WWF, August 2014
Outline The IPP Office, role and mandate IPPPP procurement design IPPPP procurement process and requirements More about the REIPPPP and achievements to date IPPPP key challenges and lessons learnt 2
THE IPP OFFICE, ROLE AND MANDATE 3
Context for the IPPP programme NDP IRP Determinations IPPPP The National Development Plan (NDP) identifies the need for South Africa to invest in a strong network of economic infrastructure. Energy infrastructure is a critical component. The NDP requires the development of 10 000 MWs additional electricity capacity to be established by 2025 against the 2013 baseline of 44 000 MWs. The Integrated Resource Plan (IRP) 2010 developed the preferred energy mix with which to meet the electricity needs over a 20 year planning horizon to 2030. In May 2011, the DoE gazetted the New Generation Regulations under the Electricity Regulation Act (ERA) and made the following determinations: 13 225 MW RE 2 500 MW designated from coal-fired plants 1 800 MW of cogeneration under the MTRM plan 3 126 MW of Gas-fired power plants (2 652 MW base load + 474 MW MTRM) 2 609 MW of imported hydro The Independent Power Producer Procurement Programme (IPPPP) is a key vehicle for securing electricity capacity from the private Sector for renewable and non-renewable energy sources as determined by the Minister of Energy. 4
Role of IPP Office 1 2 3 Services provided: Professional advisory services Procurement management services Monitoring, evaluation and contract management services IPP Office The activities of the office are in accordance with: the capacity allocated to renewable energy and non-renewable generation in the Integrated Resource Plan (IRP) 2010; subsequent ministerial determinations; and DoE support service requirements Purpose: Delivering on the IPPPP objectives 5
IPPPP PROCUREMENT DESIGN 6
Key considerations in procurement design Facilitate competitive process Allow market to find clearing price Qualification criteria are indicative as to the project bankability Allow market to filter projects Non-negotiable agreements Early engagement with lenders to address key risks in obtaining a bankable PPA On-going engagement with stakeholders Provide feedback to identify risk mitigants and amend documents 7
Procurement process approach Multiple bid windows to create multiple bidding opportunities to avoid a temptation to rush to meet all qualification criteria Bid-in tariff to provide for competition in any bid window with Tariff Caps Capped MW allocation in part, to ensure effective competition Objective qualification criteria to the extent possible, criteria are objective and are purposefully designed in such a manner so as to elicit a pass or fail result Objective scoring and ranking of qualifying bidders the method of scoring and ranking all bidders is clear and transparent 8
Standard suite of agreements and contractual arrangements The bankability of the IPPPP is secured through the terms and conditions of four non-negotiable agreements: IA (Implementation agreement GFSA (Government Support Agreement) PPA (Power Purchase agreement) DA (Direct Agreement) 1 The agreements provide bidders with complete transparency in relation to the contractual terms. Note 1. Only applicable for project finance. 9
IPPPP PROCUREMENT PROCESS AND REQUIREMENTS 10
The REIPPP competitive bidding procurement process 11
Procurement process requirements 1 2 3 vs Qualification criteria South African Entity Participation: Project Company must have 51% ownership by South African citizens Contributor Status Level: Minimum contributor status level of 5 (an aggregate B-BBEE recognition level of 80 % by the South African based entities Compliance with the minimum thresholds Job creation Local content Ownership Enterprise and Supplier Development Comparative evaluation 90/10 or 70/30 evaluation: Compliant bids evaluated on a comparative basis 90% (or 70%) price and 10% (or 30%) economic development Within the ED commitments (10 or 30%) scores are assigned to Job creation: Local content; Ownership; and Enterprise and Supplier Development; ED commitments form part of bidder s contractual commitments, and achievements are monitored on a quarterly basis. Conclusion of agreements Conclusion of the Implementation and Power Purchase Agreements 20 year PPA for RE & 30 year PPA (from Scheduled Commercial Operation Date) 14
RENEWABLE ENERGY PROGRAMME it (REIPPPP) has already been established a flagship public-private partnership model for South Africa, and indeed the rest of Africa, and in the process is helping alleviate Eskom s current power crises while reducing greenhouse gas emissions. REIPPPP (6925MW + 6300MW) Status 25 June 2015 RFP for an expedited bid window released, targeting 1 800 MW 1 800 MW) Next Steps 11 Nov 2015 bid submission date for expedited bid window RFP review in process incorporating extensive consultation (the dti, DWAS, DEA, NERSA and Eskom) to address market feedback, monitoring results and DOE concerns Q2 2016 bid submission date for BW 5 additional 6 300 MW determination 15
RENEWABLE ENERGY PROGRAMME (SMALL) Small REIPPPP (400MW) Status First Bid Submission phase in final stage, seeking to procure 50MW of the 200MW determined 29 bids received totaling 139MW Enabling broader participation Next Steps Simplification of Small REIPPPP to provide for a less complex and costly bidding process October 2015: 10 BW 1 preferred bidders announced for 49MW FIRST SMALL Project Fund Being developed in conjunction with development finance institutions such as KfW and the DBSA. The fund will be developed independent from the DoE and is intended to provide funding to Small Local new Developers. 16
MORE ABOUT THE REIPPPP AND ACHIEVEMENTS TO DATE 17
The REIPPPP is most advanced and already making a significant contribution to power supply in the country 5 bid rounds (bid windows 1, 2, 3, 3.5 and 4) completed 305 bids received and evaluated (17.8 GW total capacity) 92 selected as preferred bidders identified with 6 327 MW electricity capacity procured 1 860 MW already operational from 37 IPPs R193 billion investment attracted for energy infrastructure in bid windows 1-4 18
The REIPPPP has also attracted significant FDI into the country The Renewable Energy Independent Power Producers Procurement Programme (REIPPPP) has attracted significant investment to SA The total investment, including interest during construction, of projects under construction and projects in the process of closure (BW3.5 and BW4) is ZAR 192.6 billion of which ZAR 53.2 billion from foreign investors and financiers Note 1. British Virgin Islands 19
and has contributed benefits in all nine provinces R5.8 billion R824 million R55 million 7 405 job years 275 megawatts procured 208 megawatts procured R6.7 billion R325 million R557 million 2 818 job years R126.6 billion R11 831 million R16 180 million 65 220 job years R13.7 billion R1 030 million R1 333 million 10 273 job years 3 566 megawatts procured 592 megawatts procured Northern Cape 48 projects Western Cape 11 projects North West 5 projects Free State 5 projects Eastern Cape 17 projects Limpopo Gauteng project projects 1 3 project KwaZulu Natal project Mpumalanga 1 1 118 megawatts procured 25 megawatts procured 18 megawatts procured R3.6 billion R284 million R992 million 2 917 job years R1.2 billion R196 million #N/A R0.3 billion R40 million 2 096 job years R33.7 billion R 4 489 million 1 509 megawatts procured 17 megawatts procured R28 million 246 job years R 7 050 million 18 132 job years R1.1 billion R78 million R55 million 336 job years Commitments for bid windows 1, 2, 3, 3.5 and 4 20
Key REIPPPP Energy Triangle 1 facts (for period 11/2011 06/2015) 4 294 GWh REIPPP 2 Actual energy contributed to National Grid of which 1 991 GWh Wind (46%) 2 219 GWh Solar PV (52%) 62 GWh CSP (1,5%) 22 GWh Small Hydro (0.5%) ENERGY Energy access and security Civil society 15% of the Renewable Energy production is available during system peak time (as defined by the Megaflex tariff) Economic growth and development Industry Physical Energy sources Carriers Markets & demand sectors Social Boundary constraints Government Environmental sustainability 4.4 Mton CO 2 equivalent RE emissions reduction achieved relative to Eskom generated power (grid EF of 1.015 tco 2 /MWh 3 ) Note 1. Source: World Economic Forum Global Energy Architecture Performance Index Report (2013); Note 2. Energy production (as per contracts) with a 50% probability (P50) of being achieved (refer to explanatory notes at end of this report). Note 3. Carbon accounting for South Africa, UCT, Energy Research Centre (ND)
contributed to employment creation for South African citizens Planned (Total project 1 ) Actuals 3 (Achieved during construction and operation phase for SA citizens) Employment SA citizens 109 443 19 033 Job years 2 Job years Note 1. IPP data reflects cumulative values over the construction phase and projected operational life (production phase) of the projects (i.e. 20 years); Note 2. Employment measured in job years (equivalent of a full time employment opportunity for one person for one year). Note 3. As at June 2015. 22
contributed to socio-economic and enterprise development Planned (Total project 1 ) Socio-economic development 19 Rand billion Enterprise development 6 Rand billion Note 1. 20 years operational life. Note 2 Actuals will grow exponentially as more projects reach COD; Actuals reported for period up to June 2015 23
...and delivered energy at increasingly cost competitive rates BW1 BW2 BW3 BW3.5 BW4 Onshore Wind 1.42 1.12 0.82 0.71 Solar PV 3.44 2.05 1.10 0.86 Solar CSP 3.35 3.13 1.82 1.70 Landfill Gas 1.04 Biomass 1.55 1.52 Small Hydro 1.28 1.17 24
IPPPP KEY CHALLENGES AND LESSONS LEARNT 25
Key challenges Alignment between generation and transmission planning Alignment between generation and transmission planning and implementation remains an issue requiring a variety of forward planning initiatives between the various role-players and making timely funding available for investment in transmission and distribution infrastructure. IPP Office mapped all responses across IPP programmes against the existing grid and future grid planned, identified areas of constrained grid, and are seeking ways of mitigating grid connectivity constraints (in consultation with Government and Eskom) 26
Lessons learnt Possible to evolve from FIT to BID Possible to implement an effective Procurement Programme in a short period of time Rolling programme has been effective to drive down tariffs through competitive Bidding implement lessons learnt from previous Bid Windows RE projects typically have short lead times Grid connection is becoming problematic as low hanging fruits are taken up 27
THANK YOU FOR YOUR ATTENTION 28