Slide Title Goes Here
Renewable Energy: Assessing the experience of South Africa’s
Renewable Energy Independent Power Producer Procurement Programme
(REIPPPP)
Mark Pickering
Globeleq South Africa Management Services
Portfolio
India
Pakistan
Sri Lanka
Bangladesh
Philippines
Tanzania
Kenya
Cote d’Ivoire
South Africa
Mauritania
Egypt
Costa Rica
Honduras
Chile
Argentina
Bolivia
Peru
Panama
El Salvador
Dominican Republic
Nicaragua
Jamaica
Guatemala
Dominica
St Lucia
Globeleq
• Private generation company (IPP)
• Emerging market mandate (Africa & Central America)
• Largest private power producer in Africa
• Owned by Actis private equity fund.
• DfID’s Commonwealth Development Corporation (CDC) is a
major investor
• SA REIPPPP Round 1
• Bid and won four projects
• Withdrew from one wind project due to supplier issues
• Closed 138 MW Jeffreys Bay Wind project
• Closed 50 MW De Aar solar PV project
• Closed 50 MW Droogfontein (Kimberley) solar PV project
• Active in Round 3
Credentials
Presentation objectives
• Overview of REIPPPP procurement
mechanism
• Lessons from REIPPP
• Coming challenges with IPP procurement
• Way forward?
Objectives
IFC experience with renewable procurement
Feed in Tariffs (FITs)
• Used in 60+ countries
• Used in 30+ developing countries
Renewable Portfolio Standards
• Extensive use in the US and Europe
• Just a few in the developing world – India, Chile, The Philippines
Competitive Procurement / Auction (MW or MWh)
• Most power pools in the US procure MW and ancillary services competitively
• New Jersey one of the first states to adopt competitive procurement for MWh
• LAC pioneered with dynamic auctions
• Mexico has been using competitive bidding for a decade
• MENA – seems to be preferred choice (except CSP)
• India (PV), China (offshore wind), South Africa
How to Promote Renewable Energy Investments?
(Source: Luiz Maurer, 2012. IFC)
REIPPPP Ministerial Determination to Procure
Technology Capacity
(MW) Tariff Cap
(R/MWH 2011) Tariff Cap (USc/kWh)
Onshore wind 1,850 1,150 13.5
Solar photovoltaic 1,450 2,850 33.5
Concentrated solar power
200 2,850 33.5
Biomass 12.5 1,070 12.6
Biogas 12.5 800 9.4
Landfill gas 25 840 9.9
Small hydro (≤ 10 MW)
75 1,030 12.1
Small scale (1-5 MW)
100 TBA
Total 3,725
Programme Design • Up to 5 bidding rounds • Notice of intention to bid • Right to rebid • Price caps may reduce from Rd. 3 • Minister may reallocate MW
between technologies • High standard for compliant bids
• Most permits in place • Debt and equity committed • Considerable paperwork
• Competition in the event of: • Competition for grid capacity • Competition for capacity allocation
• Ambitious timetable • www.ipprenewables.co.za
REIPPPP Outcomes
Bidders Round 1 Round 2 Round 3
Bidders 53 79 ??
Preferred bidders 28 19 ??
Success rate 53% 25% ??
Closure rate 100% ?? ??
Awards (MW) Available Round 1 Round 2 Balance
Wind 1,850 634 563 653
Solar PV 1,450 632 417 401
CSP 200 150 50 0
Other 125 14.3 111
Total 3,625 1,416 1,044 1,165
Tariffs Round 1 Round 2 Change
ZAR/kWh USc/kWh ZAR/kWh USc/kWh %
Wind 1,143 14.3 897 11.2 -22%
Solar PV 2,758 34.5 1,645 20.6 -40%
Procurement model changed R1 to R2
(Capped allocation)
Shift to real competition
Significant drop in average bid tariff
REIPPPP Geographic Distribution of Round 1 Preferred Bidders
What do we learn from REIPPP? Greenfield IPPs in Africa
Morocco (3): Tetouan, Jorf Lasfar, Tahaddart Tunisia (2): El Biban, Rades II
Algeria (2): Kahraba, Kahrama
Egypt (3): Sidi Krir, Port Said, Suez
Ethiopia (1): Gojeb*
Kenya (4): Westmont, Iberafrica,
OrPower4, Tsavo
Tanzania (4):Tanwat, IPTL,
Songas, Mtwara
Mauritius (4): Belle Vue, Deep River,
FUEL, St Aubin
Angola
(1):Chicapa*
Senegal (2): GTI Dakar,
Kounoune I IPP*
Congo (1): Sonda
(X)
Nigeria (3):
AES Nigeria
Barge, Okpai,
Afam*
Ghana (1): Takoradi II
Cote D’Ivoire (2): Vridi
Ciprel, Azito
Burkina Faso (1): Hydro
Afrique
Greenfield IPPs in Africa (2010) • 40 IPPs in 15 countries • 10,000 MW • US$8 billion invested • Almost no wind/solar
Source: Eberhard, 2010. UCT GSB. Based on WB PPI
database and author’s compilation.
(X) Denotes cancelled projects. (*) denotes projects under
construction. Emergency power units not depicted. Why renewables in South Africa?
What do we learn from REIPPP? History of IPP Procurements in SA
Programme Year Sponsor Nature Status
Kelvin 2000 Johannesburg Old coal ~600 MW. Sale Municipal privatisation
Kudu ~2000 Nampower Gas Namibia 800 MW. Inter-government
negotiations
Failed?
DOE Peaker 2004 DOE 1,000 MW Diesel OCGT. International
competitive bid.
Failed?
Mammabula 2005+ Coal/IPP Coal 1,200 MW. Negotiations. Failed
Cogen (PNCP) 2007 Eskom Cogen 6,000 MW. International competitive bid. Failed
MTPPP 2007 Eskom 8 year PPA ~6 GW. International competitive bid. Largely failed 273 MW
Multi-site Base Load 2008 Eskom Mixed ~15 GW. Qualification round. Failed
Nuclear 1 2008 Eskom 3,200 – 3,600 MW. EPC bids. No award. Failed
Kusile privatisation 2009 Eskom Coal 4,800 MW. Offered minority stake in partially
built asset.
Failed
Moamba 2008 IPP Gas Moz ~200 MW. Negotiations. Failed?
Benga, Moatize 2010+ Coal/IPP Mozambique coal plants. Negotiations Failed?
Sere / CSP 2009 Eskom 100 MW wind. 100 MW CSP
RfI for co-investors. EPC procurement.
Failed?
REIPPPP 2011 DOE/Treasury 3,725 MW 1,416 MW award. Closed
Baseload RFI 2012 DOE/Treasury Mixed , 60GW RFI
Aggreko 2012 Eskom Gas Moz, 100 MW PPA signed.
Multiple failures, extensive delays, limited success. REIPPPP learnt from failures
“Private investors place importance on the stability and
enforceability of laws and contracts”
“Private investors seek predictability and control of risks
to avoid threats to their investment returns”
“The roles of private participants in the power sector
should match their capacity to take on investment risks
under specific country conditions”
(World Bank, 2006. Reforming power markets in developing countries:
What have we learned?)
What do we learn from REIPPP? The importance of policy certainty
Investors seek certainty, and an appropriate allocation of risks.
REIPPPP outcome indicates these conditions were finally met.
What do we learn from REIPPP? The importance of policy certainty
Significant policy uncertainty en route. BUT sufficiently strong signals over three years to stimulate private investment in project development.
By mid 2010 Eskom reported renewable project grid applications for ~20 GW.
1998
White
Paper on
Energy
Policy
1998 2004 2008 2010 2012 2009 2011
2004
White
Paper on
Renewable
Energy
Dec 2008
NERSA
consult’n
paper on
REFIT
Apr 2009 NERSA
regulatory
guideline on
REFIT for wind,
PV, landfill gas,
CSP
Jul 2009
NERSA
consultation
paper (+ six
technologies,
draft PPA)
Aug 2009
Minister
gazettes New
Generation
Regulations
Oct 2009
NERSA
publishes
REFIT tariffs
2010 Inter
Ministerial
Committee
Nov 2010
Minister gazettes
amended New
Gen Regulations
Dec 2010 National
Treasury PPP Unit
appoints
consultants
Aug
2011
RFP
issued
Dec 2011
Round 1
Preferred
Bidders
What do we learn from REIPPP? The importance of policy certainty
Wind Tariff Evolution
Positive pricing signals were a major factor in attracting developers, investors, equipment suppliers
and lenders to the market – despite the unusually higher regulatory and social burdens.
2013 REFIT
Round 3
average bid
??
Transaction Advisor Team
Legal: Commercial – Bowman Gilfillan (“BG”), Edward Nathan Sonnenbergs
(“ENS”), Ledwaba Mazwai (“LM”) and Webber Wentzel (“WW”)
Legal: Land Use – BG, ENS, WW
Legal: Environmental – BG, ENS, WW
Financial – Ernst & Young (E&Y) and PricewaterhouseCoopers (PwC).
Economic Development – LM
Technical – Mott MacDonald
Independent Review Team
Legal evaluation teams – Linklaters
Technical teams – Blueprint Consult
Financial – cross moderation by both PwC and E&Y of each other’s work
Independent governance review by Ernst & Young
• observed receipt and evaluation of Bid Responses
• Identified areas of non-compliance with the Evaluation Manual
Costs
DBSA loan, to be repaid from 1% transaction fee on successful projects
REIPPPP The importance of competent transaction advisors
What do we learn from REIPPP? The importance of political support
Equity
Lenders
Eskom Department of
Energy National Treasury
EPC O&M Land Lease Local Permits
Dept. of Environment
20 year PPA
Implementation
Agreement
ROD
3 year lock-in
No change in control
without DOE consent
20 years
+5 years Typically 5-10 years
NERSA Generation
License
Inter-Governmental Framework Agreement (Government Guarantee)
Land use
Building
PPP Unit
Dept. of Water Affairs
Mining
rights
Presidency
DTI
Dept of Econ. Development
Supportive
Credit Rating Agencies
IPP Unit
OEM Contractors Logistics
Dept. of Min. Affairs
Water use
license
Government has succeeded in aligning its’ elements.
REIPPP Project
Basis of political consensus?
Driver 1: Reduction in carbon intensity
• IRP 2010 predicated on reducing CO2 emissions
from 912 g/kWh to 600 g/kWh by 2030
Driver 2: Additional generation capacity
• Quickest to build
• Builds on learning from failed IPP initiatives
• Simpler than other IPP transactions
Driver 3: Economic development opportunities
• Extensive obligations
Will the policy consensus be sustained? Will REIPPPP deliver on its promises?
Will other IPP programmes achieve consensus?
What do we learn from REIPPP? The importance of political support
Key success factors
• Political support across multiple ministries
• COP17 push factor
• Built on previous IPP procurement failures –
continuity of leadership
• Achieved policy certainty
• Highly dependant on international advisors
• Lucky timing (counter-cycle to global downturn)
What do we learn from REIPPPP?
• World class renewables procurement
• BUT, is it replicable for other technologies?
Reflections on REIPPPP MK1
New Generation Capacity Timing realities
Medupi
Ingula Kusile (Source: Eskom, March 2011. Presentation to Parliament)
All three projects will take a decade or more from start of
construction to COD.
Even more time is required beforehand for planning, permitting and financing.
Station Original Eskom plan
(~9 mths/unit)
Nov 2010 MTRMP
Scenario 1
Delay (mths)
Medupi Unit 1 COD Apr-11 May-13 25
Medupi Unit 6 COD Jan-15 Sep-15 8
Kusile Unit 1 COD Mar-12 Jul-16 52
Kusile Unit 6 COD Dec-15 Oct-19 47
(Source: www.eskom.co.za (new build programme)
DOE, Nov 2010. Medium Term Risk Mitigation Programme)
The IPP Procurement Challenge Scale of the challenge in MW
Ministerial determinations herald a major shift from public to private investment. Functional IPP procurement system is now a precondition for supply security.
The IPP Procurement Challenge
Massive policy shift from public to private supply. Based on what?
The IPP Procurement Challenge Scale of the challenge in transactions
Public: One decision remains. IPP procurement: Multiple programmes required.
Political support
• How to sustain political support?
Gas and hydro
• Auction model will not translate easily
• Limited primary energy supply options.
• Key infrastructure bottlenecks
• Need to pay especial attention to process integrity
Coal
• Similar constraints for coal (supply, location, water)
Co-gen
• Auction may work for co-gen, but price cap concept
would need to be reviewed.
The Way Forward Lessons from REIPP
Future IPP procurement will be more difficult than REIPPP, with a much higher risk of delays and failures.
Risk of overbuild?
• Baseload IPP determinations may represent too much
capacity, given economic downturn. Programme
timing needs to be more clearly defined.
Financial
• For how long can Treasury back PPAs with
government guarantees?
• Depth of local debt market? Partial $ PPAs?
Institutional
• Boom and bust for Eskom’s capital projects
department?
• Can DOE manage multiple procurement
programmes?
The Way Forward Lessons from REIPPPP
Where will institutional reform come from?
• Single buyer model creates a bottleneck in the
system
• Besides REIPPPP the single buyer model has
had a very unsuccessful history in the South
African institutional context
• Could a wholesale market increase supply
security?
• What sector reforms would be required to
achieve this?
• Where is the vision for power sector evolution
going to come from?
The Way Forward Lessons from REIPPPP
Thank You