RE Private PPA’s

Is our market ready?

www.pwc.com

Powering thefuture energy &utilities excellence

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks

Agenda

PwC

April 2013

IPPPP vs. Private PPA - similarities

PermittingLand

acquisition

Security of tenure; land use consent tobuild site and connection works whereneeded

Environmental Consent; CAA; Heritage:Water usage; Agricultural; water usage; DMR;Eskom connection quote; etc

Technicalcriteria

Fully developed shareholders agreement;Signed PPA; Distribution and use of Systemsupplementary Agreement;

Energy resource availability; Generation forecast;project schedule, Cost and timing of gridconnection, Deliverability ofproject

Legal criteria

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks

Agenda

PwC

April 2013

Advantages over IPPPP

Financial

No competitive process;

Flex pricing model

No bid guarantee

Flex project structure/ funding model/ currency

Reduce ED requirements

No 1% development levy

Flex exit strategy

Technology

May be able to relax proven technology criteria

Can flex procurement

FOCUS ON BANKABILITY, NOT QUALIFICATION

PwC

April 2013

Financial

No government guarantee for off-take

Absorb wheeling charges

Legal

Limited local precedent

Proposed Eskom wheeling model subject toNERSA approval

Technical

Limited impact on security of supply

Location, location, location

Disadvantages of Private PPA’s

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks

Agenda

PwC

April 2013

Key Considerations - Wheeling

Generator and customer charged separately for use of system

Administrative, availability charges and levies unavoidable

Generator can obtain credits for reducing system losses

Key factors - Voltage and distance

Lower voltage transmission lines result in higher losses

Generator and customer distance from generation hub

Additional charges if municipal networks are involved

Customer invoiced on standard time of use (S,P &O) model as if full Eskom supply andreceives rebate @ Megaflex time of use (S,P & O) excluding admin fees and levies

PwC

April 2013

Key Considerations - Wheeling

Optimum scenario

Generator – Cape Town

Customer – Mpumalanga

Eskom to Eskom Transmission & Distribution

Worst case

Generator – Mpumalanga

Customer – Cape Town

Municipality to Eskom to Municipality Transmission & Distribution

Alternative

Captive generator & customer deploying a mini-grid

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks

Agenda

PwC

April 2013

Key Considerations - Funding/ Bankability

No state guarantee

Still require a form of take or pay type obligation

Heavy reliance on off-taker’s Balance Sheet to support PPA obligations

DFI support to absorb some risk pricing may be necessary

More creative funding options available – Export credit, Fx denominated debt?, Vendorfinance

“Banking” of generated power framework arrangements under consideration ifgenerators exceeds off-takers requirements due to Eskom constraints

SA emissions tax from Jan 2015 announced – Could enhance bankability

Koyoto protocol emissions credits – Could enhance returns, little/ no impact onbankability

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks

Agenda

PwC

April 2013

Key Considerations - Contractual/ Legal

Policy framework fairly transparent

Some template agreements available – Generator use of system; Amendment to Eskomsupply agreement

Final regulatory approval on Generator charging model pending

Some gaps in policy/ regulatory framework

One-to-many relationship contractual/ charging model

Generation capacity exceeds customer needs

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks

Agenda

PwC

April 2013

Key Considerations - Technical

May have more flexibility on technology choices – Track record tests

May have more flexibility on EPC or equipment supply agreements

Location, location, location – Calculation of wheeling charges

Little/ no enhancement of security of supply – customer location more important

Lender approval

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks

Agenda

PwC

April 2013

Key Considerations - Other

Jointly consider accounting risks

Asset could be reflected on off-takers balance sheet

Avoid onerous contract obligations

Macro conditions

Mining across Africa

Difficult economic climate

Tight demand/ supply

Kusile and Medupi may lead to medium-term surplus

Short-term load shedding risk

Grid parity per technology

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks

Agenda

PwC

Closing remarks

April 2013

• Grid parity timing/ business case?• Regulatory process reasonably developed• IPPPP lessons learnt transferable

Environment overall attractive1

• Legal, technical, funding, advisory,customer, sponsors, developers,accountants

Tightly integrated team critical4

• Funding flexibility• Technical flexibility

More flexibility2

• Extra wheeling costs• Still going to come down to savings cents

per kw/h

Non-competive3

PwC

Speaker bio’s

PwC

April 2013

Co-hostChris Bredenhann – Energy Industry Leader (South Africa) and

Oil & Gas Advisory Leader for PwC

Chris has more than 23 years of experience with PwC, 19of which have been in consulting. He’s worked withsmall companies to large national and internationalclients in Africa, and the rest of the world to developstrategy, improve operations, processes and systems.

Chris is a sought after presenter at conferences and inthe media on the topic of gas, and has been widelypublished. One of his most successful publications, TheGas Equation, analysed the potential of the natural gasindustry in South Africa.

PwC

April 2013

Co-hostKasief Isaacs – Renewable Energy Industry Leader (PwC South Africa)

Kasief is the Renewable Energy Industry Leader for PwCin Southern Africa. He’s worked with a number of localand international developers participating in thecurrently underway IPP procurement program, whichcovers a range of topics including advising on therequirements of the RFP, bid management, modelreviews and funding and structuring options.

He’s currently working with other advisors to assess thefeasibility of two large renewable private power projectsin South Africa. Kasief has presented at severalconferences and has commented on the aspects of theIPP program in the media.

PwC

April 2013

Panel speakerRajen Ranchhoojee – Renewable Energy Partner at Routledge Modise Inc

Rajen is a partner in the Commercial and EnergyDepartments and Heads up the Africa Group atRoutledge Modise Inc. He specialises in commercial andrenewable energy and general infrastructure work, havingparticular expertise in advising on cross bordertransactions and projects.

Rajen has represented no less than 11 successful projectsin the South African Renewable Energy IndependentPower Producer Programme and has closed major energytransactions in 7 countries in Africa.

He was also advisor to Eskom in its $1.7 billion US bondoffering.

PwC

April 2013

Panel speakerAmith Sanjith Singh – Principal: Energy | IE&T at Nedbank Capital

Amith has seven years Investment Banking experience inthe Power sector and four years experience with theBusiness Governance and Financial Compliance withinthe Nedbank Group. Amith served his audit articles withErnst and Young and worked in the public sector andcorporate finance divisions post articles.

The Energy team covers all generation technologies:• Conventional.• All renewable technologies.• Co-generation.• Nuclear.

Amith has extensive Financing experience in the EnergySector, both in South Africa and in other Africancountries.

PwC

April 2013

Panel speakerJustin Wimbush – Associate at Arup

Justin Wimbush is an Associate at Arup who is currentlyleading the Arup Southern Africa Energy Consultingteam. Justin has worked in the energy field for over tenyears and has worked on projects in South Africa, the UK,Hong Kong and the USA.

Most recently Justin has used his global Arup links tobuild up a team of renewable energy consultants toprovide technical services to the growing renewableenergy industry in Southern Africa. Arup is currentlyproviding lenders’ and owners’ technical advisory servicesto nine SA REIPPPP Bid Window 1 projects (eight PV andone wind) which start on site this year as well as some PVand Hydro Bid Window 2 projects that will reachfinancial close shortly. The Arup team is also providingrenewable energy technical services to Eskom and is inthe process of concluding their appointment as EskomPanel A consultants.