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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.