Key factors in developing projects with the

public and private stakeholders in the energy

and environment sector

TUT 2
nd
Annual workshop on energy and environment
for African public officials

Ayanda Nakedi
Senior General Manager: Renewables Business Unit
Eskom Holdings SOC Limited
St. Georges Hotel, 10 October 2013

Contents
2
Legislative framework in SA
Introduction
Environmental Management considerations
Progress of the REIPPP
IPP participation and Industry readiness
Tariffs and pricing regime
Funding and financing renewable energy projects
Socio economic imperatives
Eskoms progress on its renewable projects
Introduction
The purpose of this presentation is to share with the participants, key factors and aspects, that
are important to the successful implementation of renewable energy projects.
The projects as implemented by the private sector and government entities, must achieve the
goals and fulfill the mandate set aside for renewable energy by government.
The key factors that are important to the success of these projects include:
An enabling legislative framework
Participatory environment for private participants
Funding and reliable financing plans
Matured tariff and pricing regime


3
The legislative framework in South Africa, has been set in
place over the years to ensure a conducive environment for
renewable energy to grow

Integrating legislative and policy requirements ensures that renewable energy is geared for growth in
accordance with the countrys plans. Important policies amongst others are:
1
2
3
Planning
Technical
Operating
National Development Plan
Integrated Energy Plan
Integrated Resource Plan
Carbon Tax discussion paper
REIPPP
National Environmental Management
Act
Regulations on New Generation
capacity
Electricity Pricing Policy
ISMO Bill
MYPD
NERSA regulations on distribution
networks
Eskoms structures for connecting on
the transmission network

The NDP has planned for 20 000 MW of
renewable energy by 2030
IRP is aimed at finding a balance
between competing government
objectives and diversifying the energy
mix to attain:
Affordability
Reduction of carbon emissions
Water conservation
Localisation and,
Regional development

Through the New Generation
Regulations, the facilitation of the
recovery of costs incurred by the buyer;
and ensuring transparency and cost
reflectivity in the determination of
electricity tariffs is enabled.




4
The REIPPP was a response to the Integrated Resource
Plan
5
South Africa has a high level of Renewable Energy potential and presently has in place a target of
10 000 GWh of Renewable Energy
The Minister has determined that
3 725 MW will be generated from IPPs to ensure
the continued uninterrupted supply of electricity

This IPP Procurement Programme was also
designed towards socio-economic and
environmentally sustainable growth, as well as to
stimulate renewable energy industry in South
Africa.
IPP
Government Eskom
Government
Framework Support
Agreement
Most renewable technologies would qualify for selection
under the IPP Procurement Programme
6
Onshore
Wind
1 850MW
CSP 200MW
PV 1 450MW
Biomass 12.5MW
Biogas 12.5MW
Landfill
Gas
25MW
Small
Hydro
75MW
Small
Projects
100MW
o The bidders will be required to bid on a
tariff set out in the bid documents and the
identified socio-economic development
objectives of the Department.


o Each Facility procured in terms of this
IPPPP will be required to achieve
commercial operation by not later than the
dates set out in the RFP.

o Based upon the principles of this IPPPP,
the Department intends to introduce a
separate Small Projects IPPPP for
electricity generation projects < 5MW.
3 725MW
So far the Department of Energy has awarded projects to 47
bidders in the first and second rounds of the REIPPP
Window 1
Window 2
Window 3
Request for Proposals (RFP) tender documentation has been released into the market.
Preferred bidders will be announced on the 29 October 2013, and this round was built on
lessons learnt from window 1 and 2
28 preferred bidders for projects allocation of 1,425 MW.
The bid evaluation was split 70:30 between price, including project cost in Rands/MW,
and economic development, including job creation, socio economic and local content
There are 19 preferred bidders with a capital investment of R28 billion comprising 1,043.9
MW of wind, solar and small hydro projects.
Bid evaluation split between pricing and economic development were changed to 55%
and 45% respectively.

The successful bidders committed to include community development initiatives within a 50-kilometre radius of each
project. Their collective commitment is worth R2 billion and targeted towards socio-economic development, and R1
billion towards empowering women in the energy field.
7

IPPs participation requires that certain issues be in place to
level the playing field
In order to ensure a balanced structure between
buyers and sellers. This can be achieved through
Cost reflectivity of tariffs: this is necessary to
ensure economic efficiency, transparency and
ongoing investment through the value chain.

Subsidies: this entails the creation of framework
to manage subsidies that distort the market, such
as cross subsidies to rural and residential
customers, environmental levies and municipal
surcharges.

Transmission costs: must be ring-fenced to
prevent the cross subsidisation of other Eskom
costs.

Distribution charges: assurance should be
provided that no network, reliability and service
charges should be allocated to IPPs.

Grid access: the network owners are supposed
to provide security around service levels of energy
to ensure successful bilateral trading and wheeling
In addition, IPPs need to have access to the grid
through a single point of contact that can manage the
service relationship with them.

Managing balance between demand and supply of
electricity.
Generation resource planning.
Transmission service and implementation
Buying.
Systems operation and expansion planning.
Eliminate any conflict of interest between buyer and
sellers.



The Independent Systems and Market Operator
(ISMO) legislation aims to set up a national public
entity that ring fences the systems and market
operator responsible for:
8
While preparing for the ISMO implementation, Eskom
established the Grid Access Unit to facilitate access to the
grid
This new structure has brought challenges to Eskom of:
Integrating different departments, to ensure a holistic view and approach to the IPPs.
Managing interfaces to coordinate the complex set of new business and new roles and responsibilities
brought about by IPPs






Connection
process
Pricing
settlements
Operational and
legal functions
Set- up and
organisational
functions
Its role is to provide end-to-end grid access activities and processes such as:
9
Range of levelised costs of energy for different technologies

Levelised Cost of Energy
(US$/MWh)
Levelised costs of renewable plants are generally higher than
those of conventional plants
10
SOURCE: Lazard Datamonitor 2012
Therefore it is important for the successful implementation of
renewables projects to have highly reliable electricity tariffs
Creating
transparency on
pricing policy,
network contracts,
and operating
agreements
Clearly defining the
revenue recovery
strategy of service
providers (cost
reflective tariff)
Understanding the
nodal differentiated
point tariff for entry
TUOS charges to
generators
Creating a pricing path
which ensures that the
service provider and the
industry remain
financially viable ,
sustainable, and
affordable.
Using a public
competitive bidding,
or tendering process
that encourages
participation in the
deployment of
renewables.
The tariff determination should take into consideration the service providers and customers needs
by:
11
Nersa uses the Multi-Year Price Determination (MYPD) for electricity prices
In 2013, NERSA announced an average annual increase of 8% for the MYPD 3 (2013 to 2018) which is for a
five-year period.
For the first time, the tariff makes an obligatory allowance for IPPs by splitting the tariff into 6% for Eskom and
2% to support the entry of new IPPs
Throughout the REIPPP, investment in the renewables
industry has been encouraged by governments support and
commitment to investors.
DBSA - approved a loan facility of R9.6 billion
for renewable energy projects in South Africa
Industrial Development Bank and German
Development Bank (KfW) - under the framework
of the South African-German Financial
Cooperation established a R500 million facility
for energy efficiency and small scale renewable
energy projects.
Standard Bank Group and the Industrial and
Commercial Bank of China offering a USD $2
billion funding support for renewable projects for
a period until 2025
Investec and European Investment Bank
agreed on a funding of EUR 100 million to
promote clean energy
12
Funding should be in place
Government loans and guarantees
Subsidies to encourage project development
Tax incentives should be agreed on
The following factors must be visible for sustainable
funding of renewables projects
Financial support
for the REIPPP has
been satisfactory
The competitive tariffs as determined by the bidders
and off take agreements for the power produced have
given greater transparency and impetus to the
investors

Renewable energy projects must also address some socio
economic consideration for the country

Local content and localisation

By promoting local
manufacturing and stimulating
job creating.
So far, the local content
threshold has been set at 50%
for key equipment and
components for all the
renewable projects bidding for
Window 3.
Job Creation &
BBBEE
Department of Trade and
Industry (DTI) , the South
African Photovoltaic
Association (Sapvia) and
WWF-SA (by Urban-Eco)
calculated higher levels of
localisation through an
employment multiplier effect of
between 40% and 50%
depending on the market
segment.
The Window I and Window II
projects are estimated to
create 7059 jobs during
construction and 328 jobs
during operation by the DTI.
Investment promotion

The renewable projects
provide opportunities for
foreign and domestic
investments in key sectors of
the economy as set out in the
Industrial Policy Action Plan
(IPAP).
Green economy opportunities
include manufacturing and
assembly of wind
turbines/blades, solar panels,
energy saving industries and
waste management industries.
13
The implementation of the projects must acknowledge the
environmental rights as expressed through the National
Environmental Management Act
Most of the renewable energy
projects are greenfield projects
which are developed in remote
areas in the country.
The project activities thus trigger
listed activities as prescribed by the
NEMA.
These areas are mostly sensitive to
the following:
Visual Impacts
Noise Impacts
Social impacts
As well as the overall footprint of
the project
In addition, the competing objectives
of land for agriculture and land for
energy have the potential of
delaying environmental
authorisation for renewable projects.
14
The duration of the environmental authorisation process is one of the challenges to renewables projects
However, the process allows for all issues that may arise with stakeholder to be resolved and the
environmental duties be planned for.
Eskom aims to contribute significantly to improving the
countrys energy mix over the medium to long term
Small Scale projects
Solar PV installations with an installed capacity of 1.62
MW was constructed at the following Eskom sites:
MWP Lethabo Kendal
100MW CSP power plant in Upington (Northern Cape)
Eskom will be engaging the market soon to commence
the procurement process.
The project is expected to be commissioned in 2018.
100MW Sere Wind Farm Project in Koekenaap
Construction has started, with the commissioning date
planned for end of December 2014
The project is funded by a group of development finance
institutions, including the World Bank, the African
Development Bank, Clean Technology Fund and
Agence Francaise de Developement.
15
In responding to the growing electricity demand within South Africa, the need for diversifying Eskom's energy mix, as
well as meeting the country's targets for renewable energy, Eskom has undertaken initiatives to establish renewable
forms of electricity generation capacity by:
Conducting research to investigate South Africa's sources of renewable energy, to identify appropriate alternative
solutions to meet the electricity needs of the country by implementing the Concentrating Solar Thermal project in
the Northern Cape
By diversify its energy also implement renewables energy for self consumption purposes.
Thank you!