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DOING GOOD WIND BUSINESSIN SOUTH AFRICA – EWEA

2014

Johan van den BergCEO, SAWEA

SUMMARY OF CONTEXT AS PER HAND-OUT INFORMATION

• South Africa is a top 30 global economy with about 45,000 MW installed, and a very good wind regime

• Policy is favourable to wind power and envisages about 9,000 MW‘s installed by 2030

• Growth in the past years has been rapid• Localisation, socio-economic development and the advancement of

previously disadvantaged South Africans are factors that are important alongside the cost of energy delivered.

• Successful bids over the three procurement rounds averaged around € 0.11 (R1); € 0.08 (R2) and € 0.06 respectively

• Average windfarms are large – > 80 MW• Capacity factors on successful bids on P50 are 35% +

WIND REGIME

PROCUREMENT FRAMEWORK

• Competitive bid system within technologies for allocated MW‘s

• 70% price

• 30% other - socio economic development - local ownership, local content, job creation, community development etcetera – strong local content requirements

• Process requires extensive documentation (7 x 5,000 pages) and implies significant cost (€ 200k – 400k in bid preparation)

• Game for big and sophisticated players

INDUSTRY GROWTH

INDUSTRY GROWTH (2)

INDUSTRY GROWTH (3)

FIVE MAIN CHALLENGES EXERIENCED

• Securing permits and approvals

• Preparing a competitive bid that complies with REIPPPP rules

• Structuring socio-economic benefits in an optimal and sustainable manner

• Complying with local content requirements

• Ensuring grid access

PERMITS AND APPROVALS

• Similar to other jurisdictions• Environmental impast assessment – about a 15 month process costing about

€ 70,000 (birds, bats, visual impact, heritage, agricultural land). But the country is very large (Germany + France + Italy) and there is usually a place to go

• Act 70/1970 – agricultural land • Radar/air force• Others• SA has extremely sophisticated law firms that understand this very well by

now

PREPARING A COMPETITIVE BID THAT COMPLIES WITH REIPPPP RULES

• As said above, 70:30 price/socio economic factors

• There are minimum thresholds on certain socio economic aspects

• The drive to empower, develop communities close to the projects is perhaps a world first and if successful, will create tremendous political capital

• Suggest buy into the spirit of what is being aimed for, rather than “ticking boxes“

• In round 3, some communities had 40% shareholding in projects – this is financed by local banks through innovative structures

PREPARING A COMPETITIVE BID THAT COMPLIES WITH REIPPPP RULES (2)

• The sophistication of the process requires expert advisors and leads to “bidding costs“ of € 150 – 300k

• Bid bonds of about € 7,000/MW bid are required to ensure only responsible participants bid – these are doubled at preferred bidder stage

STRUCTURING SOCIO-ECONOMIC BENEFITS IN AN OPTIMAL AND SUSTAINABLE MANNER

• Main drivers are ownership by previously disadvantaged South Africans (“BBBEE“); economic development of communities; community ownership; socio economic benefits from wind farms (schools, health clinics, pension schemes)

• The community‘s needs must be well understood • Find out “who is the community?“ and who speaks for them

STRUCTURING SOCIO-ECONOMIC BENEFITS IN AN OPTIMAL AND SUSTAINABLE MANNER (2)

• Recruit able and responsible peope to serve on Community Trusts

• Employ expert consultants to optimise bid

• Non-fulfillment of obligations can ultimately be a contractual termination event – so hire the best to ensure iongoing compliance and optimisation

• See the opportunity not the onus

COMPLYING WITH LOCAL CONTENT REQUIREMENTS

• Industrialisation, job creation through localisation are key reasons for government‘s strong support of wind power

• Thresholds started at 25% in Round 1 and are now at 40%

• Breakdown, approximately, is Balance of Plant 25%; tower up to 15%, blade up to 15%, turbine approx 45%

• Both steel and cement towers now made in SA

• Hope that international blade manufacturer will come soon with certification

COMPLYING WITH LOCAL CONTENT REQUIREMENTS (2)

• SA makes Mercedes Benz 180 for the world market, so the ability is there

• Distributed/hybrid electricity market in Africa includes 600 million people without electricity

ENSURING GRID ACCESS

• Present wind farms are aiming at locations where deep connection costs and their concomitant costs can be avoided

• This means small/medium sized wind farms with “loop in loop out“ arrangements can be made, or proximity to large substations with spare evacuation capacity

• Opposing projects (also solar) can sometimes sterlise grid if they succeed• Eskom the utility gives buget quotes (estimates) prior to bid• These are fully quantified later on – variances still too wide• SAWEA assisting Eskom with long term, strategic grid planning to unlock high

potential areas

SEE YOU SOON!

THANK YOU

Johan van den BergCEO SAWEA

johan@sawea.org.za082 925 5680