PPA & REFIT. by Andile Gxasheka, RE Specialist. NERSA South Africa

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1 PPA & REFIT by Andile Gxasheka, RE Specialist NERSA South Africa

2 NERSA Mandate The mandate is derived from the objectives of the Electricity Regulation Act, No 40 of 2006 as follows: promote the use of diverse energy sources and energy efficiency; promote competitiveness and customer & enduser choice; and facilitate balance between interests of customers, end-users, licensees, investors in electricity supply industry and public.

3 Renewable Energy Policy Renewable Energy (RE) is a major contributor in protecting our climate and nature. RE also provides economic and social benefits that will contribute towards long term global sustainability. The NERSA initiated development of REFIT regulatory framework to promote RE in South Africa and to meet Government s GWh target by 2013

4 REFIT Phase I Renewable Energy Feed in Tariffs approved March 2009 Efficient licensee must recover the full costs of licenced activities plus a reasonable return

5 REFIT Phase II Renewable Energy Feed in Tariffs approved October 2009 Efficient licensee must recover the full costs of licensed activities plus a reasonable return

6 Important features of the REFIT Licensees awarded these feed in tariffs will have them adjusted for inflation using CPI once per annum. A full tariff review will take place every year for the first five year period of implementation and every three years thereafter. The term of the Power Purchase Agreement (PPA) is twenty (20) years. The carbon revenue from the Clean Development Mechanism (CDM) was not included in the REFIT. Independent Power Producers (IPPs) will have to apply for CDM revenue separately, this will improve the attractiveness of the tariffs.

7 The Regulations The Department of Energy (DoE) has Gazetted the Electricity Regulations on new generation capacity ( the Regulations ): Government Notice No. R.721 in Government Gazette Electricity Regulation Act No. 4 of 5 August 2009: These Regulations give NERSA a mandate to issue rules relating to the selection of a renewable energy Independent Power Producers that qualify for a license based on some of the following consideration: compliance with the integration resources plan and the preferred technologies; acceptance by the IPP of a standardized power purchase agreement; preference for a plant location that contributes to grid stabilisation and mitigates against transmission losses; preference for a plant technology and location that contributes to local and economic development;

8 The Regulations (contin..) compliance with legislation in respect of the advancement of historically disadvantaged individuals ; preference for projects with viable network integration requirements; preference for projects with advanced environmental approvals; preference for projects demonstrating the ability to raise finance; preference for small distributed generators over centralized generators; and preference for generators that can be commissioned in the shortest time.

9 TIMELINES FOR APPROVAL OF THE RULES ON SELECTION CRITERIA FOR RENEWABLE ENERGY PROJECTS UNDER THE REFIT PROGRAMME ITEM/ACTIVITY ACTUAL/TARGET DATE 1.Completion of the consultation paper on REFIT rules 10 Feb Electricity Subcommittee meeting approves process, timelines and the consultation paper 17 Feb Publication of NERSA consultation paper and invitation for written public comments 19 Feb Deadline for submitting written public comments to NERSA 19 March Public Hearing on REFIT Rules 05 April Electricity subcommittee consider recommending to the Energy Regulator 14 April Energy Regulator approval of the Rules for selection of projects under REFIT program 29 April 2010

10 Power Purchase Agreement NERSA initiated the development of the REFIT PPA after approval of REFIT Phase I on 26 March Aim was to facilitate the adoption of the standardized PPA for REFIT technologies. REFIT PPA derived from the MTPPP PPA.

11 Key features of the REFIT PPA risk allocation Availability and Dispatch: IPP required to provide Buyer with monthly and weekly generation forecast and availability declaration on daily basis Term: 20 years consistent with the term of the REFIT Project Site and Construction: The Seller responsible for obtaining and maintaining the use and possession of the Project Site.

12 Key features of the REFIT PPA risk allocation Capacity and Energy: Following COD, the Seller shall make available the Net Capacity to the Buyer and generate energy. The Seller is not permitted to undertake any energy sales to third party. Commercial Energy Payments: The Buyer shall pay to the Seller the Commercial Energy Payment for all Commercial Energy calculated under REFIT. Fuel: Seller solely responsible for supply of Fuel and other consumables necessary. Buyer bears no cost or risk associated with use of any alternative fuel. Emission Credits: Buyer has no rights in respect of any Emission Credits relatable to the PPA or received by the Seller or the owner of the Source Facility.

13 Current work on REFIT PPA Regulation number 6 on New Generation Capacity requires that PPA meets the requirements of the Treasury in respect of : affordability of the project; value for money; substantial technical, operational and financial risk transfer; effective implementation, management, enforcement and monitoring of the IPP; and satisfactory due diligence, legal due diligence in respect of buyer s representative and proposed IPP in relation to matters of their respective competence and capacity to enter into project agreement.

14 Current work on REFIT PPA concluding standard risk allocation of PPA ie. Schedules for each technology.

15 THANK YOU!