Renewable Energy Projects in Africa Comparing Procurement Models for Renewable Generation Capacity Peter Wright Simmons & Simmons March 2015
Meeting the cost of Green Energy When renewables first emerged in western markets in the 1990s, two initial forms of subsidising the development and financing of renewable energy projects were used Feed In Tariffs Renewable Energy Certificates (Renewables Obligation Certificates (ROCs) in UK) Beginning in Germany, Feed in Tariffs (FITs) became the most popular method for encouraging development of renewable generation despite the inevitably higher cost FITs have been consistently successful at stimulating markets when priced appropriately, but those markets remain very sensitive to reductions in FITs or uncertainty Feed in Tariffs in Japan for solar pv offered JPY40 per kwh for 20 years and was very successful in stimulating that market 2 / L_LIVE_APAC1:4092882v1
The impetus for a new procurement model FITs are a difficult lever to control because they have to be set at a level high enough to encourage investment but must not be (or be seen to be) too generous to allow excessive profits at the public s expense Some European countries had well publicised problems in trying to manage or reverse the cost of some FIT commitments, and the UK is in the process of replacing ROCs A number of African countries have introduced or are introducing FIT regimes (eg Kenya, Tanzania, Uganda, Egypt, Ghana, Algeria, Nigeria) Recently, the authorities have started to come up with more carefully targeted procurement models to encourage renewable generation without paying excessive costs, and some African countries are leading the way 3 / L_LIVE_APAC1:4092882v1
Development of Renewables Sector in RSA 2003 White Paper set target of 4% (approx 1,700 MW) renewable energy by 2013 2010 Integrated Resource Plan requires 18,000 MW by 2030 Original REFIT process proposed FIT prices for renewable electricity and provoked a lot of interest August 2011 - REFIT quietly dropped and the Renewables IPP Programme launched instead Basics of the Renewables IPP Programme (REIPPP) are well known: Originally 3,625MW available over up to 5 bid phases; expanded to 6,724MW Specified maximums for various technologies Developers to bid prices for sale of power Bids judged on price and economic development Standard documents specifying risk allocation Set timetables to accelerate projects Clear stakeholder buy-in to process from Government, Eskom and NERSA 4 / L_LIVE_APAC1:4092882v1
Key Features of REIPPP Risk Allocation Standard form PPA, IA and Transmission / Distribution & related Direct Agreements Documents take an aggressive but bankable approach, with Government contractual backing for Eskom payment obligations No Availability Payments projects are paid for generation only Local Content / Black Economic Empowerment Requirements important Documents contained some unusual risk allocations: Fixed term of PPA with no flexibility Aggressive position on delays to Scheduled COD Seller takes first slice of Grid availability risk Force Majeure limited to specified events Aggressive timelines for payments and notices Constraints due to single timeline for all projects Lenders, hedging providers, advisers, BEE parties Transmission constraints and Eskom funding issues 5 / L_LIVE_APAC1:4092882v1
New baseload procurement in RSA South Africa s reserve margin is currently too small (under 5%), causing fears of more blackouts like 2008 Eskom plant building programme very delayed Realisation that Eskom can not solve the problem itself In August 2013, DBSA launched a procurement process for baseload IPPs, which is expected to follow the REIPPP procurement model closely 2,500MW from coal 2,609MW from hydro and 2,652MW from gas or LNG 6 / L_LIVE_APAC1:4092882v1
Uganda s GET-FiT programme Uganda introduced FITs through the 2007 Renewable Energy Policy, but it was generally seen as insufficient to attract desired investment May 31 2013, FITs revised to include the GET FIT programme. Developed jointly by the Government of Uganda, The Electricity Regulatory Agency (ERA) and KfW, and funded by the Governments of Norway, Germany & the UK and the EU Africa Infrastructure Fund and supported by the World Bank IDA Partial Risk Guarantee Intention is to use approx EUR400m to fast track approx 20 small renewables projects with total installed capacity of approx 170MWp over the next 3-5 years If successful, will result in increase of approx 20% of Uganda s energy production, allowing access to electricity for 200,000 households (1.2m people). Currently 12 projects (103MW) in the pipeline. 7 / L_LIVE_APAC1:4092882v1
How GET-FiT works Frontloaded premium payment designed to top-up Uganda s own REFiT and be paid out over the first five years of operation GET FIT works as a form of topup payment to enhance bankability of projects. Initially aimed at small hydro and biomass/biogas projects Dec 2014 the first 2 GET FiT solar pv projects of 10MW each were awarded after competitive bid process (based on RSA REIPPP format) to select preferred bidders 8 / L_LIVE_APAC1:4092882v1
Moroccan MASEN Solar Plan In 2009 Morocco identified 5 sites on which to develop 2,000 MW of solar power by 2020, with the first being the 500 MW Ouarzazate CSP project MASEN is the Moroccan Agency for Solar Energy, established in March 2010 to implement the integrated Moroccan Solar plan, and funded by a combination of Moroccan State bodies. The first project, 160MW Noor 1 is to begin operations this year Two key features of the MASEN procured projects are: Back to Back PPAs from Project Company MASEN ONE to isolate the Project Company from the price risk Project Debt raised by MASEN from syndicate of Multilateral lenders by way of corporate borrowing by Government credit. Allows MASEN to offer all bidders lowest cost financing to ensure all bidders operating from equal playing field of low cost debt for the project 9 / L_LIVE_APAC1:4092882v1
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