south africa’s renewable energy ipp procurement · pdf filesouth africa’s...
Post on 02-Feb-2018
219 Views
Preview:
TRANSCRIPT
South Africa’s Renewable Energy IPP Procurement Program:
Success Factors and Lessons
May 2014
Anton Eberhard, University of Cape TownJoel Kolker, World Bank Institute
James Leigland, Private Infrastructure Development Group
2
LargerSection titLe1
© 2014 Public-Private Infrastructure Advisory Facility (PPIAF)1818 H Street, NWWashington, DC 20433www.ppiaf.orgE-mail: ppiaf@ppiaf.org The findings, interpretations, and conclusions expressed in this report are entirely those of the authors and should not be attributed in any manner to the Public-Private Infrastructure Advisory Facility (PPIAF) or to The World Bank Group, to its affiliated organizations, or to members of its Board of Executive Directors or the countries they represent.
Neither PPIAF nor The World Bank Group guarantees the accuracy of the data included in this publication or accepts responsibility for any consequence of their use. The boundaries, colors, denominations, and other information shown on any map in this report do not imply on the part of PPIAF or The World Bank Group any judgment on the legal status of any territory or the endorsement or acceptance of such boundaries. For questions about this publication or information about ordering more copies, please refer to the PPIAF website or contact PPIAF by email at the address above.
Rights and Permissions The material in this work is subject to copyright. Because PPIAF and The World Bank Group encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes, as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street, NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org. Cover photos: Left, Photograph taken during construction of Hopefield Wind Farm (66MW), Western Cape. Courtesy of Umoya Energy (RF) (Pty) Ltd.; right, Kalkbult. Eric Miller for Scatec.Cover design: TM Design, Inc.
SEctiontitlE 1
i
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1 . From Feed-in Tariffs to Competitive Tenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.1 SouthAfrica’selectricitysupplysystem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 1.2 ElectricityplanningandpreviousattemptstointroduceIPPs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6 1.3 Renewableenergypolicy...............................................................................................6 1.4 FromREFITtoREIPPPP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 2 . Government Design and Management of the REIPPPP Tender Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.1 Institutionalsetting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.2 TheREIPPPPmanagementteam.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.3 Managementstyle. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9 2.4 Programresources.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10 2.5 Tenderdesignandbidprocess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 2.6 Bidevaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
3 . Tender Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14 3.1 Round1outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 3.2 Round2outcomes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.3 Round3outcomes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 3.4 PlansforRound4. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 3.5 Rounds1-3:Competitionandpricing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 4 . Key Private Sector Actors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 4.1 Projectsponsors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.2 Financiers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 4.3 Engineering,ProcurementandConstruction(EPC)contractorsandequipmentsuppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 5 . Trade-offs Between Prices and Economic Development Outcomes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 5.1 Economicdevelopmentrequirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24 5.2 Economicdevelopment:criticismandcontroversy.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.1.1 Jobcreation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.2.2 Ownership/jobsvs.capacitybuilding.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 5.2.3 Manufacturing..................................................................................... . . . . . . . . . . . 28 5.2.4 Enterpriseandsocio-economicdevelopment...................................................... . . . . . . . . . . . . . . . 29
6 . Key Success Factors, Shortcomings and Risks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.1 Programmanagementfactors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.1.1 Politicalsupport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.1.2 Institutionalsetting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.1.3 TheREIPPPPmanagementteam. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 6.1.4 Managementstyle............................................................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 6.1.5 Programresources........................................................................... . . . . . . . . . . . . . . . . . . . 31 6.1.6 Qualityoftransactionadvice.................................................................. . . . . . . . . . . . . . . . . . . . 31 6.1.7 Programmanagementshortcomings................................................................... . . . . . . . . . . 31 6.1.8 Programmanagementrisksgoingforward........................................................ . . . . . . . . . . . . . . . . 31 6.2 Programdesignfactors.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32 6.2.1 Acceleratedroll-outofnewgeneratingcapacity................................................ . . . . . . . . . . . . . . . . . . .32 6.2.2Programsize.......................................................................................... . . . . . . . . . .32 6.2.3Potentialprojectprofitability................................................................ . . . . . . . . . . . . . . . . . . . . 32 6.2.4TheshiftfromFITstocompetitivetenders.................................................. . . . . . . . . . . . . . . . . . . . . . .32 6.2.5 Multiplebiddingrounds.......................................................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
TABLE OF CONTENTS
TABLE OF CONTENTS
ii
TABLE OF CONTENTS
6.2.6ExemptionfromPPPregulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 6.2.7Non-negotiableprogramcharacteristics........................................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 6.2.8Economicdevelopmentrequirements............................................................. . . . . . . . . . . . . . . . .33 6.2.9Sovereignguarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33 6.2.10Programdesignshortcomings.............................................. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34 6.211Programdesignrisksgoingforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 6.3 Marketfactors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 6.3.1Globalsupplyanddemandofrenewableenergy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 6.3.2DonorandMultilateralDevelopmentBanksupportforrenewables.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35 6.3.3TheSouthAfricanbankingsector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.3.4Otheradvisoryservices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.3.5Marketshortcomings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 6.3.6Marketrisksgoingforward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
7 . Lessons for Other developing countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.1 Adoptabusiness-friendlyapproach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.2 Takeadvantageofexternalsourcesoffunding. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 7.3 Makeacaseforrenewableenergy(…andkeepmakingit). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.4 Findaprogramchampion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 7.5 Identifyaprogramdesignthatsuitscountrycircumstances. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 7.6 Ensurequalityprocurementandcontractingdocumentationandprocessesareinplace.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8 . References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Appendices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Appendix1:Eskom’spowerstations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42Appendix2:SouthAfricanIntegratedResourcePlan2010-30 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Appendix3:REIPPPPEconomicDevelopmentObjectives. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44Appendix4:REIPPPPEconomicDevelopmentScoringCategories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45Appendix5:REIPPPPProjects. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
BoxesBox1:REIPPPPEvaluationConsultants..........................................................................................10
FiguresFigure1:AverageNominalandRealEskomElectricityPrices(Usc/Kwh)(ExchangeRateZAR10/USD)................................5Figure2:ProminentShareholdersinREIPPPPWindows1,2&3. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Figure3:ShareofDebtFinancinginREIPPPPRounds1,2&3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Figure4:ShareofInitialDebtProvidersinREIPPPP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21Figure5:MajorDebtProvidersinREIPPPPRounds1,2&3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22Figure6:MainWindandPVEquipmentSuppliersinREIPPPPRounds1,2&3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
TablesTable1:REFITandREIPPPPprices...............................................................................................8Table2:SummarizedResultsforREIPPPPWindows1,2,and3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14Table3:REIPPPPAverageBidPrices(2011SAc/kW). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Table4:REIPPPPLocalContentScoringRequirementsandResults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Table5:REIPPPPEconomicDevelopmentOutcomes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27
TABLE OF CONTENTS
iii
ACKNOWLEDGEMENTS
Acknowledgements
TheauthorsareindebtedtotheDOEIPPteamforprovidingdetailedbackgroundandaccesstosubstantialamountsofinformation.Theteam,ledbyKarenBreytenbach,dedicatedhourstoextensiveinterviewsandqueries.TheSouthAfricaDepartmentofEnergyandtheNationalTreasuryalsoprovidedvaluableinputs.Anumberofprivatesectorplayers,financiersandoperatorsalsosharedtheirinsightsandviewsontheREIPPPPprogram.
SeveralWorldBankcolleaguesprovidedpeerreviews,includingLuizMaurer,InternationalFinanceCorporation;KaranCapoor,AfricaEnergyUnit;andSatheeshSundarajan,PublicPrivateInfrastructureAdvisoryFacility(PPIAF).PPIAFalsogenerouslyprovidedfinancialsupportforthestudy.MarkPickering,AndrewDonaldson,KatharineGratwick,RosalindThomas,HolleLinneaWolkas,SarahStands,MikeFitzpatrickandPaulWroblickiprovidedinsightsandreviews.
Finally,anyerrorscontainedinthedocumentaresolelytheresponsiblyoftheauthors.
ACKNOWLEDGEMENTS
iv
ABBrEvIATIONS
ABBrEvIATIONS
BEE BlackEconomicEmpowerment
BBBEE Broad-BasedBlackEconomicEmpowermentActof2003
COD CommercialOperationDate
COP ConferenceofParties
CSP ConcentratedSolarPower
DA DirectAgreement
DBSA DevelopmentBankofSouthernAfrica
DFI DevelopmentFinanceInstitution
DOE DepartmentofEnergy
EIB EuropeanInvestmentBank
FITs Feed-inTariffs
IA ImplementationAgreement
IFC InternationalFinanceCorporation
IPPs IndependentPowerProducers
MDB MultilateralDevelopmentBanks
MOA MemorandumofAgreement
MW Megawatt
NERSA NationalEnergyRegulatorofSouthAfrica
OECD OrganizationofEconomicCooperationandDevelopment
OPIC OverseasPrivateInvestmentCorporation
PPA PowerPurchaseAgreement
PPP Public-PrivatePartnerships
PPPFA PreferentialProcurementPolicyFrameworkAct
PV Photovoltaic
REFIT RenewableEnergyFeed-inTariffs
REIPPPP RenewableEnergyIndependentPowerProjectProcurementProgram
RFP RequestforProposals
VfM ValueforMoney
1
ExECUTIvE SUMMAry
ExECUTIvE SUMMAry
Executive Summary
Overview
SouthAfricaoccupiesacentralpositionintheglobaldebateregardingthemosteffectivepolicyinstrumentstoaccelerateandsustainprivateinvestmentinrenewableenergy.In2009,thegovernmentbeganexploringfeed-intariffs(FITs)forrenewableenergy,butthesewerelaterrejectedinfavorofcompetitivetenders.Theresultingprogram,nowknownastheRenewableEnergyIndependentPowerProducerProcurementProgram(REIPPPP),hassuccessfullychanneledsubstantialprivatesectorexpertiseandinvestmentintogrid-connectedrenewableenergyinSouthAfricaatcompetitiveprices.
Todate,atotalof64projectshavebeenawardedtotheprivatesector,andthefirstprojectsarealreadyonline.PrivatesectorinvestmenttotalingUS$14billionhasbeencommitted,andtheseprojectswillgenerate3922megawatt(MW)ofrenewablepower.Priceshavedroppedoverthethreebiddingphaseswithaveragesolarphotovoltaic(PV)tariffsdecreasingby68percentandwinddroppingby42percent,innominalterms.Mostimpressively,theseachievementsalloccurredoveratwo-and-a-halfyearperiod.Finally,therehavebeennotableimprovementsintheeconomicdevelopmentcommitments,primarilybenefitingruralcommunities.OneinvestorcharacterizedREIPPPPas“themostsuccessfulpublic-privatepartnershipinAfricainthelast20years.”ImportantlessonscanbelearnedforbothSouthAfricaandotheremergingmarketscontemplatinginvestmentsinrenewablesandothercriticalinfrastructureinvestments.
The Bidding PrOcess and The resulTs
InAugust2011,aninitialRequestforProposals(RFP)wasissued,andacompulsorybidder’sconferencewasheldwithover300organizationsattending.ByNovember2011,53bidsfor2128MWofpowergeneratingcapacitywerereceived.Ultimately28preferredbidderswereselectedoffering1416MWforatotalinvestmentofclosetoUS$6billion.MajorcontractualagreementsweresignedonNovember5,2012,withmostprojectsreachingfullfinancialcloseshortlythereafter.ConstructiononalloftheseprojectshascommencedwiththefirstprojectcomingonlineinNovember2013.
AsecondroundofbiddingwasannouncedinNovember2011.Thetotalamountofpowertobeacquiredwasreduced,andotherchangesweremadetotightentheprocurementprocessandincreasecompetition.Seventy-ninebidsfor3233MWwerereceivedinMarch2012,and19bidswereultimatelyselected.Pricesweremorecompetitive,andbiddersalsoofferedbetterlocalcontentterms.Implementation,powerpurchaseanddirectagreementsweresignedforall19projectsinMay2013.
AthirdroundofbiddingcommencedinMay2013,andagain,thetotalcapacityofferedwasrestricted.InAugust2013,93bidswerereceivedtotaling6023MW.SeventeenpreferredbidderswerenotifiedinOctober2013totaling1456MW.Pricesfellfurtherinroundthree.Localcontentagainincreased,andfinancialclosurewasexpectedinJuly2014.AfourthroundofbiddingwassettocommenceinAugust2014.
ThefirstthreeREIPPPPbidroundsattractedawidevarietyofdomesticandinternationalprojectdevelopers,sponsorsandequityshareholders.The64successfulprojectsinvolvedovera100differentshareholderentities,46oftheseinmorethanoneproject.Banks,insurers,DFI’sandeveninternationalutilitieshaveallparticipatedintheprogram.Themostcommonfinancingstructurehasbeenprojectfinance,althoughaboutathirdoftheprojectsinthethirdroundusedcorporatefinancingarrangements.Themajorityofdebtfundinghasbeenfromcommercialbanks(ZAR57bn)withthebalancefromDevelopmentFinanceInstitutions(DFIs)(ZAR27.8bn),andpensionandinsurancefunds(ZAR4.7bn).Eighty-sixpercentofdebthasbeenraisedfromwithinSouthAfrica,anddebttenorstypicallyextend15to17yearsfromCommercialDateofOperation(COD).SpreadsoverJIBARarebetween350and400basispoints.
2
ExECUTIvE SUMMAry
Key success FacTOrs and challenges
REIPPPP’ssuccessfactors,shortcomingsandriskscanbeorganizedunderthreegeneralheadings:1)programmanagementfactors;2)programdesignfactors;and3)marketfactors.
Intermsofprogrammanagementfactors,thelargelyadhocinstitutionalstatusoftheDepartmentofEnergy(DOE)IndependentPowerProducer(IPP)unitallowedanapproachthatemphasizedproblemsolving,ratherthanenforcementofadministrativearrangements,anddidnotunderminequalityortransparency.TheDOEIPPmanagementteamandtheteamleaderhadextensiveexperience,PPPexpertise,andcredibilitywithbothpublicandprivatesectorstakeholders.Thisteamwasalsoabletoovercomesomeofthemistrustofprivatebusinessthatsometimesrestrictsthepublic-privatedialogueinSouthAfricaandsecuredresourcestoimplementaqualityprogram.TheseresourceswereusedtoappointexperiencedadvisorswhowereabletotransferinternationalbestpracticeintotheSouthAfricacontext.Despitethesesuccesses,thead-hocstatusoftheDOEIPPunitposessomerisks.Forthisprocurementprocesstobesustainable,institutionalcapabilitywillneedtobebuiltwithinaformalinstitution,preferablyafutureindependentsystemandmarketoperator.
TheinitialdesignofREIPPPPwasbuilttosomeextentonthelessonsofanearlier,unsuccessfuleffortthatusedfeed-intariffsandhasevolvedoverthethreeroundsofbidding.REIPPPPofferedaquickwaytorolloutnewgeneratingcapacity,andthesizeandstructureofthebiddingprocessmeantthattherewouldbemultiplebidwinners,animportantincentivefortheprivatesectortoparticipate.REIPPPalsorepresentedopportunitiesfordeveloperstomakereasonableprofitsduetothelinktothe“REFIT-like”tariffcapsinRound1.Theshifttocompetitivetenderingsubsequentlyhelpedtariffscomedownsharplyoverthenexttworounds.Therollingseriesofbiddingwithsubstantialcapacityallocationsalsohelpedbuildconfidenceintheprogram.CertainexemptionsfromsomeofthenationalPPPregulations,andtheprovisionsofthePreferentialProcurementPolicyFrameworkActalsoassistedinfast-trackingtheprogram,withoutnegativelyimpactingtransparencyorquality.Furthermore,therequirementthatbidsbefullyunderwrittenwithdebt,aswellasequity,effectivelyeliminatedthetendencyofcompetitivetenderstoincentivizeunder-bidding(or“low-balling”)towincontracts.Whilesomeoftheprogram’seconomicdevelopmentrequirementshavebeencontroversial,theydidgeneratecriticalpoliticalsupportforREIPPPP.
Therewerealsosomedesignshortcomingsandthesizeandreadinessofthelocalrenewableenergymarketwereinitiallyoverestimated.ThisresultedinlimitedcompetitioninRound1,withbidsclosetothepricecapsthatwerespecifiedinthetender.SomeREIPPPPcriticsalsoarguethattheprogram’ssignificantupfrontadministrativerequirementsandhighbidcostshavecontributedtohigherpricesthaninothercountries,likeBrazil,andalsoserveasabiasagainstSmallandMediumScaleEntrepreneurs(SMEs).Whilethelattercritiquemayhavesomemerit,itshouldbenotedthatbidcostswereneverthelesstinyinrelationtooverallprojectvalues.
Intermsofimportantmarketfactorsimpactingtheprogram,theglobalslow-downinOECDrenewableenergymarketsmeantthatREIPPPPwasabletoattractconsiderableattentionfromtheinternationalprivatesector.REIPPPPalsobenefitedSouthAfrica’ssophisticatedcapitalmarket,whichofferedlong-termprojectfinance.ThearrayofsophisticatedadvisoryserviceswasalsocriticaltothedesignandmanagementoftheREIPPPPprogram.
ExECUTIvE SUMMAry
3
ExECUTIvE SUMMAry
glOBal lessOns learned
TheSouthAfricanexperiencesuggestsseveralkeylessonsforsuccessfulrenewableenergyprogramsinotheremergingmarkets.Forexample,it’sevidentthatprivatesponsorsandfinanciersaremorethanwillingtoinvestinrenewableenergyiftheprocurementprocessiswelldesignedandtransparent,transactionshavereasonablelevelsofprofitability,andkeyrisksaremitigatedbygovernment.Renewableenergycostsarefallingandtechnologiessuchaswindturbinesarebecomingcompetitivewithalternatives.Furthermore,renewableenergyprocurementprogramshavethepotentialtoleveragelocalsocialandeconomicdevelopment.REIPPPPalsohighlightstheneedforeffectiveprogramchampionswiththecredibilitytointeractconvincinglywithseniorgovernmentofficials,effectivelyexplaintheprogramtostakeholders,andcommunicateandnegotiatewiththeprivatesector.Finally,REIPPPPdemonstratesthatwhetheranFITorcompetitivetenderischosen,privatesectorprojectdevelopersneedaclearprocurementframeworkwithinwhichtoinvest.
ExECUTIvE SUMMAry
4
INTrODUCTION
Introduction
Asgrid-connectedrenewableenergyindependentpowerprojects(IPPs)becomemoreprevalentaroundtheglobe,debateshaveintensifiedonthemosteffectivepolicyinstrumentstoaccelerateandsustaininvestmentbytheprivatesectorintotheseelectricity-generatingtechnologies.Feed-intariffs(FITs)havebeenthemostwidelyusedgovernmentsupportmechanismforacceleratingprivateinvestmentinrenewableenergygeneration.FITsaremeanttoreflectthecostsofproducingparticularkindsofenergy,aspredeterminedbygovernmentanalysis(ratherthansetasaresultofcompetitivebidding).Theyareusedinoffersoflong-termsupplycontractstorenewableenergyproducers.However,competitivetendersorauctionshavealsoemergedinmanyjurisdictionsasacceptabletechniques,especiallyinemergingeconomies.Tendershavethepotentialtoofferlowerprices,whilestillprovidingadequateincentivesformarketentrybyrenewableenergysuppliers.
SouthAfricanowoccupiesacentralpositioninthisdebate.In2009,thegovernmentbeganexploringFITsforrenewableenergy,buttheywererejectedin2011infavorofcompetitivetenders.Theinitialoutcomesoftheprogram,nowknownastheRenewableEnergyIndependentPowerProcurementProgram(REIPPPP),havebeenencouraging.BeginningwithitsfirstbidroundinAugust2011,REIPPPPhasattractedamultitudeofinternationalandlocalprivateprojectdevelopersandinvestorswhohavechanneledlargeamountsofprivateexpertiseandinvestmentintogrid-connectedrenewableenergyinSouthAfricaatcompetitiveprices.Initssecondandthirdbidrounds,theprogramhasalsofosteredcompetitionwithconsequent,andimpressive,pricereductions.And,ithasachievedresultsinrecordtime:despitesomedelays,inlessthanthreeyearsthreesuccessfulbiddingroundshavebeenheld,evaluationshavebeentimelyandtransparent,allprojectsinbidwindowsoneandtwohavereachedfinancialclose,andmanyareunderconstructionorarealreadyinoperation.
Intotal,REIPPPPhasgenerated64newrenewableenergyIPPs,ofdifferentsizesatdifferentsites.US$14billionininvestmenthasbeencommittedfortheconstructionof3922MW1 ofcapacityintechnologieslikegrid-connectedwind,PVandconcentredsolarpower,aswellassmalleramountsofhydro,landfillgasandbiomassenergy.Since2012,SouthAfricahasrankedamongthetoptencountriesgloballyintermsofrenewableenergyIPPinvestments.Inlessthanthreeyears,SouthAfricahassignedupmoreinvestmentformoreindependentpowergenerationthanhasbeenachievedacrosstheentireAfricancontinentoverthepast20years.
ThispaperexplorestheSouthAfricanexperienceofintroducinggrid-connectedrenewableenergybyseekinganswerstoanumberofkeyquestions:
1. WhyandhowdidSouthAfricamovefromfeed-intariffstocompetitivetendersforgrid-connectedrenewableenergy?
2.Howdidthegovernmentdesignandmanagetheprogram?Whatwerethedistinctivefeaturesofthesecompetitivetenders,andhowwerethebidsevaluated?
3.Whatweretheinvestmentandpriceoutcomesofthedifferentbidrounds?
4.Whowerethekeyprivatesectoractorsinthevariousdeals?Whatkindsoffinancinginstitutionswereinvolved?Whowerethesuccessfulsponsors,equipmentproviders,andengineering,procurement,andconstruction(EPC)contractors?
5.Whatweretheimpactsandtrade-offsbetweenpricesandeconomicdevelopmentoutcomes(e.g.,localindustrialdevelopmentandemploymentcreation)?
6.Whatwerethekeysuccessfactors,shortcomingsandrisksassociatedwiththeprogram?
7. WhatlessonscantheSouthAfricanprogramoffertootherdevelopingcountries?
1Thisisthetotalafterfinancialcloseofbidwindows1and2.TheRFPtotalisslightlylowerat3915MW
INTrIDUCTION
5
FrOM FEED-IN TArIFFS TO
COMPETITIvE TENDErS 1
From Feed-In Tariffs To Competitive Tenders
1.1 sOuTh aFrica’s elecTriciTy suPPly sysTem
TheSouthAfricanpowersystemischaracterizedbylargepowerstationsthatareconcentratedintheinteriorofthecountryneartheminesandindustriesofGautengprovince,andlongtransmissionlinesdowntocoastalareas.Coalsuppliesapproximately70percentofthecountry’sprimaryenergyandmorethan90percentofitselectricity.Apubliclyownednationalpowerutility,Eskom,generates96percentofthecountry’selectricity,ownsandcontrolsthenationalhigh-voltagetransmissiongrid,anddistributesapproximately60percentofelectricitydirectlytocustomers.LocalauthoritiesbuybulkfromEskomanddistributethebalance.Directelectricitysalestominesandindustryaccountformorethan40percentofEskom’sdistributionbusiness(seeAppendix1foralistofEskom’smajorpowerstations).
Inthe1970s,Eskomoverestimateddemandgrowthandembarkedonamassiveinvestmentprogram,whichcontinuedintothe1980s,whenitbecameapparentthattheutilitywouldhavesignificantovercapacity.Bytheendofthe1990s,thecountry’selectricitypricesrankedamongthecheapestintheworld.In2007,Eskom’saverageelectricitysalespricewasaslowas2.5USc/kWh.Ineffect,theutilityhadpaidoffthecapitalcostsformuchofitsexistingcapacity,andcustomerpriceswereclosetoshort-runmarginalcosts.
However,by2004,already,itbecameclearthatpowerreservemarginsweredroppingsharplyandwouldturnnegativeinafewyearswithoutEskominterventionsonboththedemandandsupplysides.EskominitiatedaUS$40billionpowerplantconstructionprogram,andafewyearslatertheNationalEnergyRegulatorofSouthAfrica(NERSA)beganallowingsharpupwardadjustmentsinelectricitytariffsinanefforttosustainEskom’sfinancialviability.2 Figure1showshowelectricitypriceshaveriseninnominalandrealterms.Aboveinflationincreaseshavebeenagreedbytheregulatorforthenext5years,causingconcernamongEskom’scustomers.
2Eskomiscurrentlybuildingtwomassivenewcoal-firedplants–MedupiandKusile–each4800MW,aswellasanew1300MWpumpedstoragescheme,Ingula.Atthesametime,ithascommencedprocurementofitsfirstrenewableenergypower:a100MWwindfarm,Sere,anda100MWconcentratedsolarplant.ThelattertwopowerprojectshavebeenfundedmainlybyWorldBankandAfricanDevelopmentBankloans.
FrOM FEED-IN TArIFFS TO COMPETITIvE TENDErS
Figure 1: average nominal and real eskom electricity Prices (usc/kwh) (exchange rate Zar10/ usd)
Source: Constructed by the authors from data extracted from Eskom Annual Reports and StatsSA.Note: Eskom average sales prices include transmission and distribution costs.
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
1996 1998 2000 2002
Nominal Tari� Real 2013 values
2004 2006 20102008 2012
6
FrOM FEED-IN TArIFFS TO COMPETITIvE TENDErS 1
1.2 elecTriciTy Planning and PreviOus aTTemPTs TO inTrOduce iPPs
Thepost-ApartheidSouthAfricanGovernmentnolongerleavespowerplanningexclusivelytoEskom.TheformalplanningsystemnowmandatestheDepartmentofEnergytoproduceanelectricityplan(IntegratedResourcePlan–IRP).Basedonthisplan,theMinisterofEnergyissuesperiodicdeterminationsregardinghowmuchnewpowergenerationisneeded,andfromwhichsources.NERSAcanonlylicencenewcapacitywithintheboundssetbytheseministerialdeterminations.ThemostrecentIRPisfortheperiod2010-30andwasupdatedin2013.Anumberofdifferentscenariosortestcaseswasincluded(Appendix2presentsthecoremodeloutput).
ThegovernmentrecognizesthatIPPsshouldbeallowedtoenterthemarkettoenhancethecountry’spowergeneratingcapacity.3 FollowingthepublicationoftheEnergyPolicyWhitePaperin1998,a70:30spiltbetweenEskomandtheprivatesectorwasacceptedbytheCabinet,andworkcommencedonthedesignofacompetitivewholesalepowerexchange.However,withloomingEskompowershortages,theprospectivewholesalemarketwasabandonedin2004infavouroftheexistingsingle-buyermodelwithEskombeingtheoff-taker.IPPswerestillexpectedtoplayasignificantroleinpowergeneration,butthepolicyandregulatoryframeworkforIPPswasnotimmediatelyputinplaceandprocurementprogramsrunbyEskomforcogenerationandbase-loadIPPsweremostlyunsuccessful.NoIPPcontractsweresignedexceptforahandfulofshort-termpowerpurchaseagreementswithindustrialgenerators,whichamountedtolessthan400MW.
1.3 renewaBle energy POlicy
SouthAfrica’ssystemforenergyplanningsystemnowalsorequiresthatrenewableenergyplayasignificantroleinthenation’spowergenerationmix.Forthefirsttime,theIRP2010-30incorporatedacarbonemissionscapandincludedrenewableenergyoptions,with17.8GWofsolarandwindenergycapacityplannedby2030(Appendix2).Morethanmostcountries,SouthAfricareliesheavilyoncoalandalsohasahighlyenergy-intensiveeconomy.ThesefactorsresultinSouthAfrica’scarbonemissions(onapercapitaandGDPbasis)beingdisproportionatelyhigh(although,intotal,theyamounttolittleoveronepercentofglobalemissions).Policymakershavebeenmindfulofrisksthattheseemissionlevelsmightposetotheeconomy’sfutureinternationalcompetitiveness.Theyarealsoawarethatthecountryhasconsiderablepotentialforsometypesofrenewableenergygeneration.4
Thegovernmentbegansettingrenewableenergytargetsin2003,withthepublicationofaRenewableEnergyPolicyWhitePaperthatenvisionedreaching10,000GWhofrenewableenergygenerationby2013.Foryears,verylittlewasdonetoachievethistarget,andtherewasagooddealofconfusionregardingwhatthistargetactuallymeant:wasitacumulativeorannualtarget?Diditincluderenewableenergyservicesotherthanelectricity?TheDepartmentofEnergyeventuallyclarifiedthatthetargetwouldbemetbyacombinationofbagasse(59percent),landfillgas(6percent),hydro(10percent),solarwaterheaters(13percent),otherbiomass(1percent),andonly1percentwind(andintriguingly,noPVorconcentratedsolarpower).Eventhesemodesttargetswerenotmetby2013.
However,whiletheofficialrenewableenergypolicyhasnotbeenveryeffectiveinapplyingpracticalimplementationstrategies,policiestomitigateclimatechangehavehadamuchmoreprofoundimpact.Inseveralrespects,thisissurprisingbecauseasanon-Annex1
3InSouthAfrica,IPPsaregenerallyrecognizedasprivatelyfinanced,Greenfieldgenerationplants,supportedbynon-recourseorlimitedrecourseloans,andbackedbylong-termpowerpurchaseagreements(PPA)signedwithEskom,thecountry’s“singlebuyer”ofelectricity.4SouthAfricahasoneofthehighestpotentialsolarenergyregimesintheworldwithaveragedailydirectnormalradiationinexcessof7KWh/m2(Flurietal.,2009).ThemostfavorableareasareintheNorthernCape,atsomedistancefromthemainmetropolitanareas.SouthAfricaalsohasreasonablewindenergyresourceswithaveragewindspeedsabove7m/sinsomecoastalandescarpmentregions.Thecountryislessendowedwithhydroandbiomassresources.Averagerainfallacrossthecountryis450mmperannumcomparedtoaglobalaverageof860mm).Therearerelativelyfewlargerivers,andthelimitedpotentialforlargedamsandassociatedhydroelectricschemeshavemostlyalreadybeenexploited.Thereremainssomepotentialforsmallhydroalongtheescarpment.
FrOM FEED-IN TArIFFS TO COMPETITIvE TENDErS
7
FrOM FEED-IN TArIFFS TO
COMPETITIvE TENDErS 1
countryundertheKyotoProtocol,SouthAfricadoesnotfaceanycommitmentstoreducegreenhousegasemissions.55Nevertheless,theDepartmentofEnvironmentalAffairscommissionedresearchworkonLong-TermMitigationStrategies.ThesestrategiesprovidedthebasisforPresidentZumatomakeapledgeattheCopenhagenConferenceofParties(COP)in2009thatSouthAfricawouldreduceitsCO2emissions34percentbelowabusiness-as-usualscenarioby2020,andbelow42percentby2025,providedtheinternationalcommunitysupportedSouthAfricawithfinancialaidandthetransferofappropriatetechnology.Thepeak,plateau,anddeclinescenariosforcarbonemissionssubsequentlyinformedthedevelopmentoftheIRP2010-2030.ThepowersectorinSouthAfricacontributesroughlyhalfofthecountry’scarbonemissions,andaneffectiveemissionscapwassetatapproximately275Mt/annumCO2equivalent.AsubsequentNationalClimateChangeResponseWhitePaper,publishedin2011,providedawiderbandforemissioncaps,butmaintainedthepeak,plateauanddeclinetrajectories.AttheCOP17meetinginDurbanin2011,publicandprivatesectorstakeholderrepresentativesagreedto12“commitments”aimedatachievingthegovernment’sgoalofcreating300,000newjobsinthe“greeneconomy”ofSouthAfricaby2020.
1.4 FrOm reFiT TO reiPPPP
SouthAfrica’svoluntarypledgeinCopenhagentoreduceitscarbonemissionsfromabusiness-as-usualscenariowasthecatalystfornewprocurementstrategiesforrenewableenergy.Toexpandrenewableenergysupply,SouthAfricafirstexploredtheoptionofrenewableenergyfeed-intariffs(REFITs).AREFITpolicywasapprovedin2009byNERSA.Tariffsweredesignedtocovergenerationcostsplusarealaftertaxreturnonequityof17percentandwouldbefullyindexedforinflation(NERSA2009).Initialpublishedfeed-intariffsweregenerallyregardedasgenerousbydevelopers–15.6USc/kWhforwind,26USc/kWhforconcentratedsolar(troughs,with6hours’storage),and49USc/kWhforphotovoltaic.6 Butconsiderableuncertaintyaboutthenatureoftheprocurementandlicensingprocessremained.Thelegalityoffeed-intariffswithinSouthAfrica’spublicprocurementframeworkwasunclear,aswasEskom’sintentiontofullysupporttheREFITprogrambyallowingtimelyfinalizationofpowerpurchaseagreementsandinterconnectionagreements.
InMarch2011,NERSAintroducedanewlevelofuncertaintywithasurprisereleaseofaconsultationpapercallingforlowerfeed-intariffs,arguingthatanumberofparameters—suchasexchangeratesandthecostofdebt—hadchanged.Thenewtariffswere25percentlowerforwind,13percentlowerforconcentratedsolar,and41percentlowerforphotovoltaic(seeTable1).Moreover,thecapitalcomponentofthetariffswouldnolongerbefullyindexedforinflation.Importantly,initsrevisedfinancialassumptions,NERSAdidnotchangetherequiredrealreturnforequityinvestorsof17percent(NERSA2011).
Morepolicyandregulatoryuncertaintywastocome.AlreadyconcernedthatNERSA’sFITswerestilltoohigh,theDepartmentofEnergyandNationalTreasurycommissionedalegalopinionthatconcludedthatfeed-intariffsamountedtonon-competitiveprocurementandwerethereforeprohibitedbythegovernment’spublicfinanceandprocurementregulations.TheDepartmentofEnergyandNationalTreasurythentooktheleadonareconsiderationofthegovernment’sapproach.Thefundamentalgoalofachievinglarge-scalerenewableenergyprojectswithprivatedevelopersandfinanciersremainedthesame.However,thestructureofthetransactions,includingthefeed-intariffs,wastochangesignificantly.
5ThegoaloftheKyotoProtocolistolimitemissionsofgreenhousegases(GHGs).Accordingtothetreaty,in2012,AnnexIPartieswhohaveratifiedthetreatymusthavefulfilledtheirobligationsregardingGHGemissionlimitationsestablishedfortheKyotoProtocol’sfirstcommitmentperiod(2008–2012).TheseemissionlimitationcommitmentsarelistedinAnnexBoftheProtocol.Non-Annex1countries,likeSouthAfrica,arenotobligatedbythesecaps.
6ThesevaluesarecalculatedattheexchangerateatthetimeofZAR8/USD.
FrOM FEED-IN TArIFFS TO COMPETITIvE TENDErS
8
1
Aseriesofinformalconsultationswereheldwithdevelopers,lawyersandfinancialinstitutionsthroughoutthefirsthalfof2011.ThesemeetingsprovedtobeextremelyimportantintermsofallayingmarketconcernsresultingfromtheearlierREFITprocessandprovidinginformalfeedbackfromtheprivatesectorondesign,legal,andtechnologyissues.
InAugust2011,theDOEannouncedthatacompetitivebiddingprocessforrenewableenergywouldbelaunched,knownastheRenewableEnergyIndependentPowerProcurementProgram(REIPPP).Subsequently,NERSAofficiallyterminatedtheREFITs.NotasinglemegawattofpowerhadbeensignedinthetwoyearssincethelaunchoftheREFITprogramasapracticalprocurementprocesswasneverimplemented,andtherequiredcontractswerenevernegotiatedorsigned.Theabandonmentoffeed-intariffswasmetwithdismaybyanumberofrenewableenergyprojectdevelopersthathadsecuredsitesandinitiatedresourcemeasurementsandenvironmentalimpactassessments.But,itwastheseearlydeveloperswhowouldlaterbenefitfromthefirstroundofcompetitivebiddingunderREIPPPP.
FrOM FEED-IN TArIFFS TO COMPETITIvE TENDErS
Table 1: reFiT and reiPPPP PricesREFIT
(ZAR / kWh)REIPPPP
(ZAR/kWh)REIPPPP
(US c/kWh)
Technology 2009 Tariff 2011 Tariff Bid Cap Round 1 Round 1
wind 1.25 0.94 1.15 1.14 14.3
Photovoltaic 3.94 2.31 2.85 2.76 34.5
concentrated solar trough with storage 3.14 1.84 2.85 2.69 33.6
Source: Constructed by authors from Department of Energy sources.Note: 8 ZAR/USD.
FrOM FEED-IN TArIFFS TO COMPETITIvE TENDErS
9
2
GOvErNMENT DESIGN AND MANAGEMENT OF ThE rEIPPPP TENDEr PrOCESS
GOvErNMENT DESIGN AND MANAGEMENT
Government Design and Management of the rEIPPPP Tender Process
2.1 insTiTuTiOnal seTTing
REIPPPPwasimplementedagainstanhistoricalbackgroundofinstitutionalshortcomingsinthecountry’senergysector.PreviouseffortstocontractIPPshadbeenlefttoEskom,basedoninstructionsfromgovernment.7 Butalloftheseeffortsfailed,perhapsbecauseofalackofcapacityor(accordingtosomecritics)becauseofafundamentallackofincentivesforEskomtoweakenitsmonopolyonpowergeneration.REIPPPwasdifferentbecausetheDepartmentofEnergy(DOE)tookcontroloftheprogram.ButDOEalsorecognizedthat,likeEskom,ithadlittleinstitutionalcapacitytorunasophisticated,multi-project,multibillion-dollarinternationalcompetitivebiddingprocessforrenewableenergy.Asaconsequence,DOEsoughttheassistanceoftheNationalTreasury’sPublic-PrivatePartnership(PPP)Unittomanagetheprocess.AsmallteamoftechnicalstafffromDOEandthePPPUnitestablishedaprojectoffice,knownastheDOEIPPunit,whichfunctionedeffectivelyoutsideoftheformaldepartmentalstructureofnationalgovernmenttoactasafacilitatorfortheREIPPPPprocess.
2.2 The reiPPPP managemenT Team
TheREIPPPPteamwasledbyaseniormanagerfromtheNationalTreasuryPPPUnitwhohadworkedintheresinceitscreationin2000,hadhelpedestablishTreasury’srigorousPPPprojectappraisalframework,andhadbeeninvolvedwithDOE’seffortstopromoteIPPsasearlyas2007.Otherlegalandtechnicalexpertswerealsobroughtonboardandformedasmall,tightknitteam,whichwasviewedfavorablybyboththepublicandprivatesectorsasaprofessionalunitwithatrackrecordofconsiderableexpertiseinclosingPPPcontractsandareputationasproblemsolversandfacilitatorsratherthanregulators.ThiskindofcredibilityallowedtheunittoacteffectivelyasachampionoftheREIPPPPprocess.
2.3 managemenT sTyle
Largelybecausetheteamwasfamiliarwithprivatesectorinfrastructureprojects,aswellasmostofthebankers,lawyers,andconsultantsinvolvedinsuchprojectsinSouthAfrica,theunitdidnotstartoutwiththelevelofmistrustofprivatebusinessthatsometimescharacterizesothergovernmentagenciesinSouthAfrica.DialoguewithprivatesectorcounterpartsonkeyREIPPPPdesignandimplementationissuesbeganalmostimmediatelyandcontinuedthroughouttheprocess.Theprogramwasmanagedfromtheoutsetinafashionthatwastailoredtowardgeneratingenthusiasticparticipationbyprivatesectorplayers.Highstandardsweresetandmaintainedthroughoutthebiddingprocess,includingsecurityarrangementsandtransparentprocurementprocedures.Documentationwasextensive,highquality,andreadilyavailableonaspeciallydesignedprogramwebsite.Anotherfeatureoftheteam’smanagementstylethatimpressedmanyprivateplayerswastheeffortmadetomeetmostoftheprogram’sannounceddeadlines.ThedeadlinefortheRound1financialcloseslippedafewmonthsasthegovernmentfinalizedfinancialsecurityarrangements,butotherscheduledelayswereminor.ThiswasadramaticdifferencefromvirtuallyalloftheearlierIPPprogramsinthesector,andwasaclearsignaltomanyoperators,investors,andadvisorsthatthisprogramwasfocusedonresults.
Afinal,veryimportantaspectoftheprogram’smanagementstyleinvolvedtheextensiveuseofprivatedomesticandinternationaladviserstodesignandhelpmanagetheprogram,reviewbids,andincorporatelessonslearnedintotheprogramasitprogressedthroughthebidrounds(Box1).
7OneexceptionwasanearliereffortbytheDepartmentofEnergytoprocureopen-cycle,diesel-firedturbines.
10
GOvErNMENT DESIGN AND MANAGEMENT 2
2.4 PrOgram resOurces
Keyfactorsinhavingaccesstosuchhighqualityprivateadvisoryassistancewastheavailabilityoffinancialresourcestopaytheseexperts,aswellasoffices,awebsite,variousdatabases,andoneofthemostsophisticated,complicatedbiddingprocesseseverseeninAfrica.Fundingfortheprogramwasoriginallymadeavailablepursuanttoamemorandumofagreement(MOA)signedbyDOE,NationalTreasuryandtheDevelopmentBankofSouthernAfrica(DBSA).ThelatterwastoprovideashareofseniordebtontheprojectsandmakeavailableR80millionforconsultants,aprojectoffice,andcapacitybuilding.Inaddition,technicalassistancefundingwasmadeavailablebyvariousbi-lateraldonoragencies,includingthoserepresentingDenmark,Germany,SpainandtheUK.TheWorldBankhadalsopreviouslyfacilitatedaUS$6milliongrantfromtheGlobalEnvironmentFacility(GEF)foradvisoryservicesundertheRenewableEnergyMarketTransformationProject.
Bytheendof2010,ateamofconsultantswasonboardandprogramdesignwasunderway.WhenitbecameclearthattheREFITprocesscouldnotproceed,theexternaldonorsadvisedonREIPPPP’stenderprocessafterreviewinginternationaltenderprocessesinIndia,Brazil,Germany,France,Spainandelsewhere.
In2011,theNationalTreasurymadeR100millionavailable,andsomeofthiswasusedtorepaytheDBSA(althoughtheDBSAstillactsasthepaymentagentforREIPPPP).TheNationalTreasurymoneysawtheprogramthroughthefirstroundandpartofthesecond.Subsequenttothat,theprogramhasreliedonbidderregistrationfeesandfeespaidbysuccessfulIPPprojectcompanies–ontheeffectivedateoftheImplementationAgreements,successfulprojectcompaniesmustpayaprojectdevelopmentfeeofonepercentoftotalprojectcoststoa
Box 1: reiPPPP evaluation consultants
Source: Constructed by authors from DOE presentation.
inTernaTiOnal reviewersLegal:Linklaters(UK)
Technical:TonyWheelerConsulting(UK)Governance:Ernst&Young
PrOjecT managemenTSPPProjectSolutions
legal evaluaTiOnBowmanGilfillan
EdwardNathanSonnebergs(ENSafrica)LedwabaMazwaiWebberWentzel
Technical evaluaTiOnMottMacDonald
Financial evaluaTiOnErnst&Young(EY)
PWC
GOvErNMENT DESIGN AND MANAGEMENT OF ThE rEIPPPP TENDEr PrOCESS
11
GOvErNMENT DESIGN AND MANAGEMENT 2
ProjectDevelopmentFundforRenewableEnergyprojectsmanagedbyDOE.ThefundcoverscurrentandfuturecostsassociatedwithDOEprocurementofrenewableenergyandoversightoftheprogram.Thesefundingarrangementshavehelpedtheprogramremainofftheformalgovernmentbudgetinsubsequentbiddingrounds.
2.5 Tender design and Bid PrOcess
OnAugust3,2011aRequestforProposalswasissued,andthenextmonthacompulsorybidder’sconferencewasheldtoaddressquestionsonbidrequirements,documentation,powerpurchaseagreements,etc.Some300organizationsattendedthisconference.TheREIPPPPprogramenvisionedtheprocurementof3,625MWofpoweroveramaximumoffivetenderrounds.Another100MWwasreservedforsmallprojectsbelow5MWthatwereprocuredinaseparatesmallprojectsIPPprogram.Capsweresetonthetotalcapacitytobeprocuredforindividualtechnologies–thelargestallocationswereforwindandphotovoltaics,withsmalleramountsforconcentratedsolar,biomass,biogas,landfillgas,andhydro(seeTable2below).Therationaleforthesecapswastolimitthesupplytobebidoutandthereforeincreasethelevelofcompetitionamongthedifferenttechnologiesandpotentialbidders.
Thetendersfordifferenttechnologieswereheldsimultaneously.Interestedpartiescouldbidformorethanoneprojectandmorethanonetechnology.Projectshadtobelargerthan1MW,andanupperlimitwassetonbidsfordifferenttechnologies—forexample,75MWforaphotovoltaicproject,100MWforaconcentratedsolarprojectand140MWforawindproject.Capswerealsosetonthepriceforeachtechnology(atlevelsnotdissimilartoNERSA’s2009REFITs).BidswereduewithinthreemonthsofthereleaseoftheRFP,andfinancialclosewastotakeplacewithinsixmonthsaftertheannouncementofpreferredbidders.
TheRPFwasdividedintothreesectionsdetailing:1)generalrequirements,2)qualificationcriteria,and3)evaluationcriteria.ThedocumentsalsoincludedastandardPowerPurchaseAgreement(PPA),anImplementationAgreement(IA)andDirectAgreements(DA).ThePPAwastobesignedbytheIPPandEskom,theoff-taker.PPAsspecifiedthatthetransactionsshouldbedenominatedinSouthAfricaRandandthatcontractswouldhave20-yeartenuresfromCOD.TheIAsweretobesignedbytheIPPsandtheDepartmentofEnergy(DOE)andeffectivelyprovidedasovereignguaranteeofpaymenttotheIPPs,byrequiringDOEtomakegoodonthesepaymentsintheeventofanEskomdefault.TheIAalsoplacedobligationsontheIPPtodelivereconomicdevelopmenttargets.TheDAsprovidedstep-inrightsforlendersintheeventofdefault.ThePPA,IAandDAwerenon-negotiablecontractsandweredevelopedafteranextensivereviewofglobalbestpracticesandconsultationswithnumerouspublicandprivatesectoractors.Despitesomebidderreservationsregardingthelackofflexibilitytonegotiatethetermsofthevariousagreements,theoverallthoroughnessandqualityofthestandarddocumentsseemedtosatisfymostofthebiddersparticipatinginthethreerounds.
Bidswererequiredtocontaininformationontheprojectstructure,legalqualifications,land,environmental,financial,technicalandeconomicdevelopmentqualifications.Biddershadtosubmitbanklettersindicatingthatfinancingwaslocked-in–highlyunusualandbasicallyawaytooutsourceduediligencetothebanks.Effectivelythismeantthatlenderstookonahighershareofprojectdevelopmentriskandthisarrangementdealtwiththebiggestproblemwithauctions–the“low-balling”thatresultsindealsnotclosing.
Thedeveloperswereexpectedtoidentifythesitesandpayforearlydevelopmentcostsattheirownrisk.AregistrationfeeofZAR15,000(US$1,875)wasdueattheoutsetoftheprogram.Bidbondsorguaranteeshadtobeposted,equivalenttoZAR100,000(US$12,500)permegawattofnameplatecapacityoftheproposedfacilities,andtheamountwasdoubledoncepreferredbidderstatuswasannounced.8 TheguaranteesaretobereleasedoncetheprojectscomeonlineorifthebidderwasunsuccessfulaftertheRFPevaluationstage.
8AnexchangerateofZAR8/USDisusedinthebuild-uptotheREIPPPPandforRound1whenthefirstagreementsweresigned.ForRounds2and3,theexchangerateatthetimeofsigningagreementsisusedtocalculateprojectpricesandinvestmentvalues.
GOvErNMENT DESIGN AND MANAGEMENT OF ThE rEIPPPP TENDEr PrOCESS
12
GOvErNMENT DESIGN AND MANAGEMENT 2
Projectselectionwasbasedona70/30splitbetweenpriceandeconomicdevelopmentconsiderations.REIPPPPwasabletoadjustthenormalgovernment90/10splitfavoringpriceconsiderationsintheprocurementselectionprocess.AnexemptionwasobtainedfromthePublicPreferentialProcurementFrameworkActinordertomaximizeeconomicdevelopmentobjectives.
AregulatoryreviewdeterminedthattheREIPPPPwouldnotbesubjecttoNationalTreasuryRegulation16forevaluatingandapprovingpublic-privatepartnerships(PPPs).ThePPPregulationsreflectnationallegislationandareconsistentwithbestpracticeinOECDcountries.Bythesametoken,theyrequireacomplicated,time-consuming,andexpensivereviewprocessthatmustbeimplementedbyexpertconsultantsusingspecializedanalyticaltechniques(like“publicsectorcomparators”)toconfirmvalue-for-money(VFM),andmustincludewiderangingconsultationwithstakeholders,aswellasfrequentinteractionwithNationalTreasury’sPPPUnit.ThenationalPPPregulationscallfor24elaboratepreparationsteps,aswellasfour“opinions”ontheprocessissuedbyNationalTreasuryatdifferentstagesofpreparation,basedoninputsfromNationalTreasury’sPPPUnit.TheprocessisrequiredregardlessofthesizeornatureofthePPPproject,andhasbeencharacterizedbysomeprivatesectoroperatorsandinvestorsascumbersomeandslow.
ThisPPPregulatoryprocesswasnotapplicabletotheREIPPPPbecauseEskom,whichsignsthepowerpurchaseagreementswithprivateoperators,isconsideredastate-ownedenterpriseratherthanagovernmentagency,andthereforeitspurchaseofpowerisnotsubjecttoNationalTreasury’sPPPregulations(eventhoughtheprocurementprogramwasformallytheresponsibilityofDOE).InorderfortheDOEtodemonstratevalue-for-money,andtofulfilltherequirementsofClause9oftheNewGenerationRegulations,thesecondbidwindowrequestedbiddersvoluntarilytosubmittheirownargumentsdocumentingVFM.
Thetimingoftheinitialroundofbiddingwasalsoadvantageousfortheprogram.Therenewableenergysectorishighlycompetitivegiventhediversityofsources,themodularnatureofmostofthetechnologies,andthenumberofprojectdevelopers.Manufacturingofcomponentsformostrenewableenergytechnologiesinvolvesrelativelymature,existingtechnologiesandestablishedindustries.But,forseveralyearstheseindustrieshavebeenexperiencingglobalover-capacityandintensecompetitionthathasresultedinverythinprofitmargins,ifprofitsaregeneratedatall.Asaresult,theindustrycontinuestoexperienceconsolidation,theemergenceofincreasinglyverticallyintegratedsupplychains,andthesteadymovementofmanufacturingfirmsintoprojectdevelopment.Furthermore,renewableenergymarketswereindeclineinEurope,anddeveloperswerelookingfornewopportunitiesinemergingmarkets.AllofthisledtointenseinterestonthepartoftheglobalrenewableenergyindustryinREIPPPPandgrowinglevelsofcompetitionasthebiddingprogressed.
Despitefavorablemarketdynamics,therewasstillsomeconcernamongprospectivebiddersatthestartofthebiddingprocess.However,thequalityanddetailofthebiddocumentation,theclarityprovidedduringthebidder’sconference,aswellastheon-goingdialogueduringthefirsthalfof2011,seemedtoalleviatesomeofthenervousnessthathaddevelopedovertheprevioustwoyears.Investorsandoperatorsalsoparticularlylikedthestructureofthepricing,astheREIPPPPtariffcapswereatlevelssimilartotheearlierfeed-intariffs.Thefirstroundofbidswasreceivedinlate2011andtheDOEIPPunitusedagroupofinternationalandlocalexpertstoassessthebids.Manyoftheseadvisorshadbeeninvolvedintheinitialdesignprocess.Giventhescaleoftheinvestments,thecompetitionanticipated,andthereputationalriskidentified,securityandconfidentialitysurroundingtheevaluationprocesswasextremelytightwith24-hourvoiceandCCTVmonitoringofthevenue.Approximately130to150localandinternationaladvisorswereusedtodeveloptheRFPandevaluatethebidsinthefirstround,atatotalcostofapproximatelyUS$10million.
GOvErNMENT DESIGN AND MANAGEMENT OF ThE rEIPPPP TENDEr PrOCESS
13
GOvErNMENT DESIGN AND MANAGEMENT 2
2.6 Bid evaluaTiOn
Thebidevaluationinvolvedatwo-stepprocess.First,biddershadtosatisfycertainminimumthresholdrequirementsinsixareas:environment,land,commercialandlegal,economicdevelopment,financial,andtechnical.Forexample,theenvironmentalreviewexaminedapprovalswhilethelandreviewlookedattenure,leaseregistration,andproofoflanduseapplications.Commercialconsiderationsincludedtheprojectstructureandthebidders’acceptanceofthePowerPurchaseAgreement.Thefinancialreviewincludedstandardtemplatesusedfordatacollectionthatwerelinkedtoafinancialmodelusedbytheevaluators.Technicalspecificationsweresetforeachofthetechnologies.Forexample,winddeveloperswererequiredtoprovide12monthsofwinddataforthedesignatedsiteandanindependentlyverifiedgenerationforecast.Theeconomicdevelopmentrequirements,inparticular,werecomplexandgeneratedsomeconfusionamongbidders(seeadetaileddiscussionoftheserequirementsinSection5).
Bidsthatsatisfiedthethresholdrequirementsthenproceededtothesecondstepofevaluation,wherebidpricescountedfor70percentofthetotalscore,withtheremaining30percentofthescoregiventoacompositescorecoveringjobcreation,localcontent,ownership,managementcontrol,preferentialprocurement,enterprisedevelopmentandsocioeconomicdevelopment.Bidderswereaskedtoprovidetwoprices:onefullyindexedforinflationandtheotherpartiallyindexed,withthebiddersinitiallyallowedtodeterminetheproportionthatwouldbeindexed.Insubsequentrounds,floorsandcapswereinstitutedfortheproportionthatcouldbeindexed.Thebidswereevaluatedusingastandardfinancial.
GOvErNMENT DESIGN AND MANAGEMENT OF ThE rEIPPPP TENDEr PrOCESS
14
TENDErOUTCOMES3
Table 2: summarized results for reiPPPP windows 1, 2 and 3
Wind PV CSP Hydro Biomass Biogas Landfill Total
windOw 1capacity offered (mw) 1850 1450 200 75 12.5 12.5 25 3625
capacity awarded (mw) 634 631.5 150 0 0 0 0 1415.5
Projects awarded 8 18 2 0 0 0 0 28
average tariff (sac/kwh) 114 276 269 N/A N/A N/A N/A N/A
average tariff (usc/kwh) Zar8/$ 14.3 34.5 33.6
Total investment (Zar mill) 13312 23115 11365 0 0 0 0 47792
Total investment (usd mill) Zar8/$ 1664 2889 1421 5974
windOw 2capacity offered (mw) 650 450 50 75 12.5 12.5 25 1275
capacity awarded (mw) 562.5 417.1 50 14.3 0 0 0 1043.9
Projects awarded 7 9 1 2 0 0 0 19
average tariff (sac/kwh) 90 165 251 103 N/A N/A N/A N/A
average tariff (usc/kwh) Zar7.94/$ 11.3 20.8 31.6 13
Total investment (Zar mill) 10897 12048 4483 631 0 0 0 28059
Total investment (usd mill) Zar7.94/$ 1372 1517 565 79 0 0 0 3534
windOw 3capacity offered (mw) 654 401 200 121 60 12 25 1473
capacity awarded (mw) 787 435 200 0 16 0 18 1456
Projects awarded 7 6 2 0 1 0 1 17
average tariff (sac/kwh) 74 99 164 N/A 140 N/A 94 N/A
average tariff (usc/kwh) Zar9.86/r 7.5 10 16.6 14.2 9.5 N/A
Total investment (Zar mill) 16969 8145 17949 0 1061 0 288 44413
Total investment (usd mill) Zar9.86/r 1721 826 1820 108 29 4504
TOTalscapacity awarded (mw) 1984 1484 400 14 16 0 18 3915
Projects awarded 32 23 5 2 1 0 1 64
Total investment (Zar mill) 40590 42130 33797 631 1061 0 288 120263
Total investment (usd mill) 4683 5085 3806 79 108 0 29 14011
TENDEr OUTCOMES
Tender Outcomes
TheresultsofRounds1,2and3aresummarizedinTable2anddiscussedinthesectionsbelow.
Source: Constructed by the authors from DOE presentations and data provided by the DOE IPP Unit.Note 1: ZAR/USD conversions calculated at date agreements were signed in each window.Note 2: The above data is representative at the time of bidding. Contracted capacity and investment amounts changed slightly at the time of financial close. The investment data for bid Window 1 were provided by the DOE IPP Unit and differ slightly from data released in DOE presentations.
15
TENDErOUTCOMES 3
3.1 rOund 1 OuTcOmes
TheinitialresultsweresomewhatsurprisingtotheDOEIPPunit.Oneofficialnotedthattheunitthoughttheymightreceive12bidsandclosethreeprojectsduringthefirstround.Infact,theirbiggestfeargoingintotheprocesswasthatnobidswouldultimatelybeclosed.Theslowglobalmarket,tightdeadline,earlierissueswithREFIT,andtheextensivequalificationprocesswereallfactorsthatcontributedtomodestexpectationsbytheDOEIPPunit.
YetonNovember4,2011,atotalof53bidsfor2,128MWofpowergeneratingcapacitywerereceived.Theevaluationprocesstookplaceoverafour-weekperiodandpreferredbidderswereannouncedonDecember7,2011,coincidingwiththeCOP17meetinginDurban.Ultimately,28preferredbidderswereidentifiedinthefirstround,offering1,416MWforatotalinvestmentofUS$5.97billion.9 EighteenprojectsusedPVtechnology,withacapacityof632MW,whileanothertwotransactionsusedCSPtechnology,withacapacityof150MW.Eightprojectsusedwindtechnology,totaling634MW.BothSouthAfricanandinternationalsponsorsandlenderswereinvolved,althoughmostofthedebtfinancingwassourcedfromSouthAfricanbanks,withmuchofthebalancefromDevelopmentFinanceInstitutions(DFI’s).Forthemostpart,conventionalprojectfinancingwasused.SubsequenttoRound1,asecondarymarketbegantodevelop,primarilyinvolvingSouthAfricanpensionfundsandinsurancecompanies.
Forthefirstround,adeadlineofJuly2012wassetforfinancialclose,andadeadlineoftheendof2014forthecommercialoperatingdate.Thesedateswerelaterextended.Thegovernmenttooklongerthanexpectedtofinalizeitsguaranteesandlocalbanks,advisors,andotherprojectpartnerswerestretchedtothelimitwithsomanyprojectsreachingclosuresimultaneously.
MajorcontractualagreementsweresignedonNovember5,2012,withmostprojectsreachingfullfinancialclosewithintendaysafterconditionsprecedentweremet.Theprocessofclosingalltheinvestmentsonthesamedaywasusedtostandardizeandlimitforeignexchangerisk,althoughitposedsignificantchallengestothebankingsystem.ConstructiononalltheprojectsinRound1hascommenced,andthefirstprojectcameonlineinNovember2013.NineotherprojectswerescheduledtobeginoperationduringMarch2014andtheremainingschemesareexpectedtobeonlinebyMarch2015.
Althoughbidderscouldnotknowforcertainthetotalcapacitythatwouldbebid,theylikelyrecognizedthatthetightdeadlinesandchallengingthresholdqualificationcriteriawouldresultinlesscapacitybeingbidthanwasmadeavailableinRound1.Accordingly,thepricesbidweremostlyunaffectedbycompetitivelimitationsandonlymarginallybelowthecapsspecifiedintherequestforproposals.Highpriceswerealsodrivenbyhighinitialtransactioncostsandpossiblepolicyuncertainty.Table1(inSection1,above)comparespricesbidinRound1withthetendercapsandthepreviousREFITtariffs.
3.2 rOund 2 OuTcOmes
Round2wasannouncedinNovember2011andmadeuseofthesameRequestforProposalsusedinRound1.However,thetotalamountofpowertobeprocuredwasdroppedto1,275MWinordertostimulateadditionalcompetition.Byreducingtheamountofpowersought,theDOEIPPunithopedtomaketheprocessmorecompetitive.Interestingly,thepricecapsremainedatthesamelevel,althoughthenewRFPstatedthatthegovernmentexpectedpricestofallandwasconsideringloweringthepricecapsinthethirdround.Therationalewasbasedonananalysisofworldwidepricesandimprovementsintechnology.Otherchangesincludedaceilingforthepartialindexingandstricterrulesregardingpricingoflocalcontent.
9DOEpresentationsrefertoinvestmentofR5.75bninWindow3,buttheIPPunithasupdatedthisfigure.
TENDEr OUTCOMES
16
TENDErOUTCOMES3
Atotalof79bidswerereceivedinRound2,nearlya50percentincreaseoverRound1despitethesignificantdropinthecapacityoffered.ThebidswerereceivedonMarch5,2012andtotaled323310 MW.Again,ateamoflocalandinternationalexpertswasusedtoevaluatethetendersandagainthereviewprocesswasheldinasecurelocationwith24-hoursurveillance.UnlikeRound1however,amoresophisticatedsystemwasusedtorecordandtrackthebiddingdocumentstoincreasesecurityandimproveefficiency.Fifty-oneprojectsmetthequalifyingcriteria.ThepreferredbidderswereannouncedonMay21,2012.Atotalof19bidswereselectedinRound2,including9solarPVprojects,7windprojects,2smallhydroprojectsandoneconcentratedsolarproject.
WindandsolarPVpricesinthesecondroundweremuchmorecompetitive,fallingonaverageby20percentforwindand40percentforPV(Table2).Therangeofpricesbidwasalsowider,withpricesvaryingfrom10.2to11.4USc/kWhforwind,andfrom17.6to22.4USc/kWhforphotovoltaic.Thepriceforconcentratedsolarfellby7percentto32USc/kWh,withonepreferredbiddertakinguptheremainingavailablecapacity.Therewaslittlecompetitioninsmallhydro,withonlytwoqualifyingbids,bothatthecappedpriceof13USc/kWh.
TheRound2preferredbiddersalsoofferedbetterlocalcontentterms(partlyinresponsetohighertargetsinthebiddocuments),withaveragelocalcontentrisingfrom38.4percentto53.4percentforsolarPV,from27.4percentto48.1percentforwind,andfrom34.6percentto43.8percentforconcentratedsolar.11 ThedeadlineforfinancialcloseforRound2wasextendedfromtheendof2012toMay9,2013whencontractsweresignedforall19projects.Accordingtogovernmentofficials,theresultsofRound2–particularlythelowerpricesandbetterlocalcontentterms–effectivelysavedthereputationoftheprogramandsuggestedtosomeofficialsthatcompetitivetendersmightbeawaytoachievesignificantlylowerpricesthanFITs.
3.3 rOund 3 OuTcOmes
TheprocurementdocumentsforRound3werereleasedonMay3,2013andwereagainbasedonthoseusedinpreviousrounds,butwithfurtherrefinements.Thetotalcapacityonofferwasrestrictedto1473MW,withindividualcapacitycapsfordifferenttechnologies.Themaximumsizeofindividual,smallhydroplantswasincreasedfrom10MWto40MW.Pricecapswereadjusted:windenergywasdroppedfrom115to100c/kWh,PVfrom285to140c/kWh,CSP’sbasepriceto165c/kWh,andsmallhydrofrom103to85c/kWh.AlaterbidnotescrappedpricecapsforbothPVandWindandincreasedthesmallhydrocapto106c/kWh.Biomassandlandfillgasenergypricecapswereadjustedupwardsto140and94c/kWhrespectively(allSouthAfricancents).Onceagain,bidderscouldofferfullyindexedorpartiallyindexedprices.Thepartiallyindexedportioncouldnotbelessthan20percentofthepriceandnotmorethan50percent.Bidpricesweretobeadjustedatfinancialclosebythedifferencebetweentheforeignexchangeratesusedinthefinancialmodelsatthetimeofbidsubmissionandtheratesreflectedinthespotpricesatthedateoffinancialclose.Evaluationwasagainconductedunderstrictsecurityconditionswithsignificanteffortspaidtoensuringatransparentprocess.Allfirmsandindividualsinvolvedintheevaluationprocesshadtomakedeclarationsofinterest.Independentreviewteamsscrutinizedreportspreparedbyevaluators,andanindependentgovernancereviewteamreviewedtheoverallprocess.
OnAugust19,2013,93bidswerereceivedtotaling6023MW.SeventeenpreferredbidderswerenotifiedonOctober29,2013.Theirbidstotaled1456MWandincluded787MWwindenergy,435MWPV,200MWCSP,18MWoflandfillgas,and16MWofbiomassenergy.PricesfellfurtherinRound3.SolarPVfellby68percentcomparedtoRound1,andwindenergyby42percent.CSPalsofell,although
10TheDOEannouncedafigureof3255MW,buttheDOEIPPUnitdatabaserecords3233MW.11ThisdatadiffersfromthatincludedinsomeDOEpublicpresentationsandincludesmoreaccuratedatacalculatedbytheDOEIPPunit.ThiscalculationisdonebyaggregatingtheTotalProjectValueforalltheprojectsinabidwindowforthatspecifictechnologyanddividingitbytheaggregateoftheLocalContentforalltheprojectsinabidwindowforthatspecifictechnology.AlsoimportanttonotethattheTotalProjectValueisthetermdefinedbytheEDteamintheIAandisusedasopposedtotheTotalProjectCost,whichisthetotaldebtandequityrequiredtofundtheproject.Thetwotermsandamountsarenotthesame.
TENDEr OUTCOMES
17
TENDErOUTCOMES 3
Round3hadanewtariffsystem(basepricesweretobepayablefor12hourseverydayand270percentofthebasepricepayableforfivepeakhourseveryday).Round3bidpricesforCSParethusnotdirectlycomparablewiththoseinRounds1and2.LocalcontentincreasedmarginallyforsolarPVfrom53.4percentinRound2to53.8percentinRound3andforCSPfrom43.8percentto44.3percent.Localcontentforwindenergyactuallydeclinedslightlyfrom48.1percentinRound2to46.9percentinRound3.
FinancialcloseforRound3wassetforJuly30,2014andprojectshadtoreachthecommercialoperationdate(COD)withinfouryearsofthebidsubmissiondate,i.e.,bytheendof2017exceptforCSPprojects,whichwererequiredtobeoperationalbytheendof2018.
3.4 Plans FOr rOund 4
Asnotedabove,theREIPPPPprogramhasbeenimplementedpursuanttotheIRP2010-30andauthorizedthroughtwoministerialdeterminationsspecifyingtheneededamountofnewrenewablepowergeneration(3725MWand3200MW).AfterRound3,2808MWstillremainedtobeallocatedcomprising1041MWofsolarPV,1336MWofwind,200MWofsolarCSP,121MWofsmallhydroand110MWofbiomass,biogasandlandfillgas.Round4tendersareplannedforAugust2014.
3.5 rOunds 1-3: cOmPeTiTiOn and Pricing
Asalreadynoted,Round1attracted28qualifyingbids,butinvestorsbidforfewermegawattsthanwereactuallybeingoffered.Biddersrealizedthattherewouldbealimitednumberofprojectsthatwouldbereadyintimetomeetthequalifyingcriteria,andthus,bidswereclosetothepricecaps.Biddersassumedthateventhoughtheirpriceproposalswerehigh,thelackofcompetitionmeantthatitwasunlikelythattheirbidswouldberejected.
Lesscapacitywasmadeavailableinsubsequenttenderroundsandcompetitionincreaseddramatically,bothinthenumberofbidsandthosethatmetandexceededthequalificationhurdles.Asresult,pricesfellsignificantly–assummarizedinTable3below.
TENDEr OUTCOMES
Round 1 Round 2 Round 3
wind 114.3 89.7 65.6
reduction from previous round -21.5% -26.9%
Total reduction from round 1 -42.6%
solar Pv 275.8 164.5 88.1
reduction from previous round -40.4% -46.4%
Total reduction from round 1 -68.1%
concentrated solar power 268.6 251.2 146.0*
reduction from previous round -6.5% -41.9%
reduction from previous round -45.6%
*The price structure for CSP in Round 3 was different to Rounds 1 and 2 and included a peak tariff 270% of the base price.Source: Constructed by authors from Department of Energy presentations.
Table 3: reiPPPP average Bid Prices, 2011 values (sac/kw)
18
TENDErOUTCOMES3
RealreturnstoequityinRound1wereclosetothe17percent(inlocalcurrency)thatwasenvisagedindeterminingtheoriginalfeed-intariffs.Equityreturnsdippedslightlyinroundtwoforwindandprobablymoresubstantiallyforphotovoltaic.Dollarreturnsintherangeof12–13percentwerereported.ReturnsfellfurtherinRound3,especiallyforsomeofthecorporatefundedprojects.
IncreasedcompetitionwasnodoubtthemaindriverforpricesfallinginRounds2and3.But,therewereotherfactorsaswell.Internationalpricesforrenewableenergyequipmenthavedeclinedoverthepastfewyearsduetoaglutinmanufacturingcapacity,aswellasongoinginnovationandeconomiesofscale.REIPPPPwaswellpositionedtocapitalizeontheseglobalfactors.Transactioncostswerealsolowerinsubsequentrounds,asmanyoftheprojectsponsorsandlendersbecamefamiliarwiththeREIPPPPtenderspecificationsandrequirements.
TENDEr OUTCOMES
19
KEy PrIvATE SECTOr ACTOrS 4
KEy PrIvATE SECTOr ACTOrS
Key Private Sector Actors
4.1 PrOjecT sPOnsOrs
ThefirstthreeREIPPPPbidroundsattractedawidevarietyofinternationalprojectdevelopers,sponsorsandequityshareholders.The64successfulprojectsincorporatemorethan100differentshareholderentities,46ofwhichparticipatedinmorethanoneprojectand25inthreeormoreprojects.Figure2showsshareholderswiththreeormoreprojects.ProminentequityplayershavebeentheinsurancecompanyOldMutual,bankssuchasStandardBankofSouthAfricaandtheIndustrialDevelopmentCorporation,specialistfundssuchasAfricaInfrastructureInvestmentFund,andsponsorssuchasMainstream,Mulilo,andThebe.AnItalianutility,EnelGreenPower,wasprominentinRound3with6successfulprojects.
4.2 Financiers
Fifty-sixofthe64projectsinRounds1,2,and3havebeenprojectfinanced.OneprojectinRound1(TouwsrivierSolarPark)issuedacorporatebondvaluedatZAR1billionandasmallhydroproject(Stortemelk)wasinitiallycorporatefinanced,butisnowbeingrefinancedthroughdebt.Sixprojectsoutof17inRound3werecorporatefinanced,allbytheItalianutility,Enel(whichhadbeenunsuccessfulinpreviousrounds).ReportsindicatethatreturnonequityforthecorporatefundedprojectsinRound3waslow.ThistrendtowardcorporatefinancinginREIPPPPmayormaynotcontinue,butitislikelythatmoreinternationalutilitieswillbeinterestedinenteringtheSouthAfricarenewableenergymarket,especiallyEuropeanutilitiesthatarestrugglingtogrowmarketshareintheirhomemarkets.
Figure 2: Prominent shareholders in reiPPPP windows 1, 2 & 3
OldMutualID
CDEGFM
OEn
elM
ainstr
eam
Mulilo
Thebe
Standard
Bank
AIIF
Bioterm/B
TSAEv
olutionO
neGen
esis
Gestam
pGlobele
qInnow
indPIC
Scac
tecSo
larIntik
onKuris
ani
Solar
Reserv
e
18161412108642
no.o
fpro
ject
spe
rsha
reho
lder
Source: Authors’ calculations.
20
KEy PrIvATE SECTOr ACTOrS4
Onaverage,acrossthethreerounds,approximatelytwo-thirdsoffundinghasbeendebt,withthehighestproportioninRound2andthelowestinRound3.Afurtherquarterhasbeenfundedfrompureequityandshareholderloans,withtheremainingfromcorporatefinance.Themajority,64percent,ofdebtfundinghasbeenfromcommercialbanks(ZAR57bn)withthebalancefromDFIs(ZAR27.8bn),andpensionandinsurancefunds(ZAR4.7bn).Eighty-sixpercentofdebthasbeenraisedfromwithinSouthAfrica.12
ThefivelargeSouthAfricancommercialbanks–Standard,Nedbank,ABSA,RMB,andInvestec–havedominatedREIPPPPlending.TheirrelativeshareofcommercialandoveralldebtfinancingisshowninFigure4below.Nedbankhasbeeninvolvedinthemostprojects(23)followedbyStandard(17),ABSA(14),RMB/FirstRand(11)andInvestec(4).Thesebankshaveallplayedleaddebtarrangingroles,althoughnotforalldeals,andinanumberofprojects,havealsoparticipatedasco-seniorlendersorasprovidersofsubordinatedmezzaninedebt.Debttenorsarearound15to17years(fromCOD)andspreadsoverJIBARarebetween310to400points(riskpremium250,liquidity120,andstatuarycosts30points).NedbankandABSA,betweenthem,wereinvolvedinthemajorityofprojectsinRound3.Someprojectsponsorshavecomplainedthattherehasnotbeenenoughcompetitionbetweenthebanks,andpremiumshavenotfallenasmuchaswouldhavebeenexpectedasbanksbecamemorefamiliarandcomfortablewiththeREIPPPPprocess.
12TheDevelopmentBankofSouthernAfrica,locatedinJohannesburg,hasbeenclassifiedaslocalinthisanalysis
Commercial Lenders 64% South African 86%Life Funds 5%
DFIs 31% International 14%
Figure 3: share of debt Financing in reiPPPP rounds 1, 2 & 3
Source: Authors’ calculations.
KEy PrIvATE SECTOr ACTOrS
21
KEy PrIvATE SECTOr ACTOrS 4
KEy PrIvATE SECTOr ACTOrS
ZAR 18
ZAR 16
Billio
ns
Nedbank
Stand
ard
Invest
ec
Old Mutu
al
ZAR 14
ZAR 12
ZAR 10
ZAR 8
ZAR 6
ZAR 4
ZAR 2
ZAR 0
Window 1
RMB
IDCABSA
DBSA
EKF
IFC Rest
Window 2 Window 3
Figure 4: share of initial debt Providers in reiPPPP
Source: Authors’ calculations from the time of financial close. Some debt has subsequently been syndicated to other banks or funds.Note: The “rest” category includes OPIC, AfDB, Liberty Group, ACWA, EIB, Sanlam, FMO, PROPARCO and Sumitomo.
RemaininglocaldebtfundinghascomefromtheIndustrialDevelopmentCorporation(IDC)andtheDevelopmentBankofSouthernAfrica(DBSA).TheIDCparticipatedin20dealsandtheDBSAin16deals,mostlyinarrangingvendorfinancingforblackeconomicempowermentandcommunityparticipation(Figure5).
AnotherfeatureoflocalfinancinghasbeentheinvolvementofinsuranceandpensionfundsasOldMutual,Sanlam,andLibertyhaveallbeeninvolved.OldMutualhasalsoparticipatedthroughitsIdeasFund,aswellasitsmajority-ownedspecialistinvestmentfund,FutureGrowth,andindirectlythroughAfricanCleanEnergyDevelopments(AECD),whichisajointventurebetweenAfricaInfrastructureInvestmentManagers(inturnajointventurebetweenMacquarieAfricaandOldMutual)andAFPOC(aMauritian-registeredcompany).ItisexpectedthatcommercialbankswillselldownmoreoftheirdebttothesesecondarycapitalmarketsandpositionthemselvesforongoingdebtexposureinfutureREIPPPProunds.
InternationalDFIsthathavebeeninvolvedhaveincludedtheInternationalFinanceCorporation(IFC)andtheDanishExportCreditagency(EKF)withthreeprojectseach,andtheNetherlandsDevelopmentFinanceCompany(FMO),theAfricanDevelopmentBank(AfDB),EuropeanInvestmentBank(EIB)andtheOverseasPrivateInvestmentCorporation(OPIC),withoneprojecteach.
22
KEy PrIvATE SECTOr ACTOrS4
no. o
f pro
jects
per
lend
er
Nedbank IDC
25
20
15
10
5
0
Stand
ard Bank DBSA
ABSAFir
st Rand
Old Mutu
al...
Invest
ec EKF
Intern
ation
al Fina
nce...
Libert
y Grou
p Limite
d
Sanlam
Capita
l Mark
ets
Figure 5: major debt Providers in reiPPPP rounds 1, 2 & 3
Source: Authors’ calculations.
4.3 engineering, PrOcuremenT and cOnsTrucTiOn (ePc) cOnTracTOrs and equiPmenT suPPliers
Forty-nineEPCcontractorshavebeeninvolvedinthe64projectsduringthefirstthreeroundsofREIPPPP,themajorityinmorethanoneprojecteitherastheprimaryorsecondarycontractor.ProminentEPCcontractorswiththreeormoreprojectsincludeVestas(Danish),Acciona(Spanish),ConsolidatedPowerProjects(SouthAfrican),GroupFiveConstruction(SouthAfrican),JuwiRenewableEnergies(German),MurrayandRoberts(SouthAfrica),Abengoa(Spanish),ACSCobra(Spanish),IberdrolaEngineeringandConstruction(Spanish),NordexEnergy(Germany),Scatec(Norwegian),Suzlon(India),andTemiEnergia(Italian).ManyoftheseEPCcontractorshavesetupsubsidiarycompaniesinSouthAfrica.
ThemainsuppliersofwindturbinesandPVequipmentareshowninFigure6.WindturbinesuppliershaveincludedVestas,Siemens,Nordex,ABB,Guodian,andSuzlon,i.e.,mainlyEuropeancompaniesandaChineseandanIndiancompany.MainPVsuppliershavebeenSiemens,SMASolarTech,BYDShanghai,HanwhaSolar,3Sun,AEGandABB:i.e.,European,Chinese,andKoreanmanufacturers.Alocalmanufacturingfacility,DCDWindTowers,hasbeenestablishedattheCoegaIndustrialDevelopmentZoneintheEasternCape.AtleastfivePVpanelassemblyplantshavebeenestablishedinSouthAfricaoverthelastfewyears,andsomeofinternationalsuppliershaveusedthesetoachievelocalizationtargets.
KEy PrIvATE SECTOr ACTOrS
23
KEy PrIvATE SECTOr ACTOrS 4
KEy PrIvATE SECTOr ACTOrS
no. o
f con
tract
s per
supp
lier
14
12
10
8
6
4
2
0
PV Wind
Siemens
SMA So
lar Tech
Vestas
BYD Shang
hai In
dustria
l...Hanw
a Sola
r
3Sun S
rlABB So
uth Afric
aAEG
Power
Solut
ions
Nordex
AEG Pow
er So
lution
s
Figure 6: main wind and Pv equipment suppliers in reiPPPP rounds 1, 2 & 3
Source: Authors’ calculations.
24
TrADE-OFFS5
Trade-Offs Between Prices And Economic Development Outcomes
5.1 ecOnOmic develOPmenT requiremenTs
AmongREIPPPPbidders,themostcontroversialaspectoftheprogramhasbeenitsstrongrelianceonnon-pricefactorsinbidevaluation.Thesefactors,organizedinbiddocumentsundertheheadingof“economicdevelopmentrequirements”aredesignedtoincentivizebidderstopromotejobgrowth,domesticindustrialization,communitydevelopment,andblackeconomicempowerment.Accountingfor30percentoftotalbidvalue,economicandsocialdevelopmenthasplayedamuchstrongerroleintheREIPPPprocurementprocessthannon-pricecriteriaarenormallyrequiredtoplaypursuanttotheSouthAfricangovernment’spreferentialprocurementpolicy.
Theserequirementswerecontroversialforseveralreasons:manyinternationalbiddersfeltthatthesefactorsweretoodemandingandplayedtoosubstantialaroleinbidvaluation,whiledomesticparticipants,backedbySouthAfricantradeunions,thoughttherequirementswerenotdemandingenough.Biddersofallkindsseemtohavebeenconfusedbysomeofthecriteria,especiallythosethatcalledforlocaleconomicdevelopmentplanstobepartofthebids.However,noguidanceonhowsuchplansweretobepreparedorhowtheywouldbeevaluatedwasinitiallyprovided.Also,astheprocessproceededthroughthreeroundsofbidding,someoftheeconomicdevelopmentrequirementsbecamemoreonerous,seeminglyinresponsetocomplaintsbylocalstakeholders,ratherthanasaresultofeconomicanalysisorfollowingconsultationwithbidders.Furtherchangesinsomeofthecriteriabecamethesubjectofrumorandspeculation,especiallybetweenRounds2and3,makingitdifficultforcompaniestopreparetheirproposalsgiventhetighttimefamesbetweenbidrounds.Perhapsmostimportant,REIPPPP’selaboratesystemforpenalizingandrewardingcontractorperformanceagainsteconomicdevelopmentcommitmentsbegsthequestionofwhatresourceswillbeavailabletocarryoutperformancemonitoring,makedecisionsregardingperformancepenalties,andresolverelateddisputes.
ThefocusofREIPPPPonlocalcontent,bothdefactoanddejure,hasbeensignificantlydifferentfromthatrequiredunderexistingframeworkslikethePreferentialProcurementPolicyFrameworkAct(PPPFA),promulgatedin2000,ortheBroad-BasedBlackEconomicEmpowerment(BBBEE)Actof2003withitsCodesofGoodPracticepublishedin2007.AnexemptionwasgrantedfromthePPPFA’srequirementthat90percentofthebidscorebeallocatedtopricewiththeremaining10percentallocatedtocompliancewithpreferencecategories(orthe80/20splitforsmallercontracts).Instead,REIPPPPdividesbidscoringona70/30basis,withtheformerallocatedtopriceandthelattertonon-price“economicdevelopment”criteria.
IncontrasttoBBBEE,REIPPPPemphasizesblackjobcreationoverblackownership,andreclassifiesenterpriseandsocio-economicdevelopmentaslocalcommunitydevelopmenttargetsratherthanBEEtargets.Overall,REIPPPPtargetseconomy-widejobs,localcontentbenefits,andlocalcommunitydevelopmentoverBEE.Appendix3showstheextenttowhichREIPPPP’seconomicdevelopmentcategoriesservetraditionalSouthAfricansocio-economicobjectiveslikeBEE.
ThesedeparturesfromexistinglocalcontentrequirementssuggestthatgovernmentofficialsviewREIPPPPasaprogramthat,inthewordsofthefirstRFP,“isinherentlyexcellentforachievingpositivesocio-economicoutcomes”(RSA,3Aug.2011,p.11).Governmentofficialsclearlyseeapotentialtoboostlocalmanufacturinginasectorthatiscompletelyunderdevelopedinthecountry.Becauseofthedistributednatureofrenewableenergygeneration,projectsitesofferanunusuallyintensebusinessfocusonruralareasthatotherwisemayhavelittlepotentialtoattractinvestment.
LocaleconomicdevelopmentconcernstakeavarietyofformsintheREIPPPPbidprocess,notallofwhichareincludedinRFPvolumeson“EconomicDevelopment.”Forexample,the“Qualification”sectionsoftheRFPsnotethatinordertobebidcompliant,allprojects
TrADE-OFFS BETWEEN PrICES AND ECONOMIC DEvELOPMENT OUTCOMES
25
TrADE-OFFS 5
musthaveSouthAfrican“entity”participationofatleast40percent.13 OthersectionsoftheRFPthatcallonbidderstosubmitreviewsoftheirfinancialmodelsdonebyprofessionalmodelauditors,requirethattheauditletterconfirmthatnomorethan60percentofprojectcapitalinvestmentconsistsofforeigncurrency.
ButthemainpresentationsofthesekindsofrequirementsareincludedinRFPvolumesonEconomicDevelopment.Appendix4oftheRFPshowshowthescoringcategoriesaretobemeasured,andindicates“thresholds”and“targets”for“onshorewind,”oneofthesevenrenewableenergycategoriescoveredbyREIPPPP.Meetingthethresholdlevelsimplymeansthatabidisminimallycompliant.Pointsarescoredbythebidforthesecategoriesiftheprojectexceedsthethresholdlevels(inRound1,tenpointswereawardedforachievementbetweenthresholdandtargetlevels,andanadditionalscoreoftenpointsforachievementsabovethetargetlevel).
Bidderswererequiredtosubmitvariouskindsofdocumentationtosubstantiatetheireconomicdevelopmentcommitmentsincluding:
• Acompleted“economicdevelopmentscorecard”(thetemplatewassuppliedwithbiddocuments)thatscoresbiddereconomicdevelopmentperformanceagainstgovernmenttargets
• Variouskindsofdocumentationtoconfirmcompliance,includingorganizationcharts,employeeinformation,shareholdercertificatesandagreements,etc.
• Aneconomicdevelopmentplanthat,amongotherthings,identifiesthesocio-economicneedsofthecommunitiessurroundingtheprojectsiteandoffersastrategyformeetingthoseneedswithgrantfunding14
• Areportingplan(requiredatfinancialclose)thatbreaksdowntheeconomicdevelopmentobligationsintoquarterlysegmentsoverthelifetimeofeach20-yearproject,alongwithquantitativemeasuresfortheobligationstoallowformonitoringandevaluationbygovernment
ThestandardImplementationAgreements(IAs)includedinRFPpackagesforeventualsignaturebyDOEandthewinningbidders,layoutanelaboratesystemofperformancerewardsandpenaltiesbasedonthequarterlyreportingbycontractors.PerformanceagainsteacheconomicdevelopmentcommitmentismeasuredusingformulasincludedinascheduletotheIA.Performancecreditsorpenaltiesaredeterminedquarterlyforeachsubcomponent,thenaddedtogetherattheendofthemeasurementperiod(theconstructionperiodandeach12-monthperiodthereafter).ThisdetermineswhetherornotthecontractorowesDOEpenaltypaymentsforunder-performanceduringtheperiod(Over-performanceisusedonlytooff-setunder-performance.DOEdoesnotmakeperformancepaymentstocontractors).Inaddition,under-performanceduringaquartercanresultin“terminationpoints”ifperformancescoresbelowdesignatedthresholdsintheIA.Ifcontractorsdonotrespondinasatisfactorywaytocorrectthecauseofeachterminationpoint,thepointsareaddedtogetherattheendofthemeasurementperiod.Ifthetotalexceedsdesignatedthresholds,DOEisentitledtoterminatetheagreement.Inkeepingwithwhatappearstobeacomplexandlabor-intensivesystemofperformancemeasurement,DOEreservestherighttohireindependentverificationexperts,knownas“EconomicDevelopmentIndependentMonitors,”whowillcheckcontractorreportingandconfirmcontractorcompliancewitheconomicdevelopmentcommitments.
13SouthAfrican“entities”mustbebasedandregisteredinSouthAfrica,andinvolveshareholdingbySouthAfricancitizens.14TheeconomicdevelopmentplanwaspartofthebidrequirementinWindows1and2,butwasonlyrequiredatfinancialcloseinWindow3.
TrADE-OFFS BETWEEN PrICES AND ECONOMIC DEvELOPMENT OUTCOMES
26
TrADE-OFFS5
TrADE-OFFS BETWEEN PrICES AND ECONOMIC DEvELOPMENT OUTCOMES
Technology First Bid Second Bid Third Bid
Threshold Target ActualBid Threshold Target ActualBid Threshold Target ActualBid
Onshore wind 25% 45% 27.4% 25% 60% 48.1% 40% 65% 46.9%
solar Pv 35% 50% 38.4% 35% 60% 53.4% 45% 65% 53.8%
solar csP 35% 50% 34.6% 35% 60% 43.8% 45% 65% 44.3%
Biomass 25% 45% Nobids 25% 60% Nobids 40% 65% 40%
Biogas 25% 45% Nobids 25% 60% Nobids 40% 65% Nobids
landfill gas 25% 45% Nobids 25% 60% Nobids 40% 65% 41.9%
small hydro 25% 45% Nobids 25% 60% Nobids 40% 65% Nobids
Table 4: reiPPPP local content scoring requirements and results
Source: Constructed by the authors from DOE IPP unit data (note: differs from data in DOE presentations).
REIPPPPwarnedthatoneeconomicdevelopmentcategory–localcontent–wouldhaveitsthresholdsandtargetsrevisedupwardsovertime,asmanufacturingcapacityincreasedinthecountry.BelowisasummaryoftheLocalContentScoringRequirementsandtheresults.
Localcontentrequirementsalsounderwentotherchangesasthebiddingprogressedthroughthethreerounds.InRound1,“localcontent”wasdefinedtomeanthetotalcostsattributedtoeachprojectattheCommercialOperationDate,excludingfinancecharges,land,andmobilizationfeesoftheOperationsContractor.InRound2,thedefinitionwasrefinedsothattotalcostswerelimitedtospendingonSouthAfricansandSouthAfricanproducts.Theexclusionswereexpandedtocoverimportedgoodsandservices,aswellasfinancecharges,landandmobilizationfees.
Round2alsoincludedarequirementthatbiddersprovidemoredetailedinformationontheirlocalcontentplans.Theyweretoldtoprovideabreakdownofthecomponentsandactivitiestobeundertakeninordertoachievethecommittedlocalcontentfigures.UsingatemplateprovidedintheRFP,thebreakdownwastobeusedtoidentifythecomponentsrelatedtoEPCcontractsandnon-EPCcomponents,theper-centageoflocalcontentforeach,alongwiththecostfiguresreflectedbythepercentages.
Finally,Round2alsoidentifiedcomponentsthathadbeenearmarkedbythegovernmentasprioritiesformanufacturinginSouthAfrica.Theseincluded:
•Windturbinebladesandtowers•PVmodules•PVinverters•ThemetalstructuresusedinPVplants
27
TrADE-OFFS 5
DOEdidnotactuallychangeitsscoringmetricstoreflecttheseprioritycomponentsandindicatedthata“...gradualrolloutmaybeneces-saryinordertobuildmanufacturingcapacityinSouthAfrica”(RSA,Feb.1,2012).Nevertheless,thedepartmentmadeitclearthatfuturebidroundswouldfocusontheseprioritycomponentswiththeexpectationthateventuallytheywouldallbemanufacturedinthecountry.
InRound3,thedefinitionoflocalcontentwasfurtherrefined.Ontheonehand,costsincurredbytheprivatecompanyinconnectingtodistributionand/ortransmissionsystemswerenowexcludedfromthedefinition.Ontheotherhand,allraworunworkedsteelandalumi-numusedinthelocalmanufactureofcomponentsweredeemedlocallysourcedforthepurposesofcalculatinglocalcontent.ThischangereflectedtheDepartmentofTradeandIndustry’sdesiretoencouragelocalmanufacturersofcomponents(e.g.,windturbinetowersandsolarPVmountingstructures)tokeeptheircostsascompetitiveaspossiblebyseekingthebestpricesgloballyforprimarysteelandaluminum
Round3bidderswerealsorequiredtoprovideamoredetailedbreakdownofrelevantcoststhanhadbeenrequiredinearlierrounds,andtodifferentiatebetweencostsassociatedwith“keycomponentsandorequipment”(identifiedintheRFP)ontheonehand,andcostsfor“balanceofplant”ontheother.Keycomponentsincludedtheearmarkedcomponentslistedabove,plus18additionalcomponentsacrossthetargetedtechnologies.
Thescoringofeconomicdevelopmentcriteriaalsochangedinlaterrounds.DOEwantedtoincentivizecompliantbidderstomakecommit-mentsthatwereashighaspossible.Nopointswereawardedforcommitmentsuptoorequaltothethresholdlevel.Thecompliantbidderthatofferedthehighestcommitmentinrespectofaspecificeconomicdevelopmentsub-elementwasnowawardedfullpointsforthatsub-element,providedthatthiscommitmentwasabovethetargetlevel.Othercompliantbidderswereawardedpoints,inproportion,basedontheirpositionbetweenthehighestcompliantbidderandthethresholdlevel,orzeroifnothresholdlevelwasset.
Table5showsDOE’scalculationsofthenumbersofjobsandlocalcontentpercentagescreatedbydifferenttechnologiesinthedifferentrounds.Nodoubttheresultswereinfluencedbytheamountofenergybeingprocuredineachroundbutthecomparisonsdoillustratetheevolutionoftheeconomicdevelopmentoutcomes.
TrADE-OFFS BETWEEN PrICES AND ECONOMIC DEvELOPMENT OUTCOMES
Technology Round 1 Round 2 Round 3
solar Pv
local content % 38.4 53.4 53.8
local construction jobs 2381 2270 2119
local operations jobs 6117 3809 7513
wind energy
local content % 27.4 48.1 46.9
local construction jobs 1810 1787 2612
local operations jobs 2461 2238 8506
concentrated solar power
local content % 34.6 43.8 44.3
local construction jobs 1883 1164 3082
local operations jobs 1382 1180 1730
Table 5: reiPPPP economic development Outcomes
Source: Constructed by authors from DOE IPP unit data (note differs from DOE presentations).
28
TrADE-OFFS5
5.2 ecOnOmic develOPmenT: criTicism and cOnTrOversy
Local,aswellasinternationalstakeholdershavefavorablyreceivedmanyaspectsofREIPPPP.Buttheuseoflocalcontentrequirementsseemstohavegeneratedconsiderablecriticismandcontroversy.Thefollowingsectionsreviewsomeoftheseissues.15
5.2.1 jOB creaTiOn
AsTable5shows,thePV,windandCSPprojectsinRounds1,2and3promisetogenerateapproximately20,000temporaryconstructionjobsandapproximately35,000operationsjobs.16 Ifthesefiguresareaccurate,theyreflectaconsiderableachievement,butperhapsnotenoughtomeetallofthestakeholderexpectationsregardingjobcreationbyREIPPPP.Italsomaybethecasethatthecombinationofalloftheeconomicdevelopmentrequirementsmaybecounter-productivewhenitcomestojobcreation.Forexample,localcontentrequire-mentsarespecifiedinvalueterms,butthehighestvalueelementsofthemanufacturingandconstructionchainarenotalways,andperhapsseldom,associatedwiththosepartsthatyieldthemostjobs.Thereappearstobeconsiderablepotentialtorefinelocalcontentrequirementssothattheymaximizejobcreation,ifthatistheintent.
5.2.2 OwnershiP and jOBs vs. caPaciTy Building
SouthAfricanownershipandmanagementcontrolandjobsforSouthAfricanscombinetoaccountfor45percentofthenon-pricevalueofbids.Buttheinternationalexperiencewiththesekindsofrequirementssuggeststhatthiskindoffocusmaybemisdirected.Oneinternationalreviewofsuchrequirementsdescribesthe“primarylesson”frombestpracticeintermsoftheneedtofocusonlocalcapacitybuildinganddomesticvalue-addition,regardlessofthenationalityofthefirms,employees,orinvestors(WTI,2013).Localownershipmaybedesirable,butitisnotthesamethingascapacitybuilding,whichinvolvesthedevelopmentofmanagerial,technicalandoperationalskillsinnationalfirmsandthedomesticlaborforce.Andtoachievethehighestlevelofindustrialcapacitybuilding,policymakersmustfocusinacoordinatedwayonbasicpolicydeficienciesaffectinginfrastructuredevelopment,trade/industrialpolicy,andskillsdevelopmentandtransfer.Otherwise,theserequirementsbecomelittlemorethanadditionalcostsforforeignoperatorsandtheendusers.
5.2.3 manuFacTuring
LocalcontentrequirementsforRound3hadtheeffectofmakingfirmsmoveawayfromsimplysourcinglocalmaterials,forelementslikesupportstructures,towardtheestablishmentoflocalmanufacturingcapacityforhighvaluecomponentslikewindturbinesandblades.Butseveralissuesmakethisparticularlyriskyforcompetingfirms.First,globally,manufacturingofcomponentsforbothwindandsolarPVinvolverelativelymature,existingtechnologiesandwell-establishedindustries.Moreover,theseindustriesalreadyareexperiencingglobalover-capacityandintensecompetitionthatisresultinginverythinprofitmargins,ifanyprofitsaregeneratedatall.Thequestionforbidders
15OneissuenotdiscussedhereisthepossibilitythattheWorldTradeOrganization(WTO)mighttakeactionagainsttheuseoflocalcontentrequirementsinREIPPPP,astheWTOdidrecentlyagainsttheuseofsuchrequirementsinafeed-intariffprogramsponsoredbyCanada’sOntarioprovince.LikeCanada,SouthAfricawouldbeboundbyaWTOdecisiononthismatter.However,anextensivelegalanalysis,publishedbytheInternationalCentreforTradeandSus-tainableDevelopment(ICTSD),suggeststhatSouthAfricawouldavoidWTOactionagainstlocalcontentrequirements.Thisisbecausetheserequirementsareusedinapublicprocurementscheme,asopposedtoasupportschemelikethatemployedinconnectionwithOntario’sFITprogram.PublicprocurementisgovernedonlybyasinglearticleintheGeneralAgreementonTariffsandTrade(GATT),whichisunlikelytobeappliedbytheWTOincasesofrenewableenergy(KuntzeandMoerenhout,2013).16REIPPPP’sjobfiguresseemsomewhatmisleading.Theunitofmeasureforoperationsjobsisperson-years,calculatedoverthe20-yearlifeoftheproject.Forconstructionjobs,theunitisperson-yearscalculatedovertheconstructionperiod(typically18months).Thesefiguresarehighlyaggregated,designedtocomparewithfiguresfromotherindustries.Butthemeasurementsaredifferentfordifferentindustries,andthereforethecomparisonsarequestionable.Overall,theREIPPPPjobmeasurementissimplistic,and“jobcreation”ismarketedtothepublicinawaythatmostpeopleprobablydonotunderstand.
TrADE-OFFS BETWEEN PrICES AND ECONOMIC DEvELOPMENT OUTCOMES
29
TrADE-OFFS 5
beginningwithRound3iswhetherornotthegovernment-drivendemandforrenewableenergycanbesustainedlongenough,andathighenoughlevels(andhighenoughprices)tomakecommerciallyfeasibletheestablishmentofmanufacturingcapacity.Thisexistsinanenvi-ronmentwherepowergenerationhasfallenbehinddemand,andconsumersarealreadyunhappywiththehighcostofelectricity.Interna-tionalexpertsurgethatinsteadofprotectingnon-competitivelocalproducersofstandardtechnology,governmentsshouldsupportresearchanddevelopmentininnovativerenewabletechnologiesthatcancreateanewwaveofearlymovers,whetherforeignordomesticallyowned(Peszko,2012).17
5.2.4 enTerPrise and sOciO-ecOnOmic develOPmenT
Anareaofparticularconfusionformanybiddershasbeentheeconomicdevelopmentrequirementsfor“enterprisedevelopment”and“so-cio-economicdevelopment,”accountingforatotalof20percentofthenon-pricebidvalueofREIPPPPproposals.Biddersmustassesstheneedsofcommunitieswithina50kmradiusofprojectsitesandpreparestrategiescoveringhowtheseneedswillbemetwithcontributionsfromtheproject’srevenues.Socio-economicdevelopmentplansmustbepreparedbybiddersandsubmittedwithproposals.Butbeyondtheseminimalinstructionsinthetenderdocuments,DOEhasprovidednoguidanceonhowtoprepareacceptableplans,howtodemon-stratepotentialbenefits,andhasgivennoindicationofhowthesesubmissionswillbescored.ExpertsattheEnergyResearchCentreattheUniversityofCapeTownpointedoutthatthebiddersarerenewableenergyprojectdevelopers,notcommunitydevelopmentexperts,andthelackofguidanceriskssevereerrorsinthedevelopmentofthesegrantprogram.Amongmanyotherthings,theynotedthatitwasprematuretodevelopmeaningfulsocio-economicdevelopmentplansaspartofabidprocess,andthearbitrary50kmradiusrequirementrisksdividingcommunities,villagesandtownsintobeneficiariesandnon-beneficiaries:“Confusionandconflictarerisksinevitablyassociatedwithsucharestriction...”(Wlokas,Boyd,andAndolfi,2012).Makingmattersevenmorecomplicated,theresponsibilityforinformingcommunitiesregardingtheseandallothereconomicdevelopmentrequirementslieswiththeprojectdeveloper,becausethedetailedrequirementsinthebiddocumentsandrelatedguidancenoteshaveneverbeendisclosedtothepublic.
Othercriticshavepointedtoasevereconflictofinterestbetweendevelopersandeventualownersoftheseprojects.Developershaveincen-tivestopromisesubstantialcommunitybenefitsinordertosecureprojects,butowners(wheretheyaredifferentfromdevelopers)arelefttoactuallydeliveronpromises.Thisalsohasatendencytocreateunrealisticexpectationsonthepartofcommunities.
Afinalconcernamongbiddershasbeenthatsomeofthedirectfinancialbenefitstolocalcommunities,particularlytheprojectdividendsthatgointocommunitytrusts,arenotlikelytomaterializeuntilwellintothelifeoftheinfrastructureafterloansthathavefinancedlocalcommunityequityhavebeenserviced.Thismaynotbesoonenoughtoforestalldisappointmentamongcommunityleaders,someofwhomclearlyexpecttorealizequickfinancialgainsfromREIPPPP.ThecapacityoftheDBSAandIDCtocontinuetofundcommunityequitymayalsobelimited.
17Arelatedcontroversyhasbeenthepersistentallegation,especiallyvoicedbylocalbidders,thatdespiterefinementstotherequirementsbytheDOEIPPunitsomeEPCcontractorshavesuccessfully“gamed”thesystembycircumventingtheserequirements.Forexample,someprojectshavescoredwellonlocalcontent,butareallegedlyimportingfullyassembledPVpanels.Thesehighscoresareprobablyonlypossibleifpanelsaresoldbyparentcompaniestolocalsubsidiariesatbelowmarketprices,andthenthelocalmarkuponthepanelsiscountedaspartoflocalcontentvalue-addition.
TrADE-OFFS BETWEEN PrICES AND ECONOMIC DEvELOPMENT OUTCOMES
30
KEySUCCESS6
Key Success Factors, Shortcomings and risks
Throughitsfirstthreebidrounds,theSouthAfricanREIPPPPprogramhasregisteredimpressiveachievements.Onelarge,equityinvestornotedthatREIPPPPwasthemostsuccessfulpublicefforttoattractprivateinvestmentininfrastructureinAfrica.Todate,ithassecuredinvestmentcommitmentsofUS$14billiontobuild3922MWofnewrenewableenergygeneratingcapacity.Thisplacestheprogramamongthetoptenprivatelyfundedrenewableenergyprogramsintheworldinrecentyears.Powerpriceshavebecomecompetitiveoverthelasttwobidrounds,andthespeedofimplementationhasbeenunprecedented.Thevastmajorityofprogramstakeholders,fromboththepublicandprivatesectors,judgeittobehighlysuccessfuloveritsfirstthreerounds.
ThenextsectionattemptstoidentifyfactorsthataccountforthesuccessoftheREIPPPP.Inaddition,thesectionlooksatprogramshortcomings,aswellassomeoftherisksgoingforward.Thesefactorsareorganizedunderthreegeneralheadings:1)programmanagement,whichprimarilycoversthegovernment’sadministrationoftheprogram,howitwasdone,whodidit,etc.;2)programdesign,whichincludesthesizeandstructureoftheprogram;and3)marketfactors,whichincludecharacteristicsofthemarketplaceenvironmentinwhichthebiddingtookplace,includingthebidders,privatefinanciers,advisors,aswellasdonorsandmultilateraldevelopmentbanks.
6.1 PrOgram managemenT FacTOrs6.1.1 POliTical suPPOrT
REIPPPPbenefitedtremendouslyfromhigh-levelpoliticalsupport,intheformofarelativelylonghistoryofpolicystatementsonrenewableenergy,butmoreimportantly,PresidentZuma’scommitmenttogreenenergyduringtheCOP15meetinginCopenhagenandSouthAfrica’ssubsequenthostingofCOP17inDurban,wherethegovernment’sGreenAccordwithbusinessandotherstakeholderswassigned.Adeeperanalysisofthepoliticaleconomyofthesecommitmentsisrequiredbutisbeyondthescopeofthispaper.WhydidSouthAfricavoluntarilycommittoreducingcarbonemissionswhenitfacednobindingobligationsundertheUnitedNationsFrameworkConventiononClimateChangeortheKyotoprotocol?AndwhydidSouthAfricaproceedeventhoughitsCopenhagenofferwassubjecttofinancialassistancethathasnotmaterialized?PostCopenhagen,SouthAfricatransformeditselectricityplanning.ItincorporatedacarbonemissionscapinitsIntegratedResourcePlanandforthefirsttimerenewableenergyoptionsfeaturedeventhoughtheoverallcostoftheelectricityplanincreased.Foracountryasdependentoncoalforitsenergy,andfacingextraordinarypovertyanddevelopmentchallenges,thiswasastrikingbreakfromthepast.TheeffectivenessoftheDepartmentofEnvironmentalAffairsinbuildingcoalitionsandinfluencingtheDepartmentofEnergy,Eskomandindustrystakeholderstoacceptanewelectricity-planningparadigmdeservesmorein-depthstudy.
6.1.2 insTiTuTiOnal seTTing
ThelargelyadhocinstitutionalstatusoftheDOEIPPunit,actingatarm’slengthfromDOEasakindofdedicatedprojectoffice,allowedand,tosomeextent,encouragedanoperatingapproachthatemphasizedproblemsolvingtomaketheprogramsuccessful,ratherthanautomaticallyfollowinggovernmentoperationalpoliciesandproceduresthatemphasizedenforcementofrules.
6.1.3 The reiPPPP managemenT Team
Theteamandtheteamleaderhadextensiveexperienceworkingwiththeprivatesector.TheyhadanexcellentworkingknowledgeofPPPcontracts;experiencemanagingconsultants,andcredibilitywithbothpublicandprivatesectorstakeholders.
KEy SUCCESS FACTOrS, ShOrTCOMINGS AND rISKS
31
KEySUCCESS 6
6.1.4 managemenT sTyle
Becauseofitsbackgroundandskills,theDOEIPPunitexhibitednoneofthekindofmistrustofprivatebusinessthatsometimescharacterizesothergovernmentagenciesinSouthAfrica.DialoguewithprivatesectorcounterpartsonkeyREIPPPPissuesbeganalmostimmediatelyasdidtheuseofexternal,privatesectorexpertadvisors.
6.1.5 PrOgram resOurces
BysuccessfullyaccessingfundingfromsourcesliketheDBSA,donors,andaNationalTreasuryjobsfund,thenestablishingamechanismtocapturefeesfromclosedprojects,theprogramwasabletoremainlargelyofftheformalgovernmentbudgetthroughthefirstthreebiddingrounds.
6.1.6 qualiTy OF TransacTiOn advice
TheDOEIPPunitmadesurethattheyselectedexperiencedlocalandinternationaltransactionadvisorswhowouldbesuccessfullyabletotransferinternationalbestpracticeinPPPsandrenewableenergyprocurementintotheSouthAfricacontext.Teamsofprofessionalsfromdifferentlegalandfinancialfirmswererequiredtosittogethertodraftprocurementdocumentationandcontracts.Therewasexcellentcooperationbetweenthesefirmsandtheendresultwasaqualityprocurementprocess.
6.1.7 PrOgram managemenT shOrTcOmings
ThetransactioncostsfortheREIPPPPprogramweregenerallyhighforboththegovernmentandthebiddersandcertainlyhigherthanforaREFITprogram.Thegovernmenthashadtorelyonexternaltransactionadvisers.Thereispotentialforthetransferofskillsandexperienceinfutureprocurementroundsandtobuildcapacityintheproposedindependentsystemandmarketoperator.Butitisunclearhowquicklysuchcapacitycanbebuilttolevelswheresubstantialexternaladvicewillnotbeneeded.Unlesshandledcarefully,theearlydepartureofexternaladvisorscouldbeviewedasasignalofprogramdecline.
6.1.8 PrOgram managemenT risKs gOing FOrward
OneofthemostsignificantriskstothesustainablesuccessofREIPPPPrelatestooneoftheprogram’skeysuccessfactors–itsadhoccharacter.Thenon-departmentalinstitutionalsetting,theoff-budgetfunding,andtheentrepreneurialattitudeoftheprojecthaveallhelpedfacilitatetheprogramssuccessfulperformanceandavoidthedelaysandindecisionthatinthepasthavecrippledearlierattemptstodevelopIPPsinthepowersector.Butthisadhoccharacterwillinevitablygivewaytosomekindofformalization,ifonlytoguaranteeamoresecuresourceoffundingandsustainabilityfortheprogram.Thechallengewillthenbetoproceedwithinstitutionalizationinawaythatpreservesasmanyoftheprogrammanagementsuccessfactorsaspossible.IfEskomisunbundledinthefuture,thenitwillmakesensetolocatefutureIPPprocurementsintheIndependentSystemandMarketOperator.18
18Asystemandmarketoperatorbasicallyschedulesanddispatchesgenerationresourcestomeetdemand,butalsotypicallyperformsanumberofadditionalfunctionsincludingsystemplanningandprocurementandcontractingofnewcapacity(withintheframeworkofprioritiessetbyDOE’sIntegratedResourcePlan).CurrentlyinSouthAfrica,coresystemoperatorandmarketfunctionsareperformedbyEskom,thestate-owned,verticallyintegrated,single-buyerofpowerfordistributiontomunciplaitiesandalsodirectcustomers.Butcriticsarguethatthisisaconflictedrole,becauseEskomisaproducer,aswellasthepri-marypurchaserofelectricity.IfEskomcouldbeunbundled,arguablyasystemoperatorcouldbesetuptofunctionindependentlyofEskomtomoreeffectivelysourceneededpowergeneratingcapacity,usingallavailableprivate,aswellaspublic,sources.Thiswouldbean“independent”systemandmarketoperator.
KEy SUCCESS FACTOrS, ShOrTCOMINGS AND rISKS
32
KEySUCCESS6
6.2 PrOgram design FacTOrs
6.2.1 acceleraTed rOll-OuT OF new generaTing caPaciTy
Despitethehigherinitialcostofrenewableenergy,REIPPPPofferedSouthAfricanssomethingtheythoughttheyurgentlyneededin2011,arelativelyfastwaytorolloutnewpowergeneratingcapacity.WhileitwouldtakeyearsforthelargepowerprojectsplannedbyEskomtobegingeneratingpower,REIPPPPwasdesignedtorolloutasignificantamountofpowerinaveryshorttime,usingtransparentprocurementandimplementationprocesses.Stakeholdersofallkinds,includingcriticsoftheinitialhighercostofrenewableenergy,appeartohaveadoptedawait-and-seeattitudetowardREIPPPP,givingittimetobuildmomentum.Asrenewableenergycostsfall,andSouthAfricafacesongoingsupplyshortages,industryplayersareaskingwhytheDOEisnotcontractingmorerenewableenergythatisonoffer.
6.2.2 PrOgram siZe
Asnotedearlier,REIPPPPisthelargestnationalIPPprogrameverattemptedinAfrica.Theprogramimmediatelycaughttheattentionoftheglobalenergydevelopmentindustry,particularlybecausetheEuropeanrenewableenergymarketshadbeenindecline.Theprogram’ssizemeantthattherewouldbemultiplebidwinnersandfutureprospects.
6.2.3 POTenTial PrOjecT PrOFiTaBiliTy
Initially,REIPPPPclearlyrepresentedopportunitiesfordeveloperstomakereasonableprofits.WhentheRound1biddocumentswerereleasedinAugust2011,developerssawwhatonecalled“REFIT-like”tariffswithcapssetatornearREFITlevels,meaningthattheprojectscouldpotentiallymakeequityreturnscloseto17percent.TheclearpotentialforprofitableRound1projectshelpedinitiateinterestintheprogramonthepartofawiderangeofbidders,whichhascarriedoverintosubsequentbidrounds.
6.2.4 The shiFT FrOm FiTs TO cOmPeTiTive Tenders
TheshifttocompetitivetenderingseemstohavehelpedtariffscomedownsharplyafterRound1,andthisreductionwasamajorfactorinthegovernment’swillingnesstocontinueitssupportforREIPPPPasa“successful”program.Formanydevelopingcountriesandemergingmarkets,includingSouthAfrica,theargumentforgreateruseofpotentiallymoreexpensiverenewableenergytechnologiesresonatesonlywheneffortsaremadetoclearlykeepcostsundercontrol.REIPPPPdoesnotproveconclusivelythatcompetitivetenderingisbetterabletodothatthanFITprograms,butitdoessuggestthatthismightbethecaseandshouldbeexploredmorevigorouslyevenincontextswhereelectricitymarketsarenotaslarge.
6.2.5 mulTiPle Bidding rOunds
AkeydesignalterationmadebeforeAugust2011wastochangetheREIPPPPfromaonce-offtendertoarollingseriesofbidrounds.Themultiplebidroundshavehadasignificantimpactintermsofbuildingconfidenceintheprogramamongoperatorsandinvestorsandgeneratingincreasinglevelsofcompetitionasmoreandmoreoftheseplayersbegintoparticipateinthetendering.Overall,thenumberofbiddersincreasedby49percentfromthefirsttosecondrounds,andanother18percentinthethirdround.
KEy SUCCESS FACTOrS, ShOrTCOMINGS AND rISKS
33
KEySUCCESS 6
6.2.6 exemPTiOn FrOm PPP regulaTiOns
ExemptingIPPsfromnationalPPPregulationsbydefiningthenationalgovernment-ownedpowerutility–initsroleastheoff-takerandcontractor–assomethingotherthanagovernmentagency,employsadefinitionaldistinctionthatwouldnotalwaysbepossibleinothercountries.Butwhateverthereasoning,subjectingtheseIPPstoSouthAfrica’scomplexandtime-consumingPPPruleswouldhavedramaticallyslowedand,perhapssubverted,thissuccessfulprogram.
6.2.7 nOn-negOTiaBle PrOgram characTerisTics
Insomeways,REIPPPPwasperceivedtobe“privatesector–friendly,”buttheteamalsohadenoughexperiencewithprivatesectorinvestmentdealstounderstandwhereandhowtocontrolbidderbehaviorandrestrictopportunitiesforgamesmanshiportime-consumingnegotiations.Chiefamongtheseeffortswerethenon-negotiablePPAsandIAsthatweremadeavailabletobiddersalongwithothertenderdocuments,thestandardizedsetoffinancialdatathatbidderswererequiredtoprovideforevaluationmodels,andtherequirementthatbidsbefullyunderwrittenwithdebtaswellasequity.19 Thislatterrequirementeffectivelyeliminatedoneofthemainshortcomingsoftypicaltenderprocesses–thattheyincentivizeunder-bidding(or“low-balling”)towincontracts,thenrenegotiationinthehopesofsecuringmoreprofitabledeals.
6.2.8 ecOnOmic develOPmenT requiremenTs
REIPPPP’seconomicdevelopmentrequirementshavebeencontroversial,oftenconfusing,andexpensiveforbidderstorespondtotheserequirements.ButinSouthAfrica,asinothercountries,theserequirementshavealsohelpedtogeneratepoliticalsupportfortheseprogramsfrompoliticians,investors,aswellasthegeneralpublic.Byincreasingtheroleofthesefactorsto30percentofbidvalue,theprogramhelpedincreasethevisibilityofeconomicdevelopmentconsiderationsandunderscoretheirimportance.TheSouthAfricanParliamentseemstohaveconcludedthattheeconomicdevelopmentdimensionoftheprogramhasbeensuccessful,basedonthecommitmentsmadeduringthebidrounds.
6.2.9 sOvereign guaranTee
Thepoliticalwillbehindtheprogram,mentionedaboveundermanagementfactors,wasgivenpracticalshapeintheformofsovereignguaranteesintheImplementationAgreementsbackingEskom’spurchaseofpowerfromtherenewableenergyprojects.TheNationalTreasury’sFiscalLiabilityCommitteethatformallyapprovedtheissuingofthegovernmentguarantyscrutinizedthetransactions.(Thereisnoreservefundorcontingentliabilityfundsetasideforeachtransaction).SouthAfrica’srelativelystronginternationalcreditstandingmeansthatbanksandinvestorswillacceptsovereigncountryriskwithoutrequiringpoliticalriskinsurance,aswouldbethecaseinvirtuallyeveryotherAfricancountry.Whatisinterestingisthatthesesovereignguaranteeswererequired(oroffered)despiteEskom’sinvestmentgradecreditrating.Clearly,thereareconcernsaroundEskom’sfinancialstandingandperhapstheprospectsofunbundlingandelectricitysectorreform.
19OtherstandardizedagreementsincludedImplementationAgreementsandDirectAgreements.
KEy SUCCESS FACTOrS, ShOrTCOMINGS AND rISKS
34
KEySUCCESS6
6.2.10 PrOgram design shOrTcOmings
• Marketreadinessoverestimated.Thesizeandreadinessofthelocalrenewableenergymarketwereinitiallyoverestimated,resultinginlimitedcompetitioninRound1andbidpricesclosetothepricecaps.Itmighthavebeenmoreprudenttostartsmaller,thengraduallyrampuptheprogram,withlargerblocksofcapacitybeingofferedinsubsequentrounds.
• Closedenvelopebidsversusdynamicreverseauctions.Useofthesingle-priceoffer(ratherthanadynamicreverseauctionasemployed,forexample,inBrazil)alsomayhaverestrictedcompetition.20
• Hightransactioncosts.ThetransactioncostsfortheREIPPPPwerehigherforboththegovernmentandthebiddersthantheywouldhavebeenforaREFITprogram,althoughthesecostswereultimatelysmallforinvestorscomparedtotheoverallprojectcosts.Withoutitsearlyaccesstoadequatefinancialresourcesandexpertise,theDOEIPPunitwouldhavestruggledtoachievethequalitylevelsthatcontributedsomuchthecontinuinginterestofprivatesectorplayersinREIPPPP.
• BiasagainstSMEs.Finally,highercostsofthiskindcanbecoveredbylargerandmoreestablishedcompanies,butpotentiallyserveasabiasagainstSMEsandworkagainstmostgovernments’explicitpoliciesinfavorofSMEinvolvementintherenewableenergysector.However,thelargenumberofinvestorsandcommunitytrustsinvolvedintheREIPPPisanindicationthatopportunitieshavebeenmadeavailabletonewplayers.SME’swerebroughtinbybiggercompaniesasminorityshareholdersonanumberofthebids.Also,theentireREIPPPPprogramhascreatedmultipleopportunitiesforSMEsintheformofadvisoryservices,economicandsocialdevelopmentconsultantsandconstructioncontractors.Theparallel,smallprojectsIPPprocurementisanattempttodomorethanREIPPPPtoencouragelocalSMEinvolvementinthesector.
6.2.11 PrOgram design risKs gOing FOrward
Fourkindsofprogramdesignriskmaycreateproblemsinthefuture:
• Deliveryfailure.Thefirstdimensioninvolvesthepossibilitythattheeconomicdevelopmentrequirementswillnotdeliverexpectedresults.Inparticular,supportfornewSouthAfricanindustriesaimedattheproductionofrenewableenergycomponentswillfacechallengesinaglobalindustryalreadyaffectedbyover-supplyandseverecompetition.Jobgrowthresultingfromsuchrequirementsmaynotbesustainableinthelongtermandislikelytoresultinhighercostsforpowerthanwouldhavebeenthecasewithouttherequirements.Finally,localcommunitiesmayseefewerrealfinancialoreconomicbenefitsfromlocalprojectsthantheyexpect.Thisinevitablyleadstodisappointmentwithandconfusionaboutthecommunitydevelopmentaspectsoftheeconomicdevelopmentrequirements.Eachprojectisexpectedtoinvestatleastonepercentofrevenuesincommunitydevelopment,butfewprojectdevelopershaveexperienceindesigningeffectiveprograms.Furthermore,thebenefitsthatshouldaccruethroughlocalcommunityshareholdingwilltaketimetoberealized:shareholderloanswillfirstneedtoberepaid.Ingeneral,aninabilityofREIPPPPtodeliverintheseareascouldresultinlocalcommunitydissatisfaction.Itcouldalsohighlight,atanationallevel,therelativelyhighercostsofsomeoftherenewableenergysupplytechnologies,leadingtoquestionsaboutthewisdomofpursuingtheseenergyalternativesandpotentiallyunderminingtheoverallpoliticalsupportfortheprogram.
• Failuretomonitor/manage.Asecond,relateddimensionofriskinvolvesthepossibilitythattheeconomicdevelopmentactivitieswillnotbeappropriatelymonitoredormanagedbythegovernmentoverthelifeofthecontracts.Severalnotableexamplesexistofagenciesresponsibleformonitoringlocalcontentperformanceindevelopedcountries,whichhavestruggledtoadequatelyperformtheirtasksdespitehavingconsiderablenumbersofprofessionalstaff(WTI,2013).Afterthefirstthreeroundsofbidding,theREIPPPPhadgenerated
20Dynamic,reverseauctionsliterallyreversetherolesofbuyersandsellers.Asinglebuyeroffersacontractforbidding.Multiplesellersthenofferbidsonthecontract.Astheauctionprogresses,sellerscompetewithlowerprices.Thebuyerisabletoseealloftheoffersandchooseanythatareattractive.Whendoneinrealtime,usuallyviatheinternet,thedynamicreverseauctioncanachieverapiddecreasesinpricethatarenotusuallypossiblewithstatic,paper-basedbidding.
KEy SUCCESS FACTOrS, ShOrTCOMINGS AND rISKS
KEySUCCESS
35
KEySUCCESS 6
64separateIPPcontracts,eachwithalifespanof20years,eachinvolvingcommitmentstoasmanyas17economicdevelopmenttargets,eachreportingperformanceonaquarterlybasis.AsdescribedaboveinSect.5.1,thisreportinginturnwillbeusedtocalculateperformancedeductionsorcredits,aswellasterminationpoints.Inthecasesofterminationpoints,contractorrectificationprogramsmustbereviewedinmostcases,anddisputeresolutionislikelytobeneededinsomecases.ThestandardImplementationAgreementmakesvaguementionofthefactthatDOEreservestherighttohire“EconomicDevelopmentIndependentMonitors”whomayberecruitedinsomecasestohelpDOEconfirmcontractorcompliance.Butwithoutasubstantialnumberofpermanentprofessionalstaffandanongoinggovernmentbudgetallocationtocoverperformancemonitoringandevaluationcosts,itisdifficulttoseehowthismonitoringworkcanbesustainedatanappropriatelevel.
• Transmissionconstraintsanddeemedenergypayments.ItisbecomingapparentthatEskom’stransmissionplanninghaslagged,orhasnotbeensynchronizedwith,theREIPPPPawardofnewgenerationprojects.Thereisariskthatsomecompletedrenewableenergyprojectsmaynotbeabletoconnecttothegridinatimelyfashion.Theproblemisgenerallynottheshallowconnections(i.e.,thetransmissionconnectionstothenearestsubstationsthatmostdevelopersarefundingorconstructingthemselves),butratherthedeepconnectioninvestmentsthatEskomneedstomaketostrengthenthetransmissionbackbonetoevacuateallthenewenergythatisgeneratedintheseremoteareas.Inthesecases,Eskomastheoff-takerwillbeliablefordeemedenergypayments,eventhoughnoelectricityisbeingfedintothegrid.ThesesituationscouldleadtoreputationalrisksforREIPPPP.
• Thesingle-buyerroleofEskom.ThisisatopicthathasbeenatthecenterofafiercedebateinSouthAfricaforoveradecade,andacompletediscussionofitisbeyondthescopeofthispaper.Criticshavearguedthattheutilityhasbeenmismanagedandisnowinsignificantfinancialdistress.Asolutionlongpromotedbytheinternationaldevelopmentcommunityistobreakuptheutilitybyunbundlingitskeyfunctionsintogeneration,transmission,anddistributioncompanies,someorallofwhichcaneventuallybeprivatized.Eskom’spossiblefuturecircumstancespresentobviousriskstoaprogramlikeREIPPPP.IfEskom’sfinancialhealthcontinuestodeteriorate,thegovernment’ssovereignguaranteemayhavetobecalledontopayIPPs.Inturn,thatcouldaffectthegovernment’screditstanding.IfEskomwereeventuallyunbundled,asuccessorentitywouldpresumablyinheritthePPAcontracts(andsovereignguarantees).ThecreditworthinessofanysuchsuccessorwouldbeofcriticalconcerntothenationalgovernmentandIPPsalike.Atthemoment,theprevailingviewingovernmentseemstobethatEskomshouldcontinueasis–asthestate-ownednationalmonopolyutilitythatactsasasingle-buyerofpowerfordistributiontoratepayers.But,ifthatviewbeginstochange,itwillhaveimplicationsforthefutureofREIPPPP.
6.3 marKeT FacTOrs
6.3.1 glOBal suPPly and demand OF renewaBle energy
TheinterplayofrenewableenergysupplyanddemandatthegloballevelhasclearlybenefitedREIPPPP.Theslow-downinOECDmarketsmeantthataprogramthesizeofREIPPPPattractedconsiderableattentionfromtheinternationalprivatesector.Thishelpedincreasecompetitionandlowerpricesasthebiddingproceeded.
6.3.2 dOnOr and mulTilaTeral develOPmenT BanK suPPOrT FOr renewaBles
Thepublicpolicyaspectsofrenewableenergy,particularlytheperceivedneedtouseitinmitigatingclimatechange,havegeneratedinterestinrenewableenergyamongmembersoftheinternationaldonorcommunity,includingbi-lateraldonoragenciesandmulti-lateraldevelopmentbanks.Eventhoughrenewableenergygenerationisalreadyaworldwidecommercialindustry,insomecasesthisinterestonthepartofdonorsandDFIstranslatesintothewillingnesstousegrants,concessionalfinanceorinnovativefinancialinstrumentstopromotetheexpandeduseofrenewableenergy.REIPPPPbenefitedtoanextentfromearly-stagedonorfundingoftechnicalassistance,aswellastheinvolvementbyDFIs(e.g.,theIFC)asprojectfinanciers.DonorsandDFIshavealsodiscussedtheideaofissuingbondstohelpwiththe
KEy SUCCESS FACTOrS, ShOrTCOMINGS AND rISKS
36
KEySUCCESS6
refinancingofexistingREIPPPPprojectdebt,andthecreationofdonor-capitalizedfacilitiestoprovidesubsidizedtransactionsupportandprojectcreditenhancements.Inearly2014,theSouthAfricangovernmentissuedatendertodesignandstructureafundthatwouldfacilitateDFIparticipationinfutureREIPPPPwindows.MoreDFIfundingprobablywillbeneededforBEEandcommunityownershipinfuturerounds.
6.3.3 The sOuTh aFrican BanKing secTOr
Thecountry’sbankingsectorhasalsoplayedalargeroleinthesuccessoftheprogram.Thissectoristhelargest,deepest,andmostsophisticatedinAfrica.Itishighlyliquid,offerslong-termdebt(15to17yearsforREIPPPPprojects),understandsprojectfinance,andhasexperiencewithPPPsandprivatefinanceofpublicinfrastructure.Thesectoralsoincludesasmall,butfunctioningsecondarymarketinbondsandsyndicatedpaper.Whiletheindustryisperceivedtobeconservativeandexpensive,ithasbeenessentialinhelpingREIPPPPachievesomanyclosedtransactionsinarelativelyshortperiodoftime.
6.3.4 OTher advisOry services
SouthAfricaalsohasarelativelywidearrayofotherkindsofsophisticatedadvisoryservicesneededforREIPPPPprojects,includinglegalfirmsandtechnicalconsultants(andalsoburgeoningeconomicandsocialdevelopmentadvisors)availabletohelpwiththedesignandimplementationofcompetitivebids.TheseserviceswereessentialforthesuccessofREIPPPP,butwerestretchedtothelimitbythesizeoftheprogram.21
6.3.5 marKeT shOrTcOmings
• Limitsonthesupplyofadvisoryservices.Becauseofthehugedemandsmadeonthelocalconsultingindustry,somefirmswerepermittedtoofferadvisoryservicestoboththegovernmentandprivatebiddersandfundersaslongastheycreatedadequateinternalbarrierswithinthefirmtolimitpotentialconflictsofinterest.Somebidderscomplainedthatlegalandfinancialfirmswereofferinga“onesizefitsall”service,whichwasnotalwaysappropriateforspecificprojects.
• Inabilitytosupportsmallprojects.Therisk-aversecharacterofSouthAfrica’ssophisticatedcommercialbankingsectorhasmeantthatithasbeenlimitedintheextenttowhichitcanenthusiasticallysupportallofREIPPPP’sobjectives.Forexample,oneobjectivehasbeentoallowsmall-andmedium-sizedSouthAfricanfirmstogainfootholdsinthecountry’semergingrenewableenergyindustry.Inanefforttomoredirectlypursuethisobjective,thegovernmentlaunchedtheso-calledSmallScaleProjectsIPPTenderinAugust2013,aimedatsmaller-scaleprojectsof1to5MWofinstalledcapacity.ButtheSouthAfricancommercialbankingsectorlackstheincentivestosupportthesesmallerprojects.Smallersponsorsthatlackthebargainingpowertonegotiatecost-effectivecontractsforsupply,operations,andmaintenance,orlacktheexperiencetomitigatecompletionandperformancerisks,facetheprospectsofhigherequityrequirementsorhigherdebtmargins.FormanySouthAfricanbanks,thesekindsofsponsorrisksmeanthatmanysmallerprojectsaresimplynotcommerciallyviableorarenotevenworthduediligencecosts.
21Thesizeandpotentiallife-spanoftheprogramhasalsoencouragedinternationalconsultanciestoestablishofficesinSouthAfrica.
KEy SUCCESS FACTOrS, ShOrTCOMINGS AND rISKS
37
KEySUCCESS 6
6.3.6 marKeT risKs gOing FOrward
Theprincipalmarket-relatedrisksareassociatedwiththevolatilityofprivatesectorinterestinsuchaprogram,andthelikelihoodofoperatorsandinvestorsbackingawayfromnewbidroundsthemomentthateventssuggestthattheirinterestsarebetterservedelsewhere:
• Globalmarketrecovery.Iftheglobalslow-downaffectingtherenewableenergyindustryexperiencesaturn-around.andtheindustrybeginstodemonstraterenewedgrowth,theremaybemuchlessinterestinREIPPPPamongoperatorsandinvestors,particularlyiftheprogram’seconomicdevelopmentrequirementsbecomemoreonerous.
• Inabilitytolowerpricesfurther.Anumberofprivatesectoractorshavenotedthatbidpricinghaslikelybottomed-out.Priceshavecomedownbecauseofincreasedcorporatebalancesheetfunding,toughernegotiationswithEPCcontractors,andmorecost-effectivesourcingofcomponents.Bankspreadshaveremainedlargelyunchangedoverthethreerounds,andthereislittleindicationthattheywilldecreaseinthefuture(althoughthedominanceoftwooftheSouthAfricanbanksinRound3mayspurtheotherstobemorecompetitiveinRound4).Duetoalackofforeignexchangeprotection,sponsorsareunlikelytoturntoforeignbanksforfinancing.IfdomesticbanksareunabletosyndicateexistingREIPPPPdebtofftheirbooks,spreadscouldactuallyincreaseduetohigherliquiditypremiums.Nevertheless,thegovernmentislikelytopressforlowerbidpricesbecause:SouthAfricanpricesarestillhigherthanthosebeingachievedinotherjurisdictions.22 Butanyadditionaleffortstousecapstopushforfurtherpricereductionsmaydiminishthebankabilityofprojectsandtheinterestoftheprivatesector.Thesameistrueifthegovernmentpushesformoreonerouseconomicdevelopmentrequirementstoincreasevalueformoney.23
• Negativereactionstoprogramformalization.Effortstoinstitutionalizewhathasbeen,todate,alargelyadministrativelyadhocprogramcouldleadtodelaysandindecision.Privatesectoractorsstillseementhusiasticaboutparticipatingintheprogram,butremainextremelyvigilantregardinganysignofareturntothepre-REIPPPPmanagementstylethatledtosomanycostlyanddisappointingfailures.
22Forexample,Brazilhasachievedbidpricesforwindenergybelow5USc/kWhcomparedtoSouthAfrica’slowestbidof6.6USc/kWhinRound3.23ExacerbatingthisproblemisthelikelihoodthatthelocalDFIslikeDBSAandIDCwhohavebeenfinancingeconomicdevelopmentactivitieshaverunoutoffundingforthisworkorwillsoondoso.
KEy SUCCESS FACTOrS, ShOrTCOMINGS AND rISKS
38
LESSONS FOr OThEr DEvELOPING COUNTrIES7
Lessons for Other Developing Countries
SouthAfrica’sREIPPPPprogramprovidesavaluableopportunitytolearnhowtoprocurerenewableenergyprojectsquicklyandeffectivelyindevelopingcountries.Ofcourse,notallofREIPPPP’ssuccessfactorscanbeeasilyduplicated,particularlyinlow-incomecountries.MostAfricancountriescannotmountaprogramofREIPPPP’ssize,orwithitsrolling,multi-roundsortofbidprocess.NoAfricancountryhasthekindofbanking,legalandotheradvisoryresourcesthatarereadilyavailableinSouthAfrica.AndfewdevelopingcountriescaneasilymusterthekindofprogramresourcesthatSouthAfricahasappliedtoREIPPPP,althoughitshouldberecognizedthatSouthAfricanbanks,infrastructurefunds,andadvisoryservicesareincreasinglyactiveintherestofAfrica.However,notallofthesuccessfactorsintheSouthAfricanREIPPPPneedtobepreciselyduplicated.Somecanbereplicatedwithproxies;othersmaybeignored.Nevertheless,theSouthAfricanexperiencedoessuggestlessonsregardingwhatfactorsareessentialincountrieswherethegovernmentandprivatesectorplayersarestronglycommittedtorollingoutarenewableenergyprogram.
7.1 adOPT a Business-Friendly aPPrOach
Privatesponsorsandinvestorsintherenewableenergysectorwanttosellpowertogovernments,particularlynowthattheglobalmarketfortheseservicesstillseemstoberecovering.Ifdealsarereasonablyprofitableandkeyrisksaremitigatedinanacceptablemanner,aconsiderableamountofprivatesectorinterestislikely.Andthelikelyinterestofcommercialbanks,infrastructurefundsandprojectsponsorsfromotheremergingeconomiesshouldnotbeunderestimated.REIPPPP’soperatorsandinvestorshaveshownremarkablylittlesensitivitytopastmistakesandpolicyshiftsinthepowersector,andalthoughtheyremainwaryoftheconsequencesoffuturepolicychangesorproblemsresultingfromattemptstoformalizethestructureoftheprogram,theyseemremarkablyconfidentthattheirprojectswillendure.Forthatreason,todatesuchpolicyandgovernanceissueshavenotplayedasignificantroleinbankcreditcommitteedecisionsonprojects.PrivatesectorplayersinSouthAfricaseemmostimpressedwithfactorsthatwouldberelativelyeasytoreplicate–thingsliketheeffortsoftheDOEPPPunittocommunicatewiththemonkeyissues,theunit’strackrecordofconsistentlymeetingprogramdeadlines,thewidespreaduseofprivatesectoradvisors,andthegeneralbusiness-friendlyapproachoftheprogram.
7.2 TaKe advanTage OF exTernal sOurces OF Funding
DonorsandDFIsareinclinedtohelpwithrenewableenergyprograms,andthefundingtheyprovidecanhelpfillavarietyofgaps.Donorfundingcanhelpimproveinternalcapacitytodesignandmanagetheseprograms,bysupplyingadvisors,coveringprocurementcosts,etc.Donorscanalsohelpreduceprojectpreparationcosts(e.g.,bypayingforstandardizeddocumentation),aswellasprovidecreditenhancementsforprojectsponsors.PartialriskguaranteesofferedbyDFIscanbecriticalinstrengtheningsovereigngovernmentguaranteesincountrieswithbelow-investmentgradecreditratings.Donorsaregenerallyeagertohelpwiththeimplementationofthesmall-scaleIPPprogram.Othercountrieswithgovernmentcommitmenttowell-designed,renewableenergyprograms,shouldexplorethepossibilityofelicitingsupportfromdonorsandDFIs.
LESSONS FOr OThEr DEvELOPING COUNTrIES
39
LESSONS FOr OThEr DEvELOPING
COUNTrIES 7
7.3 maKe a case FOr renewaBle energy (…and KeeP maKing iT)
Inmostdevelopingcountries,aconvincingcaseneedstobemaderepeatedlytojustifytheprocurementofrenewableenergy.REIPPPPwasprecededbyseveralyearsofpolicyproposalsthatsupportedclimatechangemitigation.Thisbackground,combinedwiththeloomingthreatofpowershortagesinthecountry,andfrustrationwithEskom’slackofactiononIPPs,meantthatREIPPPPwasinitiallygiventhebenefitofthedoubt,evenbycriticsofrenewableenergycosts.Asthetenderdesignworkstarted,theDOEIPPunitemphasizedtheservicedeliveryandeconomicdevelopmentimpactsoftheprogram.Again,thisresonatedwithpoliticiansandratepayerswhowereworriedaboutunemploymentandlackofeconomicandsocialdevelopmentinruralareas,aswellaswithsomeinvestorsinterestedinsocialimpacts,suchaspensionfunds.TheeconomicdevelopmentrequirementssuggestedthatREIPPPPwouldgeneratetangiblebenefitsthatshouldhelpoffsettheincreasedcostsforpower.Aboveall,theDOEIPPunitkeptmakingthecasefortheprogramateveryopportunity,ininformalgovernmentmeetings,conferences,cabinetmeetings,andpresentationsbeforeParliament.Noonewasallowedtoforgetthattheprogramseeminglyhadstrongjustifications.
7.4 Find a PrOgram chamPiOn
Itisalmostaclichénowtotalkabouttheimportanceofprogramchampionsindrivingsuccessfulprogramsofthiskind.Someonewithcredibilityneedstobeabletointeractconvincinglywithseniorgovernmentofficials,effectivelyexplainanddefendtheprograminmeetingswithstakeholders,dealwithdonors,selectandmanageconsultants,communicatewiththeprivatesector,andmanageacomplicatedprocurementandcontractingprocess.Thisdoesnotnecessarilyneedtobeaseniorgovernmentofficial.Butitshouldbesomeonewhoisfamiliarwith(andfamiliarto)seniorofficials,aswellassomeonewithenoughexperienceworkingwiththeprivatesectortobecomfortableadoptingthebusiness-friendlyapproachmentionedabove.ThisisaclearlessonoftheREIPPPPprogramsuccess,butrepresentsasuccessfactorthatisprofoundlydifficulttoreplicate.
7.5 idenTiFy a PrOgram design ThaT suiTs cOunTry circumsTances
Developingcountriesandtheirdevelopmentfinancepartnersshouldcarefullyconsidertheextenttowhichdifferentelementsofprogramdesignfitcountrycircumstances.REIPPPPillustratesthislessoninthegovernment’sconsiderationofcompetitivetendersrelativetofeed-intariffregimes.FITshave,ofcourse,longbeenthedefaultapproachinrenewableenergyprograms,andwereinfactstronglyadvocatedbysomeoftheREIPPPPadvisors.FITsarelesscostlytomanagethantendersorauctionandcanincludepricecapsorperiodictariffadjustmentmechanismsaswaystocontrolprices.ButREIPPPP’sexperiencesuggeststhatcompetitivetendersforrenewableenergyarepotentiallyanattractivealternativetoREFITsbecausetheymaybeabletokeeptariffsundertightercompetitivecontrol.VariousadaptationsoftheREIPPPParepossibleincludingloweringtransactioncoststhroughsimplerRequestsforProposals(RFPs)andeconomicdevelopmentrequirements.REIPPPPdemonstratesthatfundingthehigherinitialtransactioncostswillultimatelybemorecost-effectiveiflowerpowerpriceseventuallyresultfromtheprocess.24
24Thecaseforauctionsissimilartothatfortendering.Competitivetendersgenerallyincorporateaweightingofpriceandnon-pricefactors,whileauctionsareawardedsolelyonthebasisoflowestprice(sometimesafteranumberofbiddingrounds)amongqualifiedbidders.Runningeffectiveauctionsmightrequireevengreatertime,expenditure,transactioncosts,expertiseandcapabilitiesthanrunningtenders.Auctionsmightalsoencourageunderbidding,withtheriskofsubsequentcontractfailures.Buttheexperiencewithdynamicreverseauctions–forexample,forwindenergyinBrazil–hasbeenpositive:competitionhasdrivenpricesdowndramatically.Insomesituations,itmightbeworthwhiletoexplorethepossibilityofahybriddesigninwhichwinningpricesfromadynamicreverseauctionaresubsequentlyweightedwithnon-pricefactors.
LESSONS FOr OThEr DEvELOPING COUNTrIES
40
7
7.6 ensure qualiTy PrOcuremenT and cOnTracTing dOcumenTaTiOn and PrOcesses are in Place.
WhetheraFITorcompetitivetenderischosen,aneffectiveprocurementmechanismisrequired,whichissuesRFPs,hasclearqualificationandevaluationcriteria,andhasbankablepowerpurchaseandimplementationagreements,aswellasappropriatecreditenhancementorsecurityarrangementsthatenableprojectstobebankable.ManydevelopingcountrieshavesimplypublishedFITswithoutputtinginplaceaneffectiveprocurement,contractingandimplementationframeworkwiththeresultthatfewprojectshaveclosed.PerhapsthemostimportantlessontotransferfromtheREIPPPPisthebenefitsofawell-designedandtransparentprocurementprocess.Forexample,theGETFitprogramisUgandahascreatedahybridbetweenfeed-intariffsandaseriesofprocurementwindowsthathavefacilitatedinvestmentsingrid-connectedrenewableenergy.WhilethecomplexityandcostoftheSouthAfricanprocurementandcontractingdocumentationmaybeinappropriateinsmallerjurisdictions,thecorelessonisthatprivatesectorprojectdevelopersneedaclearframeworkwithinwhichtoinvest,andtheprocurementprogramneedsconsistent,timely,andexpertimplementation.
LESSONS FOr OThEr DEvELOPING COUNTrIES
LESSONS FOr OThEr DEvELOPING COUNTrIES
41
rEFErENCES 8
references
Kuntze,Jan-ChristophandTomMoerenhout(2013),“LocalContentRequirementsandtheRenewableEnergyIndustry–AGoodMatch?”InternationalCentreforTradeandSustainableDevelopment,Geneva,Switzerland,www.ictsd.org.
Peszko,Grzegorz(2012),“Localcontentrequirementsforrenewableenergy:anunnecessaryevil,”EBRDblog,EuropeanBankforReconstructionandDevelopment,November23.
RepublicofSouthAfrica(RSA)(1998),“WhitePaperontheEnergyPolicyoftheRepublicofSouthAfrica,”DepartmentofMineralsandEnergy,December.
__________(2003),“WhitePaperonRenewableEnergy,DepartmentofMineralsandEnergy,”November.
__________(2007),“BiofuelsIndustrialStrategyoftheRepublicofSouthAfrica,”DepartmentofMineralsandEnergy,December.
__________(2010),“TheNewGrowthPath:TheFramework,”DepartmentofEconomicDevelopment,November17.
__________(2011),“IndustrialPolicyActionPlan2011/2012–2012/13,”DepartmentofTradeandIndustry,February.
__________(2011),“PreferentialProcurementPolicyFrameworkAct(/2000):PreferentialProcurementRegulations,”NationalTreasury,June8.
__________(2011),“GreenEconomyAccord,”DepartmentofEconomicDevelopment,November29.
__________(2012),“NationalDevelopmentPlan.”
__________(2011-13),REIPPPPTenderNoticesandBriefingNotes,DepartmentofEnergy,accessedonlineathttp://www.ipp-renewables.co.za.
Wlokas,HolleLinnea,AnyaBoyd,andMarcoAndolfi(2012),“Challengesforlocalcommunitydevelopmentinprivatesector-ledrenewableenergyprojectsinSouthAfrica:anevolvingapproach,”JournalofEnergyinSouthernAfrica,Vol.23,No.4,November.
WTIAdvisors(2013),“LocalContentRequirementsandtheGreenEconomy.”PaperpreparedfortheAdHocExpertGroupMeetingonDomesticRequirementsandSupportMeasuresinGreenSectors:EconomicandEnvironmentalEffectivenessandImplicationsforTrade,June13-14,Geneva.
rEFErENCES
42
APPENDIx 19
appendix 1: eskom’s Power stations25
Name Location Fuel Available MW
Arnot Middelburg Coal 2232
Camden Ermelo Coal 1430
Duvha Witbank Coal 3450
Grootvlei Balfour Coal 950
Hendrina Hendrina Coal 1865
Kendal Witbank Coal 3840
Komati Middelburg Coal 940
Kriel Bethal Coal 2850
Lethabo Sasolburg Coal 3558
Majuba Volksrust Coal 3843
Matimba Lephalale Coal 3690
Matla Bethal Coal 3450
Tutuka Standerton Coal 3510
Acacia CapeTown Gas/petroleum 171
Ankerlig Atlantis Gas/petroleum 1327
Gourikwa MosselBay Gas/petroleum 740
PortRex EastLondon Gas/petroleum 171
Gariep OrangeRiver Hydro 360
Vanderkloof OrangeRiver Hydro 240
Drakensberg Bergville Pumpedstorage 1000
Palmiet Grabouw Pumpedstorage 400
Koeberg CapeTown Nuclear 1830
TOTal 41847
Source: Eskom Annual Report (2012).
25Figureexcludesfoursmall,non-operatinghydroplantsinTranskei.Thebalanceofnon-Eskomgeneratingcapacitytotalsabout1,150MWandislocatedmainlyatSasol’s
synfuelsplant(520MW),Kelvin(128MW),Rooival(155MW),PretoriaWest(100MW),Steenbras(180MW)andmini-hydro(65MW).
APPENDICES
43
APPENDIx 2 9
Committed Build New Build Options
Tota
l new
bui
ld
Tota
l sys
tem
cap
acity
RTS
Capa
city
(coa
l)
Med
upi (
coal
)
Kusi
le (c
oal)
Ingu
la (p
umpe
d st
orag
e)
DO
E O
CGT
IPP
(die
sel)
Co-g
ener
atio
n, o
wn
build
Win
d
CSP
Land
fill,
hydr
o
Sere
(win
d)
Dec
omm
issi
onin
g
Coal
(PF,
FBC
,iIm
port
s)
Gas
CCG
T (n
atur
al g
as)
OCG
T (d
iese
l)
Impo
rt H
ydro
Win
d
Sola
r PV
CSP
Nuc
lear
MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW MW
2010 380 0 0 0 0 260 0 0 0 0 0 0 0 0 0 0 0 0 0 640 44535
2011 679 0 0 0 0 130 0 0 0 0 0 0 0 0 0 0 0 0 0 809 45344
2012 303 0 0 0 0 0 300 0 100 100 0 0 0 0 0 0 300 0 0 1103 46447
2013 101 722 0 333 1020 0 400 0 25 0 0 0 0 0 0 0 300 0 0 2901 49348
2014 0 722 0 999 0 0 0 100 0 0 0 500 0 0 0 400 300 0 0 3021 52369
2015 0 1444 0 0 0 0 0 100 0 0 -180 500 0 0 0 400 300 0 0 2564 54933
2016 0 722 0 0 0 0 0 0 0 0 -90 0 0 0 0 400 300 100 0 1432 56365
2017 0 722 1446 0 0 0 0 0 0 0 0 0 0 0 0 400 300 100 0 2968 59333
2018 0 0 723 0 0 0 0 0 0 0 0 0 0 0 0 400 300 100 0 1523 60856
2019 0 0 1446 0 0 0 0 0 0 0 0 250 237 0 0 400 300 100 0 2496 63352
2020 0 0 723 0 0 0 0 0 0 0 0 250 237 0 0 400 300 100 0 2010 65362
2021 0 0 0 0 0 0 0 0 0 0 -75 250 237 0 0 400 300 100 0 1212 66574
2022 0 0 0 0 0 0 0 0 0 0 -1870 250 0 805 1143 400 300 100 0 1365 67939
2023 0 0 0 0 0 0 0 0 0 0 -2280 250 0 805 1183 400 300 100 1600 2358 70297
2024 0 0 0 0 0 0 0 0 0 0 -909 250 0 0 283 800 300 100 1600 2424 72721
2025 0 0 0 0 0 0 0 0 0 0 -1520 250 0 805 0 1600 1000 100 1600 3835 76556
2026 0 0 0 0 0 0 0 0 0 0 0 1000 0 0 0 400 500 0 1600 3500 80056
2027 0 0 0 0 0 0 0 0 0 0 0 250 0 0 0 1600 500 0 0 2350 82406
2028 0 0 0 0 0 0 0 0 0 0 -2850 1000 474 690 0 0 500 0 1600 1414 83820
2029 0 0 0 0 0 0 0 0 0 0 -1128 250 237 805 0 0 1000 0 1600 2764 86584
2030 0 0 0 0 0 0 0 0 0 0 0 1000 948 0 0 0 1000 0 0 2948 89532
TOTAL 1463 4332 4338 1332 1020 390 700 200 125 100 -10902 6250 2370 3910 2609 8400 8400 1000 9600 45637
appendix 2: south african integrated resource Plan 2010-30
APPENDICES
Source: Department of Energy (2012).
44
APPENDIx 39
appendix 3: reiPPPP economic development Objectives
Objectives
Categories Overall Weights Description BEE Community
BenefitsJobs & SA Content
1. Job Creation 25%
SA-basedemployeeswhoarecitizens 6.25%
SA-basedemployeeswhoareblackcitizens 6.25%
Skilledemployeeswhoareblackcitizens 6.25%
SA-basedemployeeswhoarecitizensfromlocalcommunities 6.25%
2. Local Content 25% Valueoflocalcontentexpenditure 6.25%
3. Ownership 15%
Blackshareholdingintheprojectcompany 3.75%
Blackshareholdingintheconstructioncontractor 3.75%
Blackshareholdingintheoperationscontractor 3.75%
Localcommunityshareholdingintheprojectcompany 3.75%
4. ManagementControl 5% Blacktopmanagement 5.00%
5. PreferentialProcurement 10%
BBBEEprocurementexpenditure 3.33%
SMMEprocurementexpenditure 3.33%
Women-ownedvendorprocurementexpenditure 3.33%
6. EnterpriseDevelopment 5% Communityenterprisedevelopmentcontributions 5.00%
7. Socio-econ.Development 15% Communitysocio-economicdevelopmentcontributions 15.00%
Totals 32% 30% 38%
Source: Authors’ compilation, based on RSA, 2011-13.
APPENDICES
45
APPENDIx 4 9
appendix 4: reiPPPP economic development scoring categoriesOnshore Wind*
1st Round Scoring
Element Measurement Threshold Target
1. Job Creation
SA-basedemployeeswhoarecitizen/numberofSA-basedemployees 50% 80%
SA-basedemployeeswhoareblackcitizens/numberofSA-basedemployees 30% 50%
Skilledemployeeswhoareblackcitizens/numberofSA-based 18% 30%
SA-basedemployeeswhoarecitizensfromlocalcommunities/numberofSA-based 12% 20%
2. Local Content Valueoflocalcontentexpenditure/totalprojectvalue 25% 45%
3. Ownership
Shareholdingbyblackpeopleintheprojectcompany/totalshareholding 12% 30%
Shareholdingbyblackpeopleintheconstructioncontractor/totalshareholding 8% 20%
Shareholdingbyblackpeopleintheoperationscontractor/totalshareholding 8% 20%
Shareholdingbylocalcommunitiesintheprojectcompany/totalshareholding 2.5% 5%
4. Management Control Blacktopmanagement/totalsizeoftopmanagement -- 40%
5. PreferentialProcurement
BBBEEprocurementspend/totalprocurementspend -- 60%
QualifyingSMMEprocurementspend/totalprocurementspend -- 10%
Women-ownedvendorprocurementspend/totalprocurementspend -- 5%
6. EnterpriseDevelopment
Enterprisedevelopmentcontributions/revenue -- 0.6%
Adjustedenterprisedevelopmentcontributions/revenue -- 0.6%
7. Socio-economicDevelopment
Socio-economicdevelopmentcontributions/revenue 1% 1.5%
Adjustedsocio-economicdevelopmentcontributions/revenue 1% 1.5%
*Allsevenrenewableenergycategorieshavethesamethresholdsandtargetsexceptcontent–seeTableX1.Source: RSA, 2011-13
APPENDICES
46
APPENDIx 59
appendix 5: reiPPPP Projects
Project Name Technology Contracted Capacity (MW)
LetsatsiSolarPhotovoltaicPark PhotovoltaicCrystalline–Fixed 64.00
LesediSolarPhotovoltaicPark PhotovoltaicCrystalline–Fixed 64.00
WitkopSolarPark PhotovoltaicCrystalline–SingleAxis 30.00
NobelsfonteinPhase1 OnshoreWind 75.00
TouwsrivierSolarPark PhotovoltaicCrystalline–DualAxis 36.00
DorperWindFarm OnshoreWind 97.53
SoutpanSolarPark PhotovoltaicCrystalline–SingleAxis 28.00
MuliloSolarPVDeAar PhotovoltaicCrystalline–Fixed 10.00
MuliloSolarPVPrieska PhotovoltaicCrystalline–Fixed 20.00
KaxuSolarOne ConcentratedSolarPower 100.00
DassieklipWindEnergyFacility OnshoreWind 27.00
KonkoonsiesSolarEnergyFacility PhotovoltaicCrystalline–Fixed 9.65
MetrowindVanStadensWindFarm OnshoreWind 27.00
KougaRedCapWindFarm-OysterBay OnshoreWind 80.00
RustMo1SolarFarm PhotovoltaicCrystalline–Fixed 6.93
Kalkbult PhotovoltaicCrystalline–Fixed 72.50
AriesSolarEnergyFacility PhotovoltaicCrystalline–Fixed 9.65
SlimsunSwartlandSolarPark PhotovoltaicCrystalline–Fixed 5.00
MainstreamRenewablePowerDeAarPV PhotovoltaicCrystalline–Fixed 45.60
JeffreysBay OnshoreWind 138.00
HopefieldWindFarm OnshoreWind 65.40
CookhouseWindFarm OnshoreWind 138.60
GreefspanPVPowerPlant PhotovoltaicCrystalline–SingleAxis 9.90
KathuSolarPlant PhotovoltaicCrystalline–SingleAxis 75.00
SolarCapitalDeAar PhotovoltaicThinFilm–Fixed 75.00
MainstreamRenewablePowerDroogfontein PhotovoltaicCrystalline–Fixed 45.60
HerbertPVPowerPlant PhotovoltaicCrystalline–SingleAxis 19.98
KhiSolarOne ConcentratedSolarPower 50.00
BokpoortCSPproject ConcentratedSolarPower 50.00
GoudaWindProject OnshoreWind 135.50
SolarCapitalDeAar3 PhotovoltaicThinFilm–Fixed 75.00
SishenSolarFacility PhotovoltaicCrystalline–SingleAxis 74.00
APPENDICES
47
APPENDIx 5 9
appendix 5: reiPPPP Projects (continued)
Project Name Technology Contracted Capacity (MW)
AmakhalaWindProject OnshoreWind 133.70
TsitsikammaCommunityWindFarm OnshoreWind 94.80
WindFarmWestCoast1 OnshoreWind 90.82
WaainekWindPower OnshoreWind 23.28
GrassridgeOnshoreWindProject OnshoreWind 59.80
ChabaWindPower OnshoreWind 21.00
Aurora-RietvleiSolarPower PhotovoltaicCrystalline–Fixed 9.00
VredendalSolarPark PhotovoltaicCrystalline–Fixed 8.82
StortemelkPowerPlant SmallHydro 4.40
Linde PhotovoltaicCrystalline–SingleAxis 36.80
Dreunberg PhotovoltaicCrystalline–SingleAxis 69.60
JasperPowerCompany PhotovoltaicCrystalline–Fixed 75.00
BoshoffSolarPark PhotovoltaicCrystalline–SingleAxis 60.00
UpingtonAirport PhotovoltaicThinFilm–Fixed 8.90
NeusbergHydroElectricalProject SmallHydro 10.00
Mkuze Biomass 16.50
IlangaCSP1/KaroshoekSolarOne ConcentratedSolarPower 100.00
!XiNaSolarOne ConcentratedSolarPower 100.00
JoburgLandfillGastoElectricity LandfillGas 18.00
LongyuanMuliloGreenEnergyDeAar2NorthWind OnshoreWind 138.96
LongyuanMuliloDeAarMaanhaarbergWindEnergy OnshoreWind 96.48
NojoliWindFarm OnshoreWind 86.60
Loeriesfontein2 OnshoreWind 138.23
Noupoort OnshoreWind 79.05
KhobabWind OnshoreWind 137.74
RedCap-GibsonBay OnshoreWind 110.00
AdamsSolarPV2 PhotovoltaicCrystalline–Fixed 75.00
ElectraCapital(Pty)Ltd PhotovoltaicCrystalline–Fixed 75.00
MuliloSonnedixPrieskaPV PhotovoltaicCrystalline–Fixed 75.00
MuliloPrieskaPV PhotovoltaicCrystalline–SingleAxis 75.00
TomBurkeSolarPark PhotovoltaicThinFilm–Fixed 60.00
PulidaSolarPark PhotovoltaicThinFilm–Fixed 75.00
Source: Authors’ compilation. based on DOE data.
APPENDICES
48
ENABLING INFrASTrUCTUrE INvESTMENT
PPiaF is a multi-donor trust fund that provides technical assistance to governments in developing countries to develop enabling environments and to facilitate private investment in infrastructure. Our aim is to build transformational partnerships to enable us to create a greater impact in achieving our goal.
top related