refit rules guidelines license & power purchase agreement

11RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015

REFIT

Maree Roos September, 2015

2RENEWABLE FEED-IN TARIFF WORKSHOP – SEPTEMBER 2015 2

Presentation Overview

REFIT Guidelines

• REFIT Guidelines is to identify and discuss the key components and steps for the successful REFIT program

• REFIT Rules is to provide further guidance on the operationalization of Zambia’s REFIT program

• Amendments to the generation license to facilitate RE generation facilities

• A standardized Power Purchase Agreement to speed up contractual process

REFIT Rules

Generation License

PPA


REFIT GUIDELINES



REFIT Support Mechanisms

• Success of REFIT program is contingent upon a

range of factors including:

– Political, Socio-economic Technical ,Commercial,

Financial, Legal, etc.

• To assist Zambia the Consultant provided REFIT

Guidelines in respect of the following areas:

Program ‘Building Blocks’

Alignment of Policy, Legislation

Regulations

Development of processes, procedures and agreements


REFIT Program‘Building Blocks’


Support Area Brief Description

REFIT Policy Articulate Government support for RE

Conducive Legislation Ensure no legal barriers and where appropriate

support through legislation to enable:

• Formalization of RE procurement program,

• REFIT Rules and Cost Pass-Through

• ZESCO to be designated buyer, etc.

Structure & Term of Program Phases, dates, technologies, limits, off-taker, tariffs

REFIT Procurement Process Responsibilities of institutions and clear process and

timelines

Procurement Evaluation

Criteria

Evaluation criteria should transparent and upfront

Integrated Resource Plan Provide for RE capacity to facilitate licensing process

Implementation Agreement

Direct Agreement

Clearly articulate what support will be offered

Government Support


REFIT

• Approval of tariff arrangement

Power Purchase Agreement

• Develop integration solution and cost

• Enter into agreement with willing developer

Generation License

• Approval of standard Generation license

Cost Pass Through

• Approve a mechanism of cost pass through with a commitment to allow ZESCO to include in Revenue Requirement

Grid Connection Guidelines

• Guidelines to steer the grid connection process including: principles, application process, cost allocation connection charges

Regulatory Support


Power Purchase Agreement

• Willing and able to counter-sign

• Provide support as per agreement

Connection Agreement

• Develop integration solution and cost

• Enter into agreement with willing developer

Create Connection

• Facilitate connection in accordance with Connection Agreement

Direct Agreement

• Enter into a Direct Agreement if required

Utility Support


REFIT RULES



REFIT Rules

The purpose of the REFIT Rules is to provide further guidance on the

operationalization of Zambia’s REFIT Policy by expanding the following areas:

REFIT Principles

REFIT Governance Structures

REFIT Technology

Limits

REFIT Tariff Arrangements

REFIT Power Purchase

Arrangements

REFIT Technical Requirements

Application & Selection process

REFIT License application &

evaluation

REFIT Oversight


Key Principles … 1

a) Applies to projects within the borders of Zambia,

b) Clear roles and responsibilities of key institutions,

c) Meet policy criteria (e.g. technology and capacity

limits),

d) Fair & transparent selection process,

e) Reasonable tariff for a fixed duration,

f) Dedicated power off-taker (purchaser) with a take-or-

pay obligation,

g) Reasonable access to the network


Key Principles … 2

h) Develop & integrate streamlined processes and procedures to reduce time and costs:

i. Standardized PPA, Standardized Generation License,

ii. Standardized Connection Agreement, Suitable Implementation Agreement,

iii. Provision of REFIT capacity in the National Integrated Resource Plan,

iv. Updated legislation and regulations where appropriate ,

i) A dynamic mechanism that reflects market, economic and political developments,

j) REFIT program sustainability through automatic cost-pass through to electricity consumers,

k) RE projects that do not qualify under the REFIT program may be developed through bilateral negotiations with the appropriate authorities and institutions.


DOE - custodian of the REFIT program and developer of policy for RE

procurement within context of integrated resource planning

• e.g. Establishment of a committee to coordinate GOZ efforts,

mandating ZESCO as off-taker, potentially signing Agreements with

developers and lenders, updating Zambia’s REFIT policy from time

to time

ERB - creates an enabling environment for REFIT program through

appropriate regulatory instruments

• e.g. issue and review generation license and fees, establish tariff

structure for RE tech, develop and review the REFIT guidelines,

develop and manage regulations for grid connection (Grid Code),

mediate disputes

ZESCO - electricity off-taker and will enter into PPAs with qualifying and

licensed RE generators from the REFIT program. Shall connect licensed

RE generators to the T&D network in line with agreed cost estimates,

timelines and grid connection agreement

REFIT Governance(Roles & Responsibilities)


REFIT Technology Limits(as per Draft Policy)

Procurement limits per technology (in MW):

• 100 MW for hydro (Max 20MW per project)

• 50 MW non-hydro (Max 20MW per project)

• 10 MW for micro generation


• A single-part energy-only tariff (kWh)Tariff Components

• Base tariff: USDTariff Currencies

• [*] USD/kWh with base date of 1 July 2015Base REFIT

• Annual indexation of the full Base REFIT Tariff for changes in the US inflation rate

Indexation

REFIT Tariff Arrangements … 1


REFIT Tariff Arrangements … 2

• Cost Pass Through

• The ERB’s current tariff methodology provides for full cost pass through of the PPA purchase costs

• ZESCO to include the full purchase cost of REFIT IPPs in its revenue requirement

• ERB shall allow the REFIT IPP costs in ZESCO’s revenue requirement and in the tariff determination

• Cost Recovery of REFIT Power Generators

• REFIT generators are allowed to recover costs through a range of other options including: green electricity sales, donor support, international climate change funds; and carbon finance


REFIT Technical Requirements … 1

• General Conditions - All projects must comply with Zambia’s

relevant technical, legal & regulatory requirements, and

national standards for connection, operations and reporting

• Connection Obligations and Arrangements

• ERB - responsible for developing Grid Connection Guidelines

• IPP - responsible for applying for connection from ZESCO in accordance with Grid Connection Guidelines

• The IPP will pay for costs of interconnection (e.g. cost of construction, upgrading of transmission/distribution lines, substations, & assoc. equipment)

• The IPP will pay interconnection costs upfront


REFIT Technical Requirements … 2

• Connection Obligations and Arrangements

• ZESCO—responsible for processing the grid connection

application in accordance with Grid Connection Guidelines

• The IPP and ZESCO’s Grid Connection Agreement will

govern technical, commercial, regulatory and legal aspects

of the IPP’s connection

• Grid Code Compliance—RE projects that connect to national

grid shall comply with requirements in The Electricity (Grid

Code) Regulations,


REFIT Selection Process

• Competitive bidding process for REFIT

• Bidding will be overseen by MMEWD with transparent

rules to be developed that determine the basis for

project selection and needed criteria;

• Modalities of bidding process to be developed by DOE

in consultation with ERB, ZESCO and other

institutions.


REFIT Oversight

• ERB - responsible for overall monitoring and evaluation of the REFIT

– Annual monitoring review at end of each financial year with evaluation of technology, installed capacity and location

– Program Review to take place at least every 3 years

– Maintain a database and report annually on REFIT program including energy produced, economic impact, and progress

– Act as Secretariat for an interdepartmental steering committee (e.g. ERB, ZESCO, the MoF, MoE, and Mineral Development)

• ZESCO - Monitor and report to ERB annually on REFIT program statistics

including RE generator count, energy purchased, costs, performance, Grid

Code compliance.

• Renewable Energy Generators - report to ERB as it may request, eg. capital

investment, generation performance, O&M costs, fuel costs (if applicable);

report to system operator on relevant info in compliance with the Acts


REFIT LICENSES

Les Kugel September, 2015


ZAMBIA REFITREFIT Generation License

• Is intended to provide a pro-forma licence for

submission by a REFIT developer to ERB.

• Is aimed at renewable energy projects (e.g. less

than 20MW). It is acknowledged that developers

of larger renewable energy projects would

require a dedicated licence.

• Only deals with the requirements of the Energy

Regulation Act and the Electricity Act and related

requirements (e.g. Grid Code)


ZAMBIA REFITKey features of Licence (1)

Feature Comments

Technology Solar, Min-hydro, Wind, Geothermal

Period of Validity Aligned to PPA (20 years from COD)

Lapses of financial close not obtained within 365 days

Effective Date Date of issue – full force and effect on COD

Licensed Rights Right to construct, operate and maintain power plant

Right to sell generated power (to ZESCO only ito REFIT)

May only sell to ZESCO

Licence Conditions Sufficient funds and resources to carry out licensed activities

Comply with Grid Code,

Compliance with other laws (including Competition aspects)

Ring fencing of licensed activities

Comply with standards set by Zambia Bureau of Standards



Feature Comments

Licence Transfer ERB Approval required

Selling of Equity ERB must be informed if more than 5% owners interest sold

Selling of Assets Prior approval of ERB if more than 5% assets sold (materiality test)

Licence

Amendment

Unilaterally by ERB in limited circumstances –

- Change in Law

- Order of competent court

- If provided for in authorizing legislation

On application by licensee

Licence Suspension

and Revocation

- Breach of licence payment obligations (suspend)

- Non-payment of fines (suspend)

- Fails to comply to a notice of breach (suspend)

- Repeated transgressions (revoke)

- Licensee does not commence with licensed activities within two years



Feature Comments

Licence Fees Payable to ERB as provided for in the Act

Licence Renewal Possible at end of period upon application to ERB

Provision of Information - As the ERB may reasonably consider necessary for the

purpose of performing its functions – compliance monitoring

- Other contracts with other licensees or customers

- Changes to PPA and other agreements related to the

generation and sale of power

- Exports of power (if applicable and allowed)


REFIT PPA

Les Kugel September, 2015


Standard PPA

The latest draft PPA :

1. Is intended to set guidance for further discussions and negotiations between the Parties with respect to the development of a definitive PPA which shall be subject to internal approvals by both parties.

2. Is principally aimed at small to medium size renewable energy projects (e.g. less than 20MW). It is acknowledge that developers of larger renewable energy projects may want to negotiate custom designed PPAs

3. Does not contain all matters upon which agreement must be reached in order for the transaction to be completed.

4. Is the latest version accommodating stakeholder comments to date

5. A binding and enforceable contract can only result from the execution and delivery of a mutually satisfactory PPA


Key features of PPA … 1

Feature Comments

Buyer ZESCO (primary responsibilities include: evacuate energy, make payment,

facilitate connection)

Seller Preferred renewable energy IPP (primary responsibilities include: build and

operate power plant, deliver agreed energy, fund grid connection)

Effective Date The PPA come into force on the date of last signature but Effective Date is

the date on which all of the Conditions Precedent have been satisfied or

duly waived

Commercial Operations

Date (COD)

COD means the date on which the complete Power Plant is duly

commissioned pursuant to the Commissioning Schedule, deemed

commercial operations date if Power Plant able to deliver but Byuer not

able to off-take with Deemed Energy payments

Term of PPA 20 years from COD

Sale Energy (kWh) delivered at the Delivery Point

Deemed Energy Energy that was capable of being produced and delivered but Buyer was

unable to evacuate will be deemed sold – possibilities – deemed COD, after

COD,



Feature Comments

Tariff Single energy rate only – no capacity charges

Currency USD

Indexation US Consumer Price Index (annual indexation)

Point of Delivery At the power plant (Buyer responsible for line losses & imbalances)

Metering device The Seller shall install and maintain a meter at or before the Delivery Point.

Buyer has the right to install check meter

Operating Regime Self dispatch with coordinated scheduled maintenance and information

exchange

Invoicing & Payments Monthly invoices (7th), Monthly payments (30th)

Testing Power plant to comply with Grid Code and connection to comply with

connection agreement before COD, sign off by independent engineer

Change in Law and Tax Financial stabilization clause to be provided in IA to ensure Seller is covered

for Change in Law and Tax

Change in Control Limited change in control allowed subject to prior approval



Feature Comments

Force Majeure (FM) New FM clauses with difference between political force majeure and other force

majeure – termination after prolonged force majeure – different regimes in terms of IA

for different types of force majeure & depending on who terminates

Termination Termination for Seller Default, Buyer, Default, Force Majeure, if by Long Stop Date

Financial Close has not been obtained

Compensation in

event of Termination

To be defined in the Implementation Agreement

Dispute Resolution Negotiate – Mediate –Arbitrate (under UNCITRAL rules); expert determination for

technical issues (e.g. metering disputes)

Applicable Law Law of Zambia

Insurance Seller responsibility in accordance with prudent practices

Credit Support Seller responsible to procure and maintain credit support [Letter of Credit, Escrow

account, etc.]

Carbon Credits Belongs to developer

Expiration of the PPA Continued ownership (BOO); re-negotiated PPA

PPA Amendment Prior approval of regulator needed


PPA – Key Dates

•

Effective Date

(Connection

Agreement)

Target COD Last COD Termination

Date

[x] months

Actual COD

[18] months

20 years

Terminate

[12] months

Signature

Date

Last Stop

Date for FC

Terminate

Day-for-Day

extension

due to Force

Majeure

[12] months

Force

Majeure

event

Terminate


END

refit rules guidelines license & power purchase agreement

Economy & Finance