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RE Private PPA’s
Is our market ready?

Powering the
future energy &
utilities excellence
Agenda

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks
IPPPP vs. Private PPA - similarities

Environmental Consent; CAA; Heritage: Security of tenure; land use consent to

Water usage; Agricultural; water usage; DMR; Land build site and connection works where
Permitting Eskom connection quote; etc needed
acquisition

Fully developed shareholders agreement; Energy resource availability; Generation forecast;

Signed PPA; Distribution and use of System Technical project schedule, Cost and timing of grid
Legal criteria supplementary Agreement; connection, Deliverability of
criteria
project

April 2013
PwC
Agenda

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks
Advantages over IPPPP
 Financial
 No competitive process;
 Flex pricing model
 No bid guarantee
 Flex project structure/ funding model/ currency
 Reduce ED requirements
 No 1% development levy
 Flex exit strategy

 Technology
 May be able to relax proven technology criteria
 Can flex procurement

FOCUS ON BANKABILITY, NOT QUALIFICATION

April 2013
PwC
Disadvantages of Private PPA’s
 Financial
 No government guarantee for off-take
 Absorb wheeling charges

 Legal
 Limited local precedent
 Proposed Eskom wheeling model subject to
NERSA approval

 Technical
 Limited impact on security of supply
 Location, location, location

April 2013
PwC
Agenda

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks
Key Considerations - Wheeling
 Generator and customer charged separately for use of system
 Administrative, availability charges and levies unavoidable
 Generator can obtain credits for reducing system losses
 Key factors - Voltage and distance
 Lower voltage transmission lines result in higher losses
 Generator and customer distance from generation hub
 Additional charges if municipal networks are involved
 Customer invoiced on standard time of use (S,P &O) model as if full Eskom supply and
receives rebate @ Megaflex time of use (S,P & O) excluding admin fees and levies

April 2013
PwC
Key Considerations - Wheeling
 Optimum scenario
 Generator – Cape Town
 Customer – Mpumalanga
 Eskom to Eskom Transmission & Distribution

 Worst case
 Generator – Mpumalanga
 Customer – Cape Town
 Municipality to Eskom to Municipality Transmission & Distribution

 Alternative
 Captive generator & customer deploying a mini-grid

April 2013
PwC
Agenda

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks
Key Considerations - Funding/ Bankability
 No state guarantee
 Still require a form of take or pay type obligation
 Heavy reliance on off-taker’s Balance Sheet to support PPA obligations
 DFI support to absorb some risk pricing may be necessary
 More creative funding options available – Export credit, Fx denominated debt?, Vendor
finance
 “Banking” of generated power framework arrangements under consideration if
generators exceeds off-takers requirements due to Eskom constraints
 SA emissions tax from Jan 2015 announced – Could enhance bankability
 Koyoto protocol emissions credits – Could enhance returns, little/ no impact on
bankability

April 2013
PwC
Agenda

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks
Key Considerations - Contractual/ Legal
 Policy framework fairly transparent
 Some template agreements available – Generator use of system; Amendment to Eskom
supply agreement
 Final regulatory approval on Generator charging model pending
 Some gaps in policy/ regulatory framework
 One-to-many relationship contractual/ charging model
 Generation capacity exceeds customer needs

April 2013
PwC
Agenda

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks
Key Considerations - Technical
 May have more flexibility on technology choices – Track record tests
Lender approval
 May have more flexibility on EPC or equipment supply agreements
 Location, location, location – Calculation of wheeling charges
 Little/ no enhancement of security of supply – customer location more important

April 2013
PwC
Agenda

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks
Key Considerations - Other
 Jointly consider accounting risks
 Asset could be reflected on off-takers balance sheet
 Avoid onerous contract obligations

 Macro conditions
 Mining across Africa
 Difficult economic climate
 Tight demand/ supply
 Kusile and Medupi may lead to medium-term surplus
 Short-term load shedding risk
 Grid parity per technology

April 2013
PwC
Agenda

1 Similarities with IPPPP requirements

2 Advantages & Disadvantages against IPPPP

3 Key considerations

3.1 Wheeling

3.2 Funding/ Bankability

3.3 Contractual/ Legal

3.4 Technical

3.5 Other

4 Closing remarks
Closing remarks

Environment overall attractive • Grid parity timing/ business case?

1 • Regulatory process reasonably developed
• IPPPP lessons learnt transferable

More flexibility • Funding flexibility

2 • Technical flexibility

Non-competive • Extra wheeling costs

3 • Still going to come down to savings cents
per kw/h

Tightly integrated team critical • Legal, technical, funding, advisory,

4 customer, sponsors, developers,
accountants

April 2013
PwC
Speaker bio’s

PwC
Co-host
Chris Bredenhann – Energy Industry Leader (South Africa) and
Oil & Gas Advisory Leader for PwC

Chris has more than 23 years of experience with PwC, 19

of which have been in consulting. He’s worked with
small companies to large national and international
clients in Africa, and the rest of the world to develop
strategy, improve operations, processes and systems.

Chris is a sought after presenter at conferences and in

the media on the topic of gas, and has been widely
published. One of his most successful publications, The
Gas Equation, analysed the potential of the natural gas
industry in South Africa.

April 2013
PwC
Co-host
Kasief Isaacs – Renewable Energy Industry Leader (PwC South Africa)

Kasief is the Renewable Energy Industry Leader for PwC

in Southern Africa. He’s worked with a number of local
and international developers participating in the
currently underway IPP procurement program, which
covers a range of topics including advising on the
requirements of the RFP, bid management, model
reviews and funding and structuring options.

He’s currently working with other advisors to assess the

feasibility of two large renewable private power projects
in South Africa. Kasief has presented at several
conferences and has commented on the aspects of the
IPP program in the media.

April 2013
PwC
Panel speaker
Rajen Ranchhoojee – Renewable Energy Partner at Routledge Modise Inc

Rajen is a partner in the Commercial and Energy

Departments and Heads up the Africa Group at
Routledge Modise Inc. He specialises in commercial and
renewable energy and general infrastructure work, having
particular expertise in advising on cross border
transactions and projects.

Rajen has represented no less than 11 successful projects

in the South African Renewable Energy Independent
Power Producer Programme and has closed major energy
transactions in 7 countries in Africa.

He was also advisor to Eskom in its $1.7 billion US bond

offering.

April 2013
PwC
Panel speaker
Amith Sanjith Singh – Principal: Energy | IE&T at Nedbank Capital
Amith has seven years Investment Banking experience in
the Power sector and four years experience with the
Business Governance and Financial Compliance within
the Nedbank Group. Amith served his audit articles with
Ernst and Young and worked in the public sector and
corporate finance divisions post articles.

The Energy team covers all generation technologies:

• Conventional.
• All renewable technologies.
• Co-generation.
• Nuclear.

Amith has extensive Financing experience in the Energy

Sector, both in South Africa and in other African
countries.

April 2013
PwC
Panel speaker
Justin Wimbush – Associate at Arup
Justin Wimbush is an Associate at Arup who is currently
leading the Arup Southern Africa Energy Consulting
team. Justin has worked in the energy field for over ten
years and has worked on projects in South Africa, the UK,
Hong Kong and the USA.

Most recently Justin has used his global Arup links to

build up a team of renewable energy consultants to
provide technical services to the growing renewable
energy industry in Southern Africa. Arup is currently
providing lenders’ and owners’ technical advisory services
to nine SA REIPPPP Bid Window 1 projects (eight PV and
one wind) which start on site this year as well as some PV
and Hydro Bid Window 2 projects that will reach
financial close shortly. The Arup team is also providing
renewable energy technical services to Eskom and is in
the process of concluding their appointment as Eskom
Panel A consultants.
April 2013
PwC