Private and confidential

The IPPPP RFP

Debate: Renewable Energy in South Africa

23 August 2011

1Contents

Section Page

1. Overview of Standard Bank 2

2. SA Renewables Market 4

3. Overview of IPPPP 10

Private and confidential

Section 1

Overview of Standard Bank

3

Standard Bank

Angola (33.3 million)

Botswana (1.8 million)

DRC (63.6 million)

Ghana (23.1 million)

Kenya (34.7 million)

Mozambique (20.3 million)

Lesotho (1.7 million)

Malawi (12.8 million)

Mauritius (1.2 million)

Namibia (2.1 million)

Nigeria (154.7 million)

South Africa (47.4 million)

Swaziland (1.1 million)

Tanzania (37.8 million)

Uganda (27.6 million)

Zambia (14.6 million)

Zimbabwe (13.1 million)

Most comprehensive network in Sub-Saharan AfricaKey points

On-the-ground

presence in 17

African countries

Unrivalled

knowledge of sub-

Saharan Africa

through on ground

presence

Strong product

teams in

Johannesburg,

Lagos, Nairobi and

London

On-the-ground presence in 17 African countries

Nearly 150 years of experience in Africa

Largest bank in Africa

– Over 40,000 employees in Africa

– Over 8,000 bank branches headquartered in

Johannesburg

Growth on the continent is a key strategic focus area

Investment banking presence across the region and in key

markets strengthened by recent acquisitions:

– IBTC Chartered Bank, Nigeria

– CFC Bank, Kenya

– Recent banking license awarded - Angola

Standard Bank - Natural partner in Africa

Private and confidential

Section 2

SA Renewables Market

SA is presently one of the world‟s most exciting renewables markets, adopting renewables late but with a high growth

rate

IRP 2010 is the SA Government‟s 20 year sector master-plan, issued for public consultation (October 2010); Cabinet

approved on 16th March 2011 and promulgated on 6th May 2011.

42% (17.8 GW) of new generation in IRP 2010 is proposed to come from renewable energy - 8.4 GW from solar PV, 1

GW CSP and 8.4 GW will come from wind;

Standard Bank believes new build wind will achieve SA grid parity with the blended wholesale tariff by 2014/2015 and

new build solar may achieve grid parity by 2018/2019. NT is expected to introduce carbon taxes by 2012, wherein the

exposure of the blended Eskom portfolio exposure is an additional R0.12 – R0.14 kWh (SB calculations)). This will

further boost renewable energy (no CO2 charge) competitiveness within SA.

REFIT was the planned renewables route to market. This has been replaced by the IPP Procurements Programme

(„‟IPPPP’‟), which was released on 3 August 2011 and asks for 3,725 MW of which 91% relates to Wind and Solar. This

Programme relates to renewable energy IPP‟s and uses a revised tariff as a cap, with competitive price bidding taking

place up to the cap

Comments on the First Bid Submission Phase are due 31 August 2011 with First Bid Submission due 4 November 2011.

Selection of preferred bidders is scheduled to take place on 25 November 2011, with the projects reaching financial close

on 19 June 2011. Phases 2 – 5 follows accordingly.

Bidders for the First Submission Phase should be capable of beginning commercial operation by June 2014, with any

other Submission Phase capable of beginning commercial operation no later than end 2016

Key points

SA Renewables Sector

IRP 2010 has

significantly

increased

disclosure of SA’s

material power

challenges

Introduction

The IPP

Procurements

Programme, which

was released on 3

August 2011, relates

to renewable energy

IPP’s and uses

revised tariffs as a

cap, for a

competitive bidding

process.

6

Key Geographical Overview

Kusile

Medupi

Thyspunt

Bantamsklip

Koeberg

Ibhubesi

Onshore wind in the Eastern / Western Capes

Strong potential

Natural Gas deposits

found on the west

coast of South Africa

Piped onshore and

used as a feedstock

for Gas-fired power

plants

Shale Gas potential being

evaluated in the Karoo Basin

North-Eastern SA renowned for large coal deposits

3 potential new nuclear sites

ROMPCO gas pipeline

Utilised and sold by

Sasol

Mozambique SA has exceptional DNI

levels

High Solar PV, CPV and

CSP potential

Gas-fired Power

Wind Power Potential

Coal Power Potential

New Nuclear Sites

New/Discard Coal

New Gas

Solar Power Potential

CCGT/Shale Gas Potential

Existing Gas Pipeline

Secunda

Potential New Electricity Generation

7

Key points

The promulgated IRP2010 features the below energy mix

targets for 2030, in terms of new build:

Nuclear 23%

Coal 15%

Imported hydro 6%

OCGT for peaking 9%

Imported gas 6%, and

Renewables 42% or 17,800MW, of which:

– PV: 8,400MW

– Wind: 8,400MW

– CSP: 1,000MW

IRP 2010 - Summary

Overview Consultation Process

The consultation process that ensued after the publishing

of the draft IRP2010 allowed for stakeholders to address

their concerns and make suggestions (479 submissions

received). The below two graphs depict the major

positive impact that the process had on renewables:

Afte

r co

nsu

ltatio

n p

roc

es

s

Pre

-c

on

su

ltati

on

pro

ce

ss

In context

Changes to the IRP2010 include:

The increased allocation of Renewables to the overall

energy mix plan for the 20 year period

The defined technology split of the Renewables

allocation.

The further technology split and allocation of solar into

PV and CSP

Reduction in planned initial allocations of Peak-OCGT

and an increase in Natural Gas-Fired CCGT

IRP2010 is a

landmark public

policy document

that will change the

SA energy

landscape

IRP2010 has hugely

increased SA’s

projected

renewables total – to

17.8 GW over 20

years

8Tariffs - Grid Parity is nearing

Tariff Paths: IRP 2010 vs. Medupi/Kusile vs. Solar PV vs. WindKey points

SA electricity tariffs

are increasing at a

fast rate from a low

base

The YELLOW line is the Policy-Adjusted Scenario („‟PAS’‟) from IRP 2010 (nominal money). The RED line is the PAS from IRP

2010 (nominal money), plus a potential price increase resulting from the proposed carbon tax

The GREEN and BROWN lines are potential tariff paths for Medupi/Kusile (calculated from public information), calculated with and

without carbon taxes. The costs of each project are highly material in terms of Eskom‟s assets and lead to Eskom envisaging two

further 25% tariff increases over the 2013-2015 period, before inflationary increases are expected

The PURPLE line is the wind IPPPP Price cap line indexed at 2% p.a.

The BLUE line is the PV / CSP IPPPP price cap line indexed at 2% p.a.

Clearly, in the medium to long-term, Wind and Solar PV are set to become highly competitive in the SA energy space.

We assume that future IPPPP price caps will be reduced in line with future equipment price trends

Note the central IRP

projections exclude

the introduction of

Carbon Taxes (dealt

with as a scenario

although scheduled

to be imposed from

2012)0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030

Eskom National Blended Tariff (as per Policy-Adjusted Scenario) + Carbon Tax

Eskom National Blended Tariff (as per Policy-Adjusted Scenario)

Onshore Wind - IPP Procurement Programme (Phase 1 Tariff Cap) -Inflation at 2% for Opex

Kusile + Enviromental Levy + Carbon Tax

Kusile + Enviromental Levy

Medupi + Enviromental Levy + Carbon Tax

Medupi + Enviromental Levy

Solar PV / CSP - IPP Procurement Programme (Phase 1 Tariff Cap) -Inflation at 2% for Opex

UK , USA, Ireland and Eskom Bailouts 2008 – 2010

Eskom is a 100% State owned Enterprise. Under duress to fund its massive new build programme until tariff increases make its

financial position sustainable, Eskom has been provided with massive financial support from the SA Government

Maximum R 350bn of loan guarantees + R[60-80]bn of shareholder loans / equity = R[410-430]bn (USD 59-61bn)

We have compared the size of Eskom‟s “support” (total loan guarantees and shareholder loans) with the “banking bail outs” of USA,

UK and Ireland which are the nearest global precedents.

Eskom‟s total support (R430bn) represents 16.9% of 2010 SA GDP. This is higher than the equivalent banking bail-outs for their

2010 economy – for the USA (5%) and the UK (8.1%), but not for Ireland (81.1% - incl. Nov 2010 Bailout)

The SA Government has stated that tariffs have to increase in order for the loan guarantees not to be called. This issue is

supplemental to DOE‟s IRP 2010 price path (previous slide), and effectively calls upon the independent regulator (NERSA) to

approve future tariff increases, which may be increased by the reimbursement of carbon taxes paid by Eskom to its upstream

suppliers (coal miners)

Note: The bailouts of financial

institutions in the UK, USA and

Ireland are reflected from 2008 –

2010, while the other statistic

represents the funding/credit

support by SA Govt of Eskom.

The Irish bailout reflects the recent

November 2010 bailout

The bailouts represent 81.1%, 5%,

8.1% and 16.9% of the 2010 GDP‟s

of Ireland, the USA, the UK and

South Africa respectively

Key points

81.1%

5.0%8.1%

16.9%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

Ireland USA UK Eskom

Bailo

ut

% o

f 2010 C

ou

ntr

y G

DP

Bank/Utility Credit Support as a Percentage of Country 2010 GDP

What will underpin IRP tariff increases?

The magnitude of

the support of

Eskom - 16.9% of

2010 GDP shows the

importance of the

SA power sector

Eskom’s loans are

intended to be

serviced from

increased tariffs

Private and confidential

Section 3

Overview of IPPPP

11SA Renewables Overview

Overview IPPPP Tariff Caps v Eskom 2012-2013

SA‟s Renewable Energy scheme will be a competitive bid scheme

(IPPPP), with the tariff caps as per the diagram alongside. The scheme

includes the following technologies: onshore wind, small hydro, Landfill

Gas (LFG), biomass (solid), biogas, photovoltaic systems and CSP.

IRP 2010 requires 300 MW solar PV per year from 2012 to 2024, 400

MW wind from 2014-2023, 200 MW solar CSP by 2015, with 100 MW

p.a. through to 2025

The IPPPP aims to kick-start the process of reaching the IRP 2010

targets, with the allocations represented in the diagram below.

Eskom will be the buyer of the power produced by signing the PPA,

acting through its Single Buyer Office (SBO).

Government will provide support for PPA payment obligations through

the Implementation Agreement with DoE

Current IPP Procurement Programme Structure

RE IPP

Single Buyer Office

(Eskom)

NERSA

Consumers

Generation Licence

Regulates national

tariffs, enables cost

pass through

Electricity

Electricity

Money

Money

PPA

IPP Procurement Programme MW Allocations

200

1850

1450

12.5 12.5 25 75

0

500

1000

1500

2000

Concentrated Solar Power

Onshore Wind Solar Photovoltaic

Biomass Biogass Landfill Gas Small Hydro

IPP Procurement Programme MW Allocations - Procurement Targeted on/before June 2014 (CSP June 2015)

MW

285

115

285

107

80

60

103

66

0 100 200 300

Concentrated …

Onshore Wind

Solar …

Biomass

Biogass

Landfill Gas

Small Hydro

Eskom

Concentrated Solar Power EskomIPP Procurement

Programme

ZAR Cents / KWh

12

Timing

Process & Structure

Key points

1st Bid Submission

Date – 04 November

2011

2nd Bid Submission

Date – 05 March

2011

DoE does not

guarantee that

there will be a

2nd, 3rd, 4th or 5th

Bid Submission

Date

Evaluation of Bid Responses for 1st phase of REFIT

7 November –25 November 2011

Signing and effective date of Project Agreements19 June 2012

Bidders’ Conference

14 September 2011

First Bid Submission Date

4 November 2011

Preferred Bidders to finalise their contractual arrangements28 November 2011 – 22 May 2012

Issue of RFP

3 August 2011

Bidders to notify the DoE of required project information 31 August 2011

Selection of Preferred Bidders in respect of First Bid Submission Date

25 November 2011

Signing and effective date of Project Agreements13 December 2012

Preferred Bidders to finalise their contractual arrangements15 May 2012 – 13 November 2012

Second Bid Submission Date5 March 2012

Evaluation of Bid Responses for 2nd

phase of REFIT6 March 2012 – 11 May 2012

Selection of Preferred Bidders in respect of the Second Bid Submission Date14 May 2012

Notification by the Department of Second Bid Submission Date 25 November 2011

November 2011

August 2011

Second Bid Submission Phase

First Bid Submission Phase

13

Qualification Criteria

Process & Structure

Key points

1st stage – all bid

responses will be

assessed using the

Qualification Criteria

to determine

whether they are

Compliant Bids

Technical Criteria

and Evaluation

Proven technology, energy resource

availability, generation forecast, project

schedule, cost and timing of grid

connection, deliverability of project, water

consumption

Legal Criteria and

Evaluation

Project participants: equity participants,

lenders, contractors, equipment suppliers,

black enterprises and local community

members

Title deeds, notarial leases, land use

consents including consents for

connection works

Financial Criteria

and Evaluation

Economic

Development

Criteria and

Evaluation

Submission of Bid

Guarantee

Structure of the

Project

Land Acquisition

and Land Use

Criteria and

Evaluation

Environmental

Consent Criteria

and Evaluation

Environmental consents namely a positive

Record of Decision from the Department

of Environmental Affairs

Bid submission : R100,000 per MW,

Preferred Bidder status: R200,000 per

MW, Development fee: 1% of total project

cost

Fully developed shareholders agreement,

acceptance of project agreements (i.e.

PPA, Implementation Agreement, Direct

Agreement etc), Statements by Members,

Key subcontracts

Price (full indexation and partial

indexation), financial standing of project

sponsors, robustness and deliverability of

funding proposal, robustness of financial

models

Only compliant bids

will make it to the

2nd stage

40% SA entity participation: Job creation,

local content, black ownership including

local communities, preferential

procurement, enterprise development,

socio-economic development

14

Evaluation Criteria

Process & Structure

Key points

2nd stage –

Compliant bids will

be evaluated based

on PRICE and

ECONOMIC

DEVELOPMENT

Total points 100

Two prices to be provided (1) full CPI indexed and (2) partial CPI indexed per Bidder‟s election

The base date for the CPI rate shall be April 2011 and adjusted annually (based on previous year‟s CPI)

2 step process to calculating the Equivalent Annual Tariff („‟EAT‟‟)

– Calculating the EAT for each price based on formula provided and discounted back to the base date

– Each Bidder‟s EAT will be calculated by reference to the lowest EAT for the same technology

Job creation 25%, local content 25%, ownership 15%, management control 5%, preferential procurement,

10%, enterprise development 5%, socio-economic development 15% total 100% total points 30

Wind ownership targets: shareholding by black people in Project Company [12% - 30%], shareholding by

local community in Project Company [2.5% - 5%], shareholding in contractor responsible for construction [8%

- 20%], shareholding in operations contractor [8% - 30%],

PV ownership targets: shareholding by black people in Project Company [20% - 40%], shareholding by local

community in Project Company [2.5% - 5%], shareholding in contractor responsible for construction [8% -

20%], shareholding in operations contractor [8% - 40%],

PRICE 70%

ECONOMIC DEVELOPMENT 30%

70/30 PRICE/,

ECONOMIC

DEVELOPMENT

weighting

15

Overview

Grid Connection

If the Bidder intends to connect to the Transmission System, the Grid Provider will be NTC.

If the Bidder intends to connect to a Distribution System, the Grid Provider will either be the “Distribution”

business unit of Eskom, or a municipality, depending on the location of the point of connection

Shallow Connection Works:

Deep Connection Works:

– The Department will provide clarification to the Bidders in relation to the cost of and process for

undertaking "deep connection" by way of a Briefing Note to be issued by the Department during the IPP

Procurement Programme

If a number of Projects all intend to connect to a common substation, and the available capacity of the

substation is insufficient to accommodate all of the Projects, the DoE will comparatively rank these bids

against each other and the highest ranking bids will be awarded preferred bidder status

Key points

Non-negotiability of

Connection

Agreement i.e.

Transmission

Agreement /

Distribution

Agreements

Transmission /

Distribution

Agreements to be

concluded prior to

or simultaneously

with the conclusion

of the PPA

Grid Connection Options

for shallow connection works

Grid Provider

undertakes the connection works

Bidder Self Build

and transfer to Grid Provider

Bidder Self Build

and Bidder retains ownership

1

2

3

16IPPPP Analysis and Conclusion

Feedstock 2-year

RFP MW

Value – All-in/MW

(USDm)

Value –

(USDm)

Equity

(30%) – USDm

Bidder Guarantee

Req’d (ZARm)

Preferred Bidder

Guarantee Req’d (ZARm)

Development Fee

(1%) – USDm

Wind 1,850 2.0 3,700 1,110 185.0 370.0 37.0

PV 1,450 3.7 5,365 1,610 145.0 290.0 53.65

CSP 200 7.0 1,400 420 20.0 40.0 14

Biomass 12.5 3.7 46 14 1.25 2.5 0.46

Biogas 12.5 2.5 31 9 1.25 2.5 0.31

Landfill Gas 25 1.7 43 13 2.5 5.0 0.43

Small Hydro 75 2.0 150 45 7.5 15.0 1.5

Total 3,625 - 10,735 3,221 362.5 725 107.35

Req

uest

for

Pro

po

sal

(RF

P)

Req

uir

em

en

ts

High SA shareholding (including BEE)

High local content (Manufacturing, O&M etc.)

Associated USD [3-3.5] bn equity requirements

Estimated USD [10-11] bn of committed capital

expenditures up to 2013 (Financial Close)

Capped tariffs seen as enabling equity investments

Renewables Development

PPA is not able to be marked up, but remain as-is

Clarification needed on some elements of PPA, e.g. Force Majeure

Evaluation discount rate likely to be lower than inflation

“Own Build” & Deep grid connection still being finalised

SBO and NTC remain part of Eskom

DBSA BEE support likely to be unacceptable to Lenders

Transfer of interest rate risk post bid given financial market reality and CPs

not within Bidder‟s control

300 day duration of bid validity risk Can EPC prices be held this long?

Would PV bidders want to contract at a price that will almost certainly

reduce in 300 days?

Scope of pricing differentials and BAFOs (CSP?)

Key Requirements Areas of Uncertainty

17Disclaimer

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