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Bidders’ Guide to Power Purchase Programmes, slEconomics for Eskom (SOC) Pty Ltd

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slEconomics, acting on behalf of Eskom (SOC) Pty Ltd, developed a Bidder's Guide to Power Purchase Programmes covering three procurement initiatives as of 2008: …

slEconomics, acting on behalf of Eskom (SOC) Pty Ltd, developed a Bidder's Guide to Power Purchase Programmes covering three procurement initiatives as of 2008:
• Pilot National Cogeneration Programme (PNCP)
• Medium Term Power Purchase Programme (MTPPP)
• Multi-site Baseload Independent Power Producer
Programme (‘Baseload IPP Programme’)
While the many conditions underlying the procurement programmes and associated PPAs covered in these Guidliens are complex by nature, fundamental aspects of each PPA can be usefully summarised to highlight key similarities and differences between the various programmes. In this regard, the aim of these Guidelines is to help bidders form a broad view on which programme might best suit their needs, and to be able to better understand why certain provisions might vary between the alternative programmes. As such, this summary is not intended to provide a comprehensive overview to any of the individual programmes, but is intended to provide a map for investors to utilise in formulating their initial bids.(Dr Stephen Labson, lead author, May 2008)


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  • 1. Bidders’ Guide to Power Purchase Programmes ________________________________ Bidders’ Guide to Power Purchase Programmes Overview of what they are and how they will work May 2008 _______________________________ 1
  • 2. Bidders’ Guide to Power Purchase Programmes The material provided in this document is meant only to provide a broad descriptive guide to certain key aspects of the various programmes discussed here, and is not meant to be either comprehensive or definitive. In all cases bidders should refer directly to relevant agreement documents for consideration of any and all of these matters. Bidder’s are also cautioned that material changes might be applied to any or all of the documents referred to in this descriptive guide and the summaries provided here may become obsolete as such changes are made. Eskom does not intend to update this specific document to reconcile such changes if and when they are made to relevant agreement documents. Moreover, this briefing does not form part of an agreement between Eskom and bidders, and in any and all cases where this document is found to be inconsistent with agreement documents in meaning or intent, the agreement documents shall take absolute precedence. slEconomics Economics Consulting in Utilities and Infrastructure 1
  • 3. Bidders’ Guide to Power Purchase Programmes TABLE OF CONTENTS 1 OVERVIEW 1 1.1 MEETING SOUTH AFRICA’S ENERGY NEEDS 1 1.2 PRIVATE SECTOR PARTICIPATION IN POWER SUPPLY 1 2 THE POWER PURCHASE PROGRAMMES AT A GLANCE 3 2.1 PILOT NATIONAL COGENERATION PROGRAMME 3 2.2 MEDIUM TERM POWER PURCHASE PROGRAMME 8 2.3 BASELOAD IPP PROGRAMME 10 2.4 PROGRAMME COMPARISON 11 APPENDIX A: PROGRAMME TIMELINES 13 APPENDIX B: FREQUENTLY ASKED QUESTIONS 15 2
  • 4. Bidders’ Guide to Power Purchase Programmes 1 Overview 1.1 Meeting South Africa’s energy needs Electricity is a strategic sector of the South African economy underpinning growth and developmental objectives set out by Government. Over the next few years, the country is expected to experience continued growth in electricity demand, driven by growth in the industrial, mining, commercial and domestic consumer sectors. As a result of higher than anticipated demand growth and limited investment in new generation infrastructure over the last 15 years, Eskom’s generation reserve margin has fallen below 10%. This low level of reserve margin is well below conventional industry benchmarks, and Eskom plans to restore generation reserve margins to 15% in the medium term and to 19% on a long term basis. However, the reality of the Electricity Supply Industry is that there are long lead times to build needed infrastructure. On the generation side, fuel sources need to be secured, planning and environmental requirements must be addressed, sophisticated power generation equipment needs to be purchased, and extensive civil engineering works to be undertaken in building power plants. There are also the high voltage wires to put into place to connect power generation to major demand centres, and the lower voltage distribution network often needs to be upgraded to get this power to end use customers. These long lead times mean that a ‘horizon of approaches’ must be undertaken together to ultimately meet South Africa’s energy needs now and into the future. In the short term, demand side initiatives will play an important role. In the medium term, alternative supply side options become feasible and in the longer term, more traditional baseload power supply options can be relied on to secure the nation’s position as an efficient and low cost power producer. 1.2 Private sector participation in power supply Eskom and Government are moving ahead on a number of demand side and supply side initiatives. Importantly - private sector participation will play a significant role in meeting the medium and long term power supply needs of the country. This is set within the context of Government’s directive that 30% of new generation capacity will be developed by the private sector. In light of these matters, three key programmes have recently been developed to procure power supply from the private sector: • Pilot National Cogeneration Programme (PNCP) • Medium Term Power Purchase Programme (MTPPP) 1
  • 5. Bidders’ Guide to Power Purchase Programmes • Multi-site Baseload Independent Power Producer Programme (‘Baseload IPP Programme’) These three key programmes are meant to each achieve separate but related goals, and have been designed with the unique aspects of different power developers needs in mind. For example, the very nature of cogeneration facilities requires flexibility in operation of the facilities and supply on an ‘as-available’ basis, where as large stand-alone baseload power generation facilities would be expected to supply on a more ‘firm’ basis. The various terms and conditions of power purchase agreements (PPAs) set out for each programme will reflect these fundamental characteristics. Moreover, each of these programmes will play a significant role in the development of medium and long term power supplies. The PNCP and MTPPP have been designed focusing on projects that can realistically be commissioned in the next several years. Alternatively, it is recognised that large baseload power plants will only be able to be built in the longer term, and that commissioning of these projects would be aimed for over the next five year or more. Again, the fundamental differences between these two types of programmes (medium and long term) will be reflected in the terms and conditions of a PPA. Power Conservation Programme In the short term demand side programmes are crucial to stabilising supply/ demand balances in the system. Eskom, in concert with Municipalities, Government, and customers, is developing an Energy Conservation Scheme (ECS) with the aim of reducing the need to load shedding in the short term, and to enable sustainable growth in the sector for the long term. While the details of the programme are still being refined, the criteria used in designing it are to: • Achieve a sustainable balance in supply and demand. • Provide a framework that is simple to implement and administer. • Set rules that are fair and equitable to all. • Signal efficient use of electricity. • Facilitate cost-effective outcomes. • Minimise impact on customers. Key features of the ECS are that it would establish baseline consumption thresholds applying to various end use segments with penalties attached for over-stepping these thresholds, and where proven practical, allow for trading consumption allocations - or the ‘right to consume’ (RTCs). 2
  • 6. Bidders’ Guide to Power Purchase Programmes 2 The power purchase programmes at a glance While the many details underlying a PPA are complex by nature, there are a number of key aspects within each PPA that can be usefully summarised to highlight key similarities and differences between the various programmes underway. In this regard, the aim here is to help bidders form a broad view on which programme might best suit their needs, and for them to be able to better understand why certain provisions might vary between the alternative programmes. As such, this summary is not intended to provide a comprehensive overview to any of the individual programmes, but is intended to provide a map for further exploration. A brief summary of the more unique aspects of each of the three programmes is provided below.1 2.1 Pilot National Cogeneration Programme Key objectives of the Programme The development of cogeneration facilities within South Africa has been identified as an important component of the overall strategy to obtain power supplies form the private sector in the medium term. In line with NERSA’s position regarding the introduction of cogeneration into South Africa’s electricity industry, Eskom is embarking on a process to procure approximately 900 MW of commercial cogeneration supply. The objective of the PNCP is to stimulate the development of cogeneration technologies in South Africa and in so doing contribute towards meeting the need for new generation capacity. The additional benefit here is that in many cases, early commissioning of facilities would be feasible, thereby providing needed capacity in the medium term. The duration of contracts is for up to 25 years, so that this Programme provides a ‘bridge’ from the medium term to the long term. The 25 year duration is also meant to support project finance arrangements that developers may wish to secure with their financiers. Bidders should further note that the specific objective of the PNCP is to stimulate cogeneration development in isolation from other types of development initiatives within the electricity generation sub-sector, e.g. renewables. NERSA is moving ahead on a renewables policy, and the outcome of that initiative would likely provide an additional option for potential power developers. With this in mind, the requirements unique to renewables projects have not been catered for in the PNCP. Price incentives for early commissioning Keeping in mind that one key aim of the PNCP is to facilitate early commissioning of cogneration facilities, an Early Completion Incentive (ECI) has been provided for in the pricing arrangements. The ECI applies to the Base Energy Rate (price) for those projects that are able to achieve early commissioning of plant. 1 With the aim of setting out some of the more unique components of the programme provisions, we note that we have not discussed vital aspects of the PPAs more generic in nature, such as provisions for force majuere, change in law, termination, change of ownership, etc. These are important matters, and bidders will need to fully examine the details of each PPA accordingly. 3
  • 7. Bidders’ Guide to Power Purchase Programmes The incentive works on a step basis over time whereby the Base Energy Rate is uplifted by a proportionally greater amount in the very early periods of the Programme, and reduces through to 2013. Keeping in mind that the duration of the contracts is for up to 25 years, the Base Energy Rate would be expected to be in line with long run cost of production. Bidders have the ability to bid in values up to the maximum as set out in the table below. That is, they can bid up to the Base Energy Rate plus the additional ECI % uplift for those years set out below. Early Completion Incentive Early Completion Period Early Completion Incentive (uplift of Base Rate) Sub-period 1 1 May 2008 – 30 April 2010 Bidders may bid up to 45% ECI Sub-period 2 1 May 2010 – 30 April 2011 Bidders may bid up to 40% ECI Sub-period 3 1 May 2011 – 30 April 2013 Bidders may bid up to 30% ECI Note: bid ECI % is addition to the bid Base Energy Rate This declining step structure is meant to address short run constraints on South Africa’s power supply and thereby recognises the added value of additional power sources in the next several years. Alternatively, the draw down (to the Base Energy Rate) by 2013 recognises that in the medium to long run more cost effective supply solutions will become available by way of lower cost baseload stations. From 1 May 2013 the Early Completion Incentive reduces to 0%. Self dispatch energy supply Cogneration facilities will operate and sell power to Eskom on a self dispatch basis. The self dispatch nature of the PPA recognises the unique operating characteristics of most cogeneration facilities. Nevertheless, Sellers will provide in their signed PPAs generation profiles setting out on a monthly basis, for the full term of the contract, forecast energy to be generated by the cogeneration facility. Various allowances to these forecast generation profiles are made for both planned and unplanned outages, and performance-linked penalties are attached where prescribed thresholds are breached (we discuss these in later sections). Off-set against Power Conservation Programme As broadly outlined in a previous section, Eskom is looking at policies to introduce a Power Conservation Programme (PCP) which may impact Bidders. To allow Bidders to use capacity of the Cogeneration Facility to satisfy obligations they may have under a PCP, provisions relating to the PCP will be inserted to the PPA once the Programme details have been finalised. 4
  • 8. Bidders’ Guide to Power Purchase Programmes Broadly the provisions will state that the implementation of a PCP will trigger an option for the Seller to (i) terminate the PPA within 2 months (without penalties) or (ii) elect to lower the Net Capacity contracted for, and the Seller will be free to “self-supply” or on-sell the remaining capacity (that is no longer subject to the PPA) without any restrictions or limitations for the remainder of the Term. Energy only payments A key aspect of this PNCP is that payment to Sellers is on an ‘energy only’ basis, and fixed capacity payments will not be provided. Sellers receive a Commercial Energy Payment for metered Net Energy Output (kWhs) for the period set out in the Fixed Term of the Agreement (i.e 7-25 years). The energy only payment structure is central to the design of this self dispatch PPA. Sellers have reasonable flexibility in regard to the operation of their facilities - albeit with strong financial incentives to operate. Alternatively, Eskom only pays for energy generated (metered deliveries of Net Energy Output). Broadly speaking, if cogeneration facilities are not in operation, they do not receive payments (aside from very special circumstances set out in the PPA). This energy only payment structure greatly simplifies provisions that would otherwise be needed where availability is contracted for (i.e. by way of capacity payments and penalties for non-performance) while providing needed operational flexibility to the cogenerators. Time of Use With operating efficiencies at the system level in mind, Energy Payments have been modified by defining Time of Use (TOU) Energy Rates (prices). The TOU approach is intended to provide greater incentives for cogenerators to operate during peak periods of demand, while also recognising that there is value to baseload power generation as well. For the purposes of this PPA, Peak Period is defined as 06h00 through 20h00, with Off-Peak as 21h00 through 05h002 . The TOU Factors for the corresponding TOU Periods are as follows: TOU Period TOU Factors Peak 1.309 Off-peak 0.485 Performance Factors Unlike large stand alone generation facilities that can be centrally dispatched and that may provide power on a ‘fully firm’ basis - cogeneration facilities are only able work on a self dispatch / ‘non-firm’ basis. While there are clear 2 If the Fixed Term is in excess of 15 years, the Buyer may amend the TOU Periods, and the corresponding TOU Factors, occurring in the period after such 15 (fifteen) years; provided that such amendments shall not have a material adverse effect on the commercial benefits for the Seller over such remaining Term. 5
  • 9. Bidders’ Guide to Power Purchase Programmes advantages stemming from the self dispatch and energy only payment arrangements as applied to the PNCP, a counterpoint is that Sellers (without the adjusting the Base Energy Rate by a Performance Factor) would be paid the full price even if the plant’s production drops significantly from what was provided for under the generation profile provided in a bid. Poor performing plants have less value to Eskom, thereby needing some form of price adjustment for plants that do not operate within the planned supply parameters set out in the PPA. This matter is addressed by a penalty type arrangement in the form of the Performance Factor. The purpose of the Performance Factor is therefore to: • Reflect the lower value of unreliable power supply to Eskom. • Provide greater incentive to the Seller to operate the cogeneration facility within the planned supply parameters set out in their bids. The basic principle of the Performance Factor is that the Seller should receive the full Energy Rate (price) if the plant is able to meet or exceed a specified minimum production levels as referenced to its bid production schedule. On the other hand, the value of non-firm energy is essentially Eskom’s variable cost of production which consists mainly of fuel costs. The Performance Factor should therefore modify the price received to reflect the facility’s ‘firmness’ (or in other terms - reliability). The following factors have been addressed in design of the Performance Factor under the PPA: • Monthly plant performance is measured as a percentage and is the actual energy production (kWhs) in a month divided by the Sellers’ production schedule (submitted as part of the bid) for the same month. • In order to cancel out the affects of planned maintenance shutdowns, seasonal variations and short periods of high unplanned breakdowns the measure of performance of the plant is taken over a 12-month period. The performance is measured as a percentage and is the actual energy production (kWhs) over any 12 consecutive months divided by the Sellers’ production schedule (submitted as part of the bid) for the same period. • It is recognised that production profiles are rather variable and uncertain for any single cogeneration facility. Alternatively, Eskom will be largely ‘diversified’ from this risk given the number of facilities (portfolio) that will be supplying under the PNCP. With this balance of risks in mind, the Performance Factor only starts to trigger when actual production for a given facility falls below 60% of planned production (over a 12-month period). • At severely deficient operating levels, the price received by a Seller is reduced to 30% of the Base Energy rate, simulating Eskom’s variable (avoided) costs. • It is recognised that production profiles are rather variable and uncertain for any single cogeneration facility. Alternatively, Eskom will be largely ‘diversified’ from this risk given the number of facilities 6
  • 10. Bidders’ Guide to Power Purchase Programmes (portfolio) that will be supplying under the NCPP. With this balance of risks in mind, the Performance Factor only starts to trigger when actual production for a given facility falls below 60% of planned production (on a 12 month rolling average basis). • At severely deficient operating levels, the price received by a Seller is reduced to 30% of the Base Energy rate. The following diagram illustrates how the above approach is applied to determine the Seller’s (average) price received with regard to the Performance Factor: Indexing, fuel costs and pass-through The energy only basis for payments is augmented by an escalation factor recognising general affects of inflation on project variable costs3 . With this in mind bidders nominate the variable proportion of their costs (percentage of total cost) and that proportion is used with the RSA PPI in escalation of the Base Energy Rate. Under the PNCP, this indexing of variable costs is the only mechanism provided to Sellers in regard to increasing fuel costs. Bidders take this risk and must price it into their bids. The logic here is that cogenerators will be primarily utilising waste fuels and should be able to manage these costs accordingly. The only pass through provided for is in regard to network use-of-system costs. However, Bidders are reminded that network connection costs will for their account and should be built into the price offered to Eskom 3 The full Energy Rate is indexed through through April 2013 to preserve the benefit of the ECI. There after only the variable component is indexed. 7
  • 11. Bidders’ Guide to Power Purchase Programmes 2.2 Medium Term Power Purchase Programme Key objectives of the Programme Eskom is seeking to augment its short to medium term power supply under the MTPPP. The Programme is set up for power supply solutions ranging from 5MW to 1000MW that have the ability to reach commercial operation by at the latest 2012, and contracts will not extend past December 2018. Eskom will not prescribe the types of technologies or generation facilities to be developed under this Programme. By way of example (and by no means limited to) Eskom is anticipating the following types of generation options to be proposed, and will only require that they incorporate proven technology: • New build. • Incremental capacity increases to existing plant. • Refurbishment of existing plant leading to greater efficiencies. • Arrangements where third parties with available capacity (not necessarily the producer of such energy) may allocate capacity to Eskom. The aim here is to provide an option to project developers that have the ability to bring supply on line by 2012 or sooner, and that prefer not to have long term off-take arrangements in place. While not meaning to be prescriptive, the type of projects that might find this suitable are existing facilities that may already be depreciated, technologies that have shorter life cycles, or for developers that anticipate alternative uses of that capacity post 2018. The relatively short duration of the PPA probably means that project finance arrangements would not be feasible (or at least severely limited) under the terms and conditions of the MTPPP. The thinking here has been that the type of facilities most likely to rely on project financing would not in any case be able to be commissioned by 2012 (i.e. large greenfield projects). For those projects that do require project financing, the PNCP or Baseload IPP Programme would be better options to pursue as they have been designed with project financing in mind. Admittedly, smaller long lived renewables projects might not be well catered for by these Programmes, but as noted previously, NERSA is intending to implement a renewables policy in the near future and it is anticipated that that would offer a solution for then in regard to duration of contracts and ability to secure financing. Price incentives for medium term supply The pricing structure employed for the MTPPP recognises the value to Eskom of being able to secure power in a timeous manner, and with those commitments extending to 2018 at the latest. In this regard, some of the same broad logic in which the ECI is based on within the PNCP is applied to pricing in the MTPPP. 8
  • 12. Bidders’ Guide to Power Purchase Programmes Noting the value of energy supplied to Eskom over the short to medium term, a sculpted price will be allowed that recognises the additional value of energy in the first years of the Programme, and that tapers off towards a long run cost of production in the later years of the PPA. For facilities that have useful lives in excess of 10 years, all rights to power supply would return to the Seller, and remaining capital costs would be recovered as they choose. Self dispatch energy supply The MTPPP is designed to cater to a range of facility types and sizes, and for this reason they will operate and sell power to Eskom on a self dispatch basis (as for the PNCP). Likewise as for the PNCP, bidders will provide generation profiles setting out on a monthly basis, for the term of the contract, energy to be supplied to Eskom from the facility, and various allowances will be made for both planned and unplanned outages. The MTPPP also anticipates that some projects will already have existing commitments in place regarding off-take, and that others may wish to retain a portion of capacity for own use. With this in mind, bidders are able to declare a level of Contracted Capacity, and the terms and conditions of the agreement will apply to that amount. This would also allow bidders to set aside capacity for any PCP obligations that might apply. Energy payments A number of key payment structures are broadly the same as for the PNCP.4 Key features of the payment mechanisms similar to those of the PNCP are that: • Payment to Sellers is on an ‘energy only’ basis. • There are no fixed capacity payments provided. • Sellers receive a Commercial Energy Payment for metered Net Energy Output (kWhs). • Energy payments are modified by TOU rates. • A Performance factor is applied in cases where production drops significantly from what was provided for under the generation profile provided in a bid. However, indexing is rather different for the MTPPP, as there is a simple indexing of the full Base Energy Rate by the PPI, as opposed to the variable only component of the PNCP (after April 2013). There are no other adjustments made for fuel costs, and remaining risks are to be priced into the bid and then managed by the Seller. 4 We note that there are some subtle but material differences in payment clauses, and that bidders should closely examine the relevant PPAs in any case. 9
  • 13. Bidders’ Guide to Power Purchase Programmes 2.3 Baseload IPP Programme In addition to the PNCP and MTPPP, there is a need to fill a long-term supply gap of at least 2 100 MW with baseload and dispatchable power in the 2012 to 2016 period. As the designated Single Buyer of power from Independent Power Projects, Eskom together with Government has recently issued an Expression of Interest (EOI) for Multiple Site Base Load IPPs (excluding nuclear) in the Republic of South Africa. Eskom will be the sole off-taker of power provided by the relevant facilities under a PPA with a term of up to 40 years from the date of commercial operation. A minimum size per project is 400 MW. Depending on the EOI responses to be received in early June 2008, it is expected that the next steps will be as follows: • Request for Qualification (RFQ) will be issued at the end of June 2008 • Request for Proposal (RFP) will be issued in July 2008 • Tender award is expected in the 2nd Quarter of 2009 The details of this Programme are being formulated and will be provided to bidders accordingly. 10
  • 14. Bidders’ Guide to Power Purchase Programmes 2.4 Programme comparison While not meaning to imply that all aspects of these complex PPAs can be summarised in one short table, we have set out below some key aspects of the PPAs on a comparison basis for the three programmes examined in this Guide. We also note that all terms and conditions summarised below are subject to change. Comparison of power purchase programmes PNCP* MTPPP** Baseload IPP Programme*** Latest COD Latest COD = 2012 Latest COD = 2012 Latest COD = 2016 Duration 7 - 25 years duration No later than 2018 Up to 40 years duration Dispatch Self dispatch Self dispatch Central dispatch to be determined (TBD) Technology Cogeneration, 1 MW or greater Any technology, 5MW-1000MW Any technology, minimum size of project 400MW Payments Energy only payments Energy only payments Capacity and energy payments (TBD). Currency of payments Rand Rand TBD Fuel supply Seller solely responsible for fuel (and/or heat source) supply. Seller solely responsible for fuel (and/or heat source) supply. TBD Fuel costs No fuel cost pass through other than fixed indexing to PPI. No fuel cost pass though other than fixed indexing to PPI. Fuel cost pass through TBD. Indexing Energy Rate indexed by PPI to 2013, there after only variable component indexed. Energy rate indexed by PPI. TBD 11
  • 15. Bidders’ Guide to Power Purchase Programmes Comparison of power purchase programmes (continued) PNCP* MTPPP** Baseload IPP Programme*** Performance bonds and liquidated damages Minimal bid and performance bonds and liquidated damages noting ‘energy only’ payment structure. No bid or performance bonds required. Moderate liquidated damages payments. Anticipates industry standards for performance bonds and liquidated damages noting likelihood of capacity payments being provided to sellers (TBD). Location Any location in RSA - subject to fit with network. Any location in RSA - subject to fit with network. Any location in RSA - subject to fit with network, fuel and water. Rights to excess capacity Seller allowed to use capacity in excess of that contacted for own use, or to sell to 3rd parties. Seller allowed to use capacity in excess of that contacted for own use, or to sell to 3rd parties. Buyer to be sole off- taker of capacity (and energy) provided by the facility. Power Conservation Programme (PCP) Able to off-set PCP obligations from capacity not contracted for (and trade consumption rights if available under the PCP). Able to off-set PCP obligations from capacity not contracted for (and trade consumption rights available under the PCP). No ability to off-set obligations under the PCP or to trade consumption rights. Pricing Early Completion Incentive reflecting high value of power in early years, tapering to long run cost of production in later years of Programme. Sculpted price reflecting high value of power in early years, tapering to long run cost of production in later years of Programme. Long run cost of production keeping in mind the 40 years duration of the PPA (TBD) Renewables premium No renewables premium. No renewables premium. No renewables premium (TBD) * Based on PPA dated 20 March (revision2). ** Based on draft PPA posted on Eskom tender site1 April 2008. *** PPA not yet available. Illustrative only. 12
  • 16. Bidders’ Guide to Power Purchase Programmes Appendix A: Programme timelines PNCP procurement timeline Item Action Date 1 RFT issue date 4 October 2007 2 Complete and submit Notice of Intent to Respond and Submit Bid Bond 29 October 2007 3 Complete and submit confidentiality undertaking 29 October 2007 4 Bidders’ Conference 7 November 2007 5 Final date for Bidders to submit completed requests for improvements 28 January 2008 6 Final date for Bidders to submit completed APPENDIX E - Supplier Application Form 15 November 2007 7 Final Date for Bidders to submit requests for clarification 14 April 2008 8 Bid Submission Deadline, including Bid Bond 30 May 2008 9 Start date for Project Site Visits by Eskom 30 June 2008 10 Announcement of Preferred Bidders 20 September 2008 11 Deadline for submission of Completion Bonds 30 September 2008 12 Effective Date, i.e. Signature of PPAs 30 September 2008 13 Last date for Scheduled Commercial Operation Date 30 April 2012 13
  • 17. Bidders’ Guide to Power Purchase Programmes MTPPP procurement timeline Item Action Date 1 Draft RFP issue date 31st March 2008 2 Where any party has already expressed an interest in the Programme under the Notice of Request for Proposal and no longer intends to bid then it is requested to notify Eskom in writing of this fact. 30th April 2008 3 Complete and submit confidentiality undertaking in the form together with the registration form for the intranet site prior to submitting any clarification questions in relation to the Programme 4 Release of Appendix H and final form RFP on or after 15th April 2008 21st April 20085 Bidders’ Conference Further Bidder Conference where Appendix H was not available to Bidders prior to the first Bidders' Conference. Bidders will be given 5 days prior notice of this conference. 6 Final date for Bidders to submit completed requests for clarifications 1st November 2008 7 Latest Bid Submission Deadline 1st December 2008 8 Notification of Preferred Bidders in relation to Maximum Programme Price Bids on or before 20th March 2009 8 Last date for Scheduled Commercial Operation Date 30th June 2012 Baselaod IPP Programme procurement timeline The Baseload IPP Programme procurement timeline is being developed. Depending on the EOI responses to be received in early June 2008, it is expected that the next steps will be as follows: - Request for Qualification (RFQ) will be issued at the end of June 2008 - Request for Proposal (RFP) will be issues in July 2008-05-09 - Tender award is expected in 2nd Quarter of 2009. 14
  • 18. Bidders’ Guide to Power Purchase Programmes Appendix B: Frequently Asked Questions What are the various power purchase programmes? Eskom and Government are moving ahead on a number of demand side and supply side initiatives. Importantly - private sector participation will play a significant role in meeting the medium and long term power supply needs of the country. This is set within the context of Government’s directive that 30% of new generation capacity will be developed by the private sector. In light of these matters, three key programmes have recently been developed to procure power supply from the private sector: • Pilot National Cogeneration Programme (PNCP) • Medium Term Power Purchase Programme (MTPPP) • Multi-site Baseload Independent Power Producer Programme (‘Baseload IPP Programme’) Why are there so many programmes? Eskom’s three power procurement programmes underway are meant to each achieve separate but related goals. The PNCP and MTPPP have been designed focusing on projects that can realistically be commissioned in the next several years. Alternatively, it is recognised that large baseload power plants will only be able to be built in the longer term, and that commissioning of these projects would be aimed for over the next five year or more. The Baseload IPP Programme has been developed with this in mind. Moreover, each of these programmes will play a significant role in the development of medium and long term power supplies. The PNCP and MTPPP have been designed focusing on projects that can realistically be commissioned in the next several years. Alternatively, it is recognised that large baseload power plants will only be able to be built in the longer term, and that commissioning of these projects would be aimed for over the next five year or more. Again, the fundamental differences between these two types of programmes (medium and long term) will be reflected in the terms and conditions of a PPA. These long lead times mean that a ‘horizon of approaches’ must be undertaken together to ultimately meet South Africa’s energy needs now and into the future. In the short term, demand side initiatives will play an important role. In the medium term, alternative supply side options become feasible and in the longer term, more traditional baseload power supply options can be relied on to secure the nation’s position as an efficient and low cost power producer. 15
  • 19. Bidders’ Guide to Power Purchase Programmes Who should apply for which? The three Programmes have been designed with the unique aspects of different power developers needs in mind. For example, the very nature of cogeneration facilities requires flexibility in operation of the facilities and supply on an ‘as-available’ basis, where as large stand-alone baseload power generation facilities would be expected to supply on a more ‘firm’ basis. The various terms and conditions of power purchase agreements (PPAs) set out for each programme will reflect these fundamental characteristics. Perhaps the key aspect for project developers to consider is if they intend to build a large stand-alone baseload facility allowing for central dispatch (which the Baseload IPP Programme will require), or if they require self dispatch (allowed for under the PNCP and MTPPP). Of course there are a number of other equally critical matters to consider, and Eskom has provided a Bidder’s Guide to set out some of the key factors that project developers will want to consider in choosing the right Programme. Is it fair that Eskom pays me less for what I might be paying to Eskom? Eskom will be purchasing power on a wholesales basis, thus prices paid may well be less than what a customer might pay Eskom f the same MWhs of energy generated. The key factor to consider here is that Eskom’s tariffs to customers must recover not only the cost of generation, but also the cost of high voltage transmission, distribution (where Eskom is the distributor) and overheads. While the Programmes do factor in defined network benefits from a project, there will still be a material difference between the wholesale value of power generation and the all-up cost of energy supplied to end use customers. In a related point, we appreciate that in some countries ‘feed-in’ tariffs are provided to power suppliers at or above end use tariff levels - usually with the aim to stimulate renewables. Eskom's power purchase programmes are specifically aimed at securing commercial energy at competitive rates. It would not be feasible to purchase commercial energy on a large scale at rates higher than those provided to customers. We do wish to note that NERSA is looking at various renewables options and a policy is expected to be developed to addresses those issues separately. Can I change my PPA depending on the nature of PCP? Eskom is looking at policies to introduce a Power Conservation Programme (PCP) which may impact Bidders. To address this matter, provisions relating to the PCP will be inserted to PNCP and MTPPP agrements once the Programme details have been finalized (however it is not anticipated that there will be such provisions for the Baseload IPP). Broadly, under the PNCP and MTPPP the provisions will state that the implementation of a PCP will trigger an option for the Seller to (i) terminate 16
  • 20. Bidders’ Guide to Power Purchase Programmes the PPA within 2 months (without penalties) or (ii) elect to lower the Net Capacity contracted for, and the Seller will be free to “self-supply” or on-sell the remaining capacity (that is no longer subject to the PPA) without any restrictions or limitations for the remainder of the Term. We again note that these provisions are not anticipated to be applied to the Baseload IPP Programme. Can overseas investors apply? Yes - but the generation facilities will need to be located in the RSA. Will renewables and other low carbon technologies be given preferences? These three Programmes do not cater specifically for renewables or low carbon technologies. NERSA is currently developing policies on renewables, and it is anticipated that they will develop such programmes as that policy is finalized. Will there be any other power procurement programmes in the future? Eskom is keenly focused on the successful completion of the three programmes at hand, but there is always the possibility that in the future there could be additional programmes depending on power generation needs going forward. Why is Eskom doing this instead of Government? Government has directed that Eskom secure 30% of new power generation from the private sector. The three Programmes her are in line with that directive. We also note that the Baseload IPP Programe is a joint intitiative between Eskom and Government. Will end use customers be charged for the additional costs of these power purchases? The aim of all of these Programmes is to procure power on a commercial basis so as to benefit end use customers. With this in mind, the cost of these Programmes will be ultimately charged to customers much in the same manner as the cost of Eskom self generation is charged to customers. We also note that as a regulated utility, NERSA oversees Eskom’s charges to customers. 17