Trans African Energy Pty. Bidders’ Guide to Power Purchase Programmes,

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

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

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
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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)
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• 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).
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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.
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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
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.
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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.
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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
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(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.
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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.
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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.
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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.
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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
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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
network.
Any location in RSA
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.
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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

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

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

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

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

Trans African Energy Pty. Bidders’ Guide to Power Purchase Programmes,

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