accelerating solar pv investments in...

www.gsb.uct.ac.za/mir @AntonEberhard

@AntonEberhard Management Program in Infrastructure Reform and Regulation

University of Cape Town

Accelerating Solar PV Investments in Africa Which regulatory and procurement

mechanisms are optimal?

Presentation to Africa Energy Forum, Istanbul

20 June 2014

www.gsb.uct.ac.za/mir


How to Promote Renewable Energy Investments?

SUPPLY SIDE

(Renewables)EPC Contracts → → Feed-in-Tariffs →

Renewable Portfolio

Standards (e.g.

Green Certificates)→

Competitive

Procurement of

MW or MWh (e.g.

Electricity Auctions)

→

↕ ↕ ↕ ↕

DEMAND SIDE

(EE or DSM)

Contracts for EE

(e.g. Performance

Based with ESCOs)→ → Standard Offers →

Energy Efficiency

Provider Obligation

(e.g. White

Certificates, Market-

Based Rationing)

→Competitive

Procurement of

NWh or Load

Reduction (DSB)

→

Integrated

Resource

Planning (IRP)

= Supply +

Demand Sides

Auctions of

CO2

Reduction

(e.g. RGGI)

Renewables

or EE

Policy and Regulatory Instruments to Foster Renewables and Energy Efficiency

Source: Maurer, Luiz. EE: Appl icabi l i ty of s tandard offers , competitive procurement and auctions . Presentation. WB Seminar. Washington DC. February 01, 2012.

2

“There is a great variety of regulatory mechanisms and business models

– ranging from “command and control” to more market-driven, on both

demand and supply sides” (Luiz Maurer, 2012. IFC)


RE regulatory and procurement mechanisms in Africa

• Most widely used is FIT

• But outcomes are disappointing

– Prices high

– Inadequate investment

• South Africa abandoned FIT in favour of competitive

tenders

– Prices fell dramatically

– Large investments attracted

• What are the lessons for other countries?

– South Africa is different, but lessons can be adapted to suit other

African countries


• South Africa now occupies important position globally in debate around most effective policies to expand RE

• Abandoned FIT in favour of competitive tendering

• In less than 3 years:

US$14 billion committed (US$5 bn for PV)

64 projects (23 PV)

3922 MW (1484 MW PV)

• More than 100 shareholder entities

South African experience (1)


• 86% of finance raised locally.

• Two-thirds of debt from commercial banks with balance from DFIs and pension/insurance funds

• Over 3 bid rounds, PV prices dropped 68%

• Also improvements in economic development commitments

• This presentation explores lessons learned

5

South African experience (2)


Standard 20 yr, local denominated PPAs + IA + DA

Price caps for each technology

Procurement caps for individual technologies

Financial close 6 months after preferred bidder status

Bids due 3 months after RfP

Up to 5 tender rounds envisaged at 6 month intervals

CoD required within 18 months of financial close

2011 DoE issues RfP for 3625MW of renewable power

South African RE tender process


Tight (impressive) time lines

@AntonEberhard

REIPPPP milestones 2011 2012 2013 2014

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

RFP published

3

Aug

Round 1 Bid submission

4

Nov

Round 1 Preferred bidders

7

Dec

Round 1 Financial close Jun

5

Nov

Round 1 Planned COD Mar Dec

Round 2 RfP



Round 2 Financial close

Round 3 RfP



Round 3 Financial close


Tight (impressive) time lines

@AntonEberhard

REIPPPP milestones 2011 2012 2013 2014

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

RFP published

3

Aug


4

Nov


7

Dec

Round 1 Financial close Jun

5

Nov

Round 1 Planned COD Mar Dec

Round 2 RfP

7

Dec


5

Mar


21

May

Round 2 Financial close Dec

9

May

Round 3 RfP May


19

Aug


29

Oct

Round 3 Financial close Jul

www.gsb.uct.ac.za/mir @AntonEberhard .

Qualification

Criteria • Structure of project

• Legal

• Land

• Environment

• Financial

• Technical

• Economic

development

• Bid guarantee

Evaluation Criteria

Price 70%

Economic 30%

Development • Job creation

• Local content

• Ownership

• Management control

• Preferential

procurement

• Enterprise development

• Socio-economic

development

Evaluation process


• Tender exempted from standard PPP regulations

• Ad-hoc DOE IPP office established, led by experienced PPP

manager

• US$ 10 million was spent on tender design and bid evaluation

• Large legal, technical and financial advisory team assembled (local

& international)

• General consensus that quality of documentation excellent

• Secure and transparent evaluation process

Tender and evaluation process


• Make a case for renewable energy

• Find a program champion

• Adopt a business-friendly not a bureaucratic approach

• Take a long term approach, multiple rounds

• Commit sufficient resources to procurement

• Ensure quality procurement and contracting documentation and processes are in place

• Take advantage of external sources of funding

• Assess effectiveness of FIT, consider adopting competitive tendering regime, taylored for specific country needs

Lessons from South Africa


Competitive tenders vs Feed-in tariffs (REFIT)

@AntonEberhard

Competitive tenders Feed-in tariffs

Potentially yield lower prices through

market competition

No competition and excessive rents

possible

(but lower prices could be specified in

subsequent rounds)



@AntonEberhard



market competition


possible


subsequent rounds)

Higher transaction costs

(offset, hopefully, by lower energy prices)

Lower transaction costs

(but still need good design and evaluation)



@AntonEberhard



market competition


possible


subsequent rounds)





More complex

(narrows potential pool of developers)

Simpler

(widens potential pool of developers)



@AntonEberhard



market competition


possible


subsequent rounds)





More complex


Simpler


Can include non-price criteria in evaluation

to maximise economic development

Non-price criteria could be specified

a priori



@AntonEberhard



market competition


possible


subsequent rounds)





More complex


Simpler





a priori

Less suitable for procuring small projects Useful for procuring small projects



@AntonEberhard



market competition


possible


subsequent rounds)





More complex


Simpler





a priori


Allowed in most jurisdictions Not allowed in some jurisdictions



@AntonEberhard



market competition


possible


subsequent rounds)





More complex


Simpler





a priori



Easier to integrate with transmission

planning

Difficult to integrate with transmission

planning



@AntonEberhard



market competition


possible


subsequent rounds)





More complex


Simpler





a priori



Easier to integrate with transmission

planning

Difficult to integrate with transmission

planning

Primary objective in developing countries is

to get more power at affordable cost

Objective in rich countries was to create

economies of scale and eventually lower

prices, and off-set carbon emissions


Prof Anton Eberhard Research, training courses, consultancy

University of Cape Town

The Management Programme in Infrastructure

Reform & Regulation (MIR) is an emerging centre

of excellence and expertise in Africa. It is

committed to enhancing knowledge and capacity to

manage the reform and regulation of the electricity,

gas, telecommunications, water and transport

industries in support of sustainable development.

@Anton Eberhard www.gsb.uct.ac.za/mir

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