south african wind market entry study
DESCRIPTION
South African Wind Market Entry Study. Presentation by David Williams, 24 June 2013. Contents. Wind history, status and policies in SA. 1. 2. Market Outlook. 3. SA Wind Value Chain. 4. Stakeholders in South African RE market. 5. SWOT analysis of the SA wind sector. 6. - PowerPoint PPT PresentationTRANSCRIPT
South African Wind Market Entry StudyPresentation by David Williams, 24 June 2013
Contents
Wind history, status and policies in SA1.
2.
3.
Market Outlook
SA Wind Value Chain
5.
Stakeholders in South African RE market
6. General information for new entrants
7. Opportunities in SA wind sector
4.
SWOT analysis of the SA wind sector
Experts in renewable energy
Onshore & Offshore Wind Wave & Tidal Solar PV & CSP
Local understanding forms a global perspective
Almost 1000 staff, in 42 locations, across 24 countries
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Imola
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HeerenveenSint Maarten Kaiser-Wilhelm- Koog
Providing lifecycle support to all stakeholders
• Project Developers• Owner/Operators• Investors• Manufacturers• Governments/NGOs
Wind history, status and policies in SA
Wind power in South Africa• SA wind market is a new market by global standards
• Brief History of utility-scale wind:
• 2002: Klipheuwel 3.2MW wind farm, Eskom’s first (experimental) wind farm , Western Cape.• Darling Wind Farm (5.2MW but ongoing capacity
additions), near Cape Town, first attempt by SA to create an wind energy programme (SAWEP)• First private development: Coega Wind Farm, single
turbine near Port Elizabeth, (just in time for the 2010 World Cup)• Eskom’s Sere Wind Farm (100MW), under development
(end 2013)
• In general though, the country has seen low levels of activity, until recently.
Renewable Energy (RE) Policy in South Africa (1)
• 1998 White Paper: first tentative steps promoting diversification of supply and Independent Power Producers (IPPs);• 2003 White Paper on RE: 10,000 GWh by 2013…• 2008 Energy Act: further support to RE in the SA energy mix (through the
Integrated Energy Plan). This is turn has led to the Integrated Resource Plan (IRP) which outlines the national electricity plan.
• IRP is 20-year outlook plan, revised every 2-3 years • Current: IRP 2010-2030 (new update imminent).
IRP 2010-2030 went through several rounds of consultation finally arriving at:
Renewable Energy (RE) Policy in South Africa (2)
Policy Adjusted IRP• 33% of new capacity allocation go to RE• 9,200 MW of wind by 2030
All renewables, capacity growth (annual installations)
from DoE figures
All renewables, capacity growth (cumulative)
from DoE figures
Renewable Energy (RE) Policy in South Africa (3)
Main outcome for RE: Renewable Energy IPP (Procurement) Programme (REIPPP)
• SA Govt. committed to 3,725 MW of RE by 2016 1,850 MW of wind• Recent announcement adds another 1,470 MW by 2020• In total equates to appr. 1,300 mid-sized (2.5MW) turbines to be installed
General explanation of the REIPPP process:
• Capacity allocated over (up to) 5 Rounds of competitive bidding.• SA Department of Energy has set maximum tariff and developers bid in
below this. • 2 stage process of evaluation against a variety of criteria• So far 2 Rounds have been completed, 3rd Round about to commence
REIPPP progress to date (1)• Round 1 wind projects
Project Capacity [MW]
Dassiesklip Wind Energy Facility 26.19MetroWind Van Stadens Wind Farm 26.19
Hopefield Wind Farm 65.40Noblesfontein 72.75
Red Cap Kouga Wind Farm – Oyster Bay
77.60
Dorper Wind Farm 97.00Jeffreys Bay 133.86
Cookhouse Wind Farm 135.00Total 633.99
• Round 2 wind projects
• Projects in range 25MW -135MW. Small projects require similar effort and incur the same risks as larger projects, with less return. • Upper limit of 140MW was set to limit
congestion for grid connections
Project Capacity [MW]
Gouda Wind Facility 135.20Amakhala Emoyeni (Phase 1) Eastern
Cape 137.90Tsitsikamma Community Wind Farm 94.80
West Coast 1 90.80Waainek 23.40
Grassridge 59.80Chaba 20.60Total 562.50
• DoE restricted capacity allocations to ensure some capacity for future bid rounds.
REIPPP Round CapacityRound 1 633.99 MWRound 2 562.50 MWRound 3 653.51 MW available
• Rounds so far…
REIPPP progress to date (2)
Small-scale wind (grid connected)• REIPPP focuses on large scale project (have to be >1MW for REIPPP)• No provision at all for installations below that size (i.e. kW scale projects)
Govt. has set up a “Small Projects REIPPPP”:• Original plan is for 100 MW (for all technologies) to be available over 4 Rounds,
allocated to projects in 1MW - 5MW range• Programme dates to be announced soon
Wind in other applications (1)
Self-Generation on-site and “wheeling” for industrial applications”:
• SA economy based on mining and heavy industry Big electricity users• Almost all electricity currently supplied by ESKOM – end-users subject to price
fluctuations and power outages• Until recently none considered their own renewable energy plant (wind power not
economically competitive with the subsidised electricity from the national grid).• This attitude could change in the future (example 1MW hybrid PV-Diesel plant for
mine in Limpopo)
• Wind’s contribution to this trend is however debatable…– Wind resource doesn’t easily match up to demand– Firm generation wind power will be combined with conventional
generation or with a electricity storage facility.
Source: infomine.com
Wind in other applications (2)
“Wheeling”• An electricity user establishes an electricity production installation far from the
site of electricity consumption but uses the national grid to “transport” the electricity from the production site to the location of end-use.
• Lack of legislation, regulations and technical expertise within industry and government
• Wind power could theoretically cover a proportion of the electricity needs • For the foreseeable future however, wind power, in these applications, will
remain a niche market
Conclusion
Other “off-grid” potential• Household electrification in SA at approximately 75%, so potential is there• Govt. focus on extending national gird not promoting off-grid solutions.
SA wind market outlook
SA wind market outlook
Recap of SA Govt. targets
Milestone 2016 2020 2030
Renewables Capacity [MW] 3,725 6,925* 17,800
Wind Installed Capacity [MW] 1,850 3,320* 9,200
Percentage of total capacity 50% 48% 52%
Creation of three scenarios:• Central case: based on the DoE’s Integrated Resource Plan (IRP) • High case: short term build rates are limited but then assumes an aggressive but
plausible development to robust industry• Low case: projects under the REIPPPP proceed more slowly; it is assumed there
is minimum annual capacity addition
GL GH forecast scenarios
SA wind market outlook
GL GH forecasts
REIPPP wind capacity growth (Annual installations)
REIPPP wind capacity growth (Cumulative)
• Wind power annual installations rates could be anywhere between 350MW and 800MW
Average financial volume, to 2020, of appr. EUR 564 million per year
Conclusion
Other potential SA wind markets
REIPPP Small wind project (1MW-5MW) market
• 100MW over 4 Rounds• Details of timings still to be announced• Overall though, unambitious target, but too little detail to accurately forecast• Assuming half of each round allocation is for wind power (as per large
REIPPP)Financial volume predicted at appr. EUR 25 millions per Round
Offshore wind
• South Africa has offshore wind potential, off Eastern and Western Capes • Due to relative costs, onshore wind would have to be saturated before offshore
becomes a viable approachNo developments in the foreseeable future
South African “value” chain
SA value chain
“chain of activities that one or more firms perform to be able to deliver a product or service in a specific industry”
Industry
Government
Financing Bodies
Development Construction O&M Decommission
Project Owner / Developer
General Value chain
SA value chain (2)
Project DevelopmentCovers such activities as:• Site screening, selection and land lease;• Wind resource assessment and site studies; • Turbine selection and project design;• Electrical connection feasibility and off-taker arrangements;• Obtaining necessary permits including environmental assessments; and• Project management.
The natural habitat of the “consultant”:• Engineering: energy production assessments, BoP design and grid connection
studies;• Environment: EIAs and other impacts; • Financial: financial planning, fund raising• Legal: all contractual interfaces and interactions with major stakeholders (e.g.
land owners);
SA value chain (3)
Project ConstructionTwo major inputs to this stage: Wind turbine OEMs :• International players: most major established players
already in the market• South African players: small scale producers exist, but
don’t have any major share;Balance of Plant providers:• Civil/Mechanical works contractors: usually local
companies• Electrical suppliers/contractors: local; components
importedProject Operations and Maintenance• Wind Turbine Suppliers: warranty terms 2-5 years (some
10 years or longer in the South Africa market);• Owner In-House O&M• Independent O&M
Stakeholders in South African RE market
Research /Academia
Universities (University of Pretoria, University of
Stellenbosch, University of Cape Town etc.)
Research Institutes and Standards (CSIR, SABS etc)
Government of South Africa
Dept. of Labour
Dept. of Labour
Dept. of Trade and Innovation
Dept. of Science and TechnologyDept. of Economic
Development
National Treasury
Dept. of Environmental Affairs
Dept. of Public Enterprises
Dept. of Energy
Dept. of Planning
ESKOM
NERSA
IPP
Government Research &
Planning (e.g. SANEDI)
Financial Institutions
Development Banks (e.g. DBSA, IDC)
Private Banks (e.g. Standard Bank, Nedbank, ABSA, Rand Mutual Bank, Investec etc.)
REIPPPContractors• Consultants
(e.g. engineering, legal, environmental etc.)• Construction
subcontractors (e.g. EPC)• OEMs (e.g. wind turbines,
elec. Components)
B-BBEE entities
NGOs/Associations
Industry Associations (e.g. SAREC, SANEA, SAAEA etc.)
Chambers of
Commerce
NGOs & Civil Society (e.g. Friends of the Earth,
Greenpeace, WWF etc.)
SWOT analysis of the SA wind sector
SWOT analysis
Helpful Harmful
Inte
rnal
Ext
ern
al
Strengths Weaknesses
Opportunities Threats
• Wind resource• Public awareness and support• Community involvement• Industrial base• Business climate and infrastructure• Economic Climate
• Still maturing Industry• Level of skills in country• Climate and terrain• Policy environment• Change of focus (to fossil/ nuclear power)• Existing infrastructure in remote locations• Permitting and licensing
• Supply chain developments through partnerships
• Manufacturing base• Market leadership potential• Wind development services• Wind integration opportunities• Wind O&M market• Small wind (REIPPP and outside it)
• Established players (international)• Local companies (up-and-coming)• Local Content• B-BBEE certification• Grid transmission capacity• Planning procedures• Other energy sources (both RE and fossil)• Currency instability
The boxes below present a summary of the SWOT analysis, with respect to the SA wind market, from a Dutch company perspective.
General information for new entrants
General Information (1)
REIPPP processAll major issues covered by RfP documentation (Rand 15,000 download fee)• Open to all companies (local and international)• If bidding directly with projects (i.e. as developer) requires the creation of an SPV• All parties (incl. subcontractors) need to divulge detailed company and contract
information.
2 stage process (Qualification and Evaluation):• Submitted bids assessed against compliance with the Qualification Criteria, Price and
Economic Development objectives• Compliant bids assessed against a set of Evaluation criteria relating to Price and
Economic Development aspects, and are ranked, per Technology, on a comparative basis. • Relative scoring: price (70%) and economic development (30%).• Once awarded “Preferred bidder” status, Eskom offers standard PPA
General Information (2)
REIPPP processSome further points on qualification:• Statement of complete familiarity with relevant SA laws required • Particularly for companies outside of South Africa, a declaration stating that
suitable South African legal counsel has been employed• SPV must provide guarantee equal to R100,000 per MW of project (to qualify)• Once awarded, new guarantee of R200,000 per MW (first guarantee returned)• Development Fee equal to 1% of the total project costs once certain agreements
have been signed.
Evaluation:• Emphasis placed on the social and economic development aspects, in line with
Government strategy.
General Information (3)
REIPPP process
Each factor has a ‘threshold’ and ‘target’ value. Threshold and target values increase with each successive bid round.
Economic Development Elements Weighting
Job Creation 25%
Local Content 25%
Ownership 15%
Management Control 5%
Preferential Procurement 10%
Enterprise Development 5%
Socio-Economic Development 15%
TotalTotal points
100%30 points
• Job creation: certain statistics required such as the percentage of South African nationals, Black citizens and people from local communities employed in the project company; breakdown for construction, operation and maintenance.• Localisation: measured by capital costs, costs of services procured for the construction
General Information (4)
• Ownership: REIPPPP requires a Bidder to have a South African Entity Participation of 40% as well as setting certain thresholds on the actual level of (B-BBEE) certification of the partners.• Bidders are required to indicate the percentage of equity owned by Black People,
Black Enterprises and Local Communities, • Socio Economic Development: Bidders required to identify needs of the
communities surrounding the project site and formulate strategies to meet these needs by utilising Contributions from the project’s revenue stream, i.e. setting up Community Trusts.
REIPPP process
General Information (5)
• Broad-Based Black Economic Empowerment (B-BBEE) Act in 2003, (with an amendment in 2011) governs many of the working aspects of the South African economy. Codes of Good Practise (2007) developed to provide objective measurement of BEE achievements across all sectors.• Require that all companies operating in South Africa make a contribution
towards the aims of B-BBEE• All state bodies and public companies consider the Codes when making
decisions on issues such as procurement, licensing/concessions, partnerships and sale of state-owned assets• Provisions for foreign companies to make contributions to the B-BBBE
requirements in lieu of a direct sale of an equity stake of their company.
Broad-based Black Economic Empowerment (B-BBEE)
As foreign companies will most likely be expected to contribute towards the B-BBEE goals, a thorough understanding of the relevant regulations is an important aspect of any business plan.
General Information (6)
International/Development Banks:Nederlandse Financierings-Maatschappij voor Ontwikkelingslanden N.V. (FMO)• Access to Energy Fund• Infrastructure Development Fund• Fund Emerging Markets (FMO – Fonds Opkomende Markten)Other funds available from Development Bank South Africa (DBSA) and International Development Corporation (IDC) but not directly accessible by Dutch enterprises.
Available Funds (examples)
Private Banks:• South Africa’s “Big Four” have all been involved in RE:, Nedbank, Standard
Bank, ABSA, and (less for wind) Rand Merchant Bank. Other notable: Investec.
• Usual financing options available: debt/equity, mezzanine etc.
General Information (7)
South African Dti offers a variety of incentive schemes to promote business but:• some are aimed specifically at South African businesses • applicability to RE projects/businesses should also be confirmedExamples:• Manufacturing Investment Programme (MIP)• Capital Projects Feasibility Programme (CPFP)• Critical Infrastructure Programme (CIP)• Enterprise Investment Programme (EIP)• Technology and Human Resources in Industry Programme (THRIP)
Incentives (examples)
General Information (8)
Wind market in South Africa still developing, so framework is fluid. However:
Rules and regulations in general
• South Africa is a WTO signatory i.e. must align itself to international norms• SABS (National standardisation authority), is
modifying existing standards to match international ones (e.g. from SANS to IEC )• In general, all products sold in SA are
expected to conform to international standards (quality, HS&E etc.), but there are a few cases of country-specific variations (e.g. grid-connected components).
Opportunities in the SA wind sector
Opportunities for Dutch companies (1)
Partnering with local companies and creation of local facilities local manufacturers setting up partnership with foreign firms to produce
components or whole machines under license alternatively, SA engineering firms seeking support and expertise from
foreign companies (consultancy). Trend of local companies seeking external partners is also likely to
increase as local content rules provide local players with added incentive to become involved.
Government strongly backing this idea
5 main threads identified:
Wind development/ consultancy New market so scope for additional players to enter the market. In particular, scope for provision of specialist consultancy services
(given the particular environmental and social requirements in REIPPP)
Opportunities for Dutch companies (2)
Skills training provision clear skills gap in the South African
workforce creation and provision of a training schemes
Provision of wind farm O&M In future, market for independent O&M (once the initial warranties on
Rounds 1 and 2, expire) Development of indigenous skill-sets so might be advisable for foreign
firms to consider finding or developing a local presence now
Small scale wind This segment of the market is unlikely to
appeal to the larger established players tendering for the large-scale REIPPPP Rounds, and should therefore provide a fertile ground for other players
Again potential consulting/partnering opportunities (see first point)