Wind Energy in South Africa A Vision for Development

EHN - a leading group in renewables

The EHN Group

EHN is the largest independent developer of renewable energies

in Europe and the largest constructor and operator of wind farms

in Spain

Company mission

• EHN's mission is to become an international benchmark to demonstrate the technical and economic viability of a sustainable energy model

• This model should overcome the environmental and geopolitical conflicts that are generated by the present energy system

• ... through the exploitation of clean, inexhaustible energy sources available in all the countries on Earth

EHN - a leading group in renewables

• In 2002 the “Financial Times” awarded EHN the

Prize for the Best Renewables Company in the World

Main business areas

• Civil Engineering

• Turnkey construction

• Operation and Maintenance

• Quality and Safety

• Puchasing & Logistics

Business development

• Site search and purchase

• Permit arrangements

• Development of wind energy projects

• Wind• Small hydro

• Pholtovoltaic solar

• Biomass

• Sale of renewable energy *

• Emission certificates*

• Engineering and design of turbines

• Production (Ingetur)

• Technology transfer

* In progress

Power business

Services

Biofuels business

• Process engineering

• Plant construction and management

• Production and sale of Biofuels:

- Biodiesel - Bioethanol

• Hydrogen*

Electricity generation Marketing

Industrial business

EHN - a leading group in renewables

Shareholder structure

SODENA39.58%

ACCIONA50%

Corporación Caja Navarra

10.42%

EHN - a leading group in renewables

Energy Data - Installed Capacity

(Figures at August 2004, in MW)

2,495Biomass 25

Solar: 4.38 Other companies: 3.15 Own: 1.23

Wind power: 2,400

Other companies: 1256

Own: 1,164

EHN - a leading group in renewables

Small hydro 60

29 Wind farms in operation in Navarre, Aragon, France, Canadaand Germany totalling 1,074 MW

Energia Hydroelectrica de Navarra (EHN), founded in 1989, arose from small hydroelectric projects in the Pyrenees mountains of Spain

Initiatives in other countries

• Apart from France and Germany, EHN has ambitious programmes over the next few years

• The company has operating or under construction facilities in USA, Ireland, Australia and Canada

• China, the United Kingdom, and Slovenia are some other preferential countries where EHN will carry out projects

• In other countries including South Africa EHN is paving the way for future wind energy development

EHN - a leading group in renewables

Own turbine – Ingetur 1.5MW

EHN - a leading group in renewables

• EHN has developed a turbine using in-house technology, applying

its experience in O&M to create a stronger and more durable

machine that achieves good results at low windspeeds

• It initially installed 3 prototypes and 20 units of its 1,3MW model in

its own wind farms

• In 2003 EHN commissioned its own manufacturing plant in

Navarre, through its subsidiary INGETUR.

• A total of 140 1.5MW turbines will be manufactured in 2004, and a

further 400 are planned for 2005. Annual production levels of 800

turbines are projected from 2008

The South African Perspective

EHN’s INTEREST IN SOUTH AFRICAEHN’s INTEREST IN SOUTH AFRICA

THE SOUTH AFRICAN PERSPECTIVE

• Positive economic growth in last decade• Stable political environment• Positive Renewable Energy Policy framework• Need to develop new power plant options• Local manufacturing capability• Depleting energy reserves coupled to

increasing demand• Population growth trends ?

THE SOUTH AFRICAN PERSPECTIVE

SOUTH AFRICA’S ENERGY STRUCTURE (2003 data)SOUTH AFRICA’S ENERGY STRUCTURE (2003 data)

43,800 MW installed capacity

178,192 GWh annual production (ESKOM)

coal 73.2%

gas turbine 5.3%

hydroelectric 5.9%

pumped storage 3.2%

nuclear 4.1%

mothballed coal 8.1%

non-grid hydro 0.01%

wind 0.006%

GRID CONNECTED WIND ENERGY IN SOUTH AFRICAGRID CONNECTED WIND ENERGY IN SOUTH AFRICA

Existing pilot projects: • ESKOM Klipheuwel wind farm 3.16 MW

• Darling National Demonstration 5MW windfarm - currently under development - PPA signed with Cape Town for 1st phase - second phase 7MW planned

Lack of experience in large-scale wind farms:• EHN’s expertise can serve as a base for an integral wind energy 50MW pilot project

THE SOUTH AFRICAN PERSPECTIVE

CRITERIA FOR WIND ENERGY INVESTMENT IN SOUTH AFRICACRITERIA FOR WIND ENERGY INVESTMENT IN SOUTH AFRICA

• Regulatory framework with govt targets and a fixed price• Long term term PPA’s with off takers• Power wheeling agreement with Eskom• Good wind capacity plus 30%• CDM through bankable CER’s • Grant funding • Positive downstream impacts of local component manufacture, construction, civil works, job creation and skills transfer

THE SOUTH AFRICAN PERSPECTIVE

THE SOUTH AFRICAN PERSPECTIVE

South African Government Plan: • 2004: White Paper on Renewable Energy Uptake in South Africa

• 2004: 10 000 GWh renewable energy target by 2013 of which 150 GWh could be wind derived…opportunity for 50MW wind farm. - EHN also active in the other targeted RE areas viz. biomass, biofuel, solar, hydro - EHN biofuel plant was commissioned this month in Spain 50MW windfarm will generate approximately 136 GWh per year, representing 0.076% of the total annual energy production in SA. (using on a capacity factor of approximately 30%)

THE REGULATORY ENVIRONMENTTHE REGULATORY ENVIRONMENT

• Electricity utility ESKOM and the Central Energy Fund will play a large role in development• The SA Wind Energy Programme, supported by the Global Environment Facility has set the tone for widescale use of Wind Energy• A Designated National Authority, recently established at the DME, will approve CDM Projects for South Africa

• Profit from existing natural resource• Employment linked to Sustainable Development• Introduction of State of the Art technologies• Black Economic Empowerment benefits• Demonstration of SA’s commitment to the Kyoto Protocol• Help government achieve Renewable Energy targets• Opportunity to improve and protect our natural environment

WIND ENERGY DERIVED BENEFITS FOR SOUTH AFRICAWIND ENERGY DERIVED BENEFITS FOR SOUTH AFRICA

“South Africa is globally one of the highest per capita emitters of greenhouse gasesDevelopment imperatives mean we will double emissions over the next 15 years.Great potential now exists for the generation of jobs and revenue through the supplyof clean and alternative energy” - Dr Chippy Olver, Director General Environmental Affairs SA, October 2004

THE SOUTH AFRICAN PERSPECTIVE

South Africa - A Viable Proposal

WIND POWER POTENTIAL IN SOUTH AFRICAWIND POWER POTENTIAL IN SOUTH AFRICA“I must state at this point that it is not EHN’s policy to embarkon small scattered wind projects. EHN would probably adopt a more flexibleapproach to a first phase 50 MW pilot project in South Africa given the complexities of the market and future growth potential in renewable energy”

• Wind resource analysis has been conducted in South Africa by Risso of Denmark which indicated 500-1000 MW of wind energy potential specifically in coastal areas• EHN are currently measuring wind velocities in South Africa and have recorded good results over the last 6 months, which will impact positively on our business model• EHN has set aside Euro 10M for an R&D centre on acceptance of their industrial plan• The DME is planning to conduct wind measuring tests at 10 sites in South Africa

WIND ENERGY DEVELOPMENT IN SOUTH AFRICA

WIND POWER POTENTIAL - EVALUATIONWIND POWER POTENTIAL - EVALUATIONTHE FOLLOWING HAVE BEEN SOURCED/UNDERTAKEN AS PART OF THE EVALUATION PROCESS FOR SOUTH AFRICA:

• Wind power atlas of the country (Risso)

• Identification of Meteorological stations• Climatologic data, specifically with reference to wind regimes (SAWS)• Topographic, geographic and road mapping of the country• Electrical distribution mapping of South African network in potential pilot areas • Information on existing vegetation types• Location of existing and proposed wind power initiatives• Location of land preserves, biospheres, parks and forestry areas

WIND ENERGY DEVELOPMENT IN SOUTH AFRICA

WIND ENERGY DEVELOPMENT IN SOUTH AFRICA

EMISSION REDUCTION BENEFITSEMISSION REDUCTION BENEFITS

Pollutants Tonnes

50 MW

Tonnes

1000 MW

CO2 143,704 2,874,071

SO2 406 8,110

NOx 403 8,069

SPM 21 4,416

CxHy 14 277

THE 50 MW PILOT PROJECTTHE 50 MW PILOT PROJECT

• Likely located in Western or Eastern Cape region with proven wind capacity

• Integration of local manufacturing in project development and commissioning

• EHN flexible in utilisation of our own Ingetur, Vestas or other suitable turbines

(e.g. 33 x 1.5MW Ingetur or 25 x 2MW Vestas turbines)

• PPAs signed with significant offtakers (metropoles such as Cape Town,

Port Elizabeth, Durban or Johannesburg)

• Power wheeling agreement signed with ESKOM via the national grid

• Initial R0.40c per kWh price binding offtaker in long-term PPA

• Tie-in with government mandatory target of 150 GWh for wind energy

• Priority access of wind energy to the grid with first evacuation purchase guarantee

WIND ENERGY DEVELOPMENT IN SOUTH AFRICA

GRANTS AND ASSISTANCE GRANTS AND ASSISTANCE

• The price/kWh gap that exists between wind and conventional generated power can be reduced through, amongst others: - UNDP/GEF interventions including barrier removals - DANCED support - World Bank - Danish mixed credit facilities (35-50% grant funding and possibility of 10 year interest-free loans) - German government allocation of Euro 500M for RE projects in developing countries, of which 100M is earmarked for South Africa - EU has set aside Euro 250M for the development of RE project in Southern African Development Community

WIND ENERGY DEVELOPMENT IN SOUTH AFRICA

• EHN electricity utility ESKOM and the Central Energy Fund will play a large role in development• The SA Wind Energy Programme, supported by the Global Environment Facility has set the tone for widescale use of Wind Energy• A Designated National Authority, recently established at the DME, will administer the CDM for South Africa

WIND ENERGY DEVELOPMENT IN SOUTH AFRICA

BUSINESS MODEL – 50 MW Pilot ProjectBUSINESS MODEL – 50 MW Pilot Project

FOR ATTENTION: FERNANDO FERRERASPLEASE INCLUDE BUSINESS MODEL EX SPAIN AS PERLISTED ASSUMPTIONS

ASSUMPTIONS:Price 40 ZAR cents/kWhProject Cost R430MPrime 11% CPI-X 3.7%CF 31%Corporate Tax 30%25 Yr Depreciation20 Yr LoanExchange rate 1 Euro = 8.10 ZARGrant funding levels Euro 0-10-15-20 million

WIND ENERGY DEVELOPMENT IN SOUTH AFRICA

REDs POLICY – RED DAY ONE IN 2005REDs POLICY – RED DAY ONE IN 2005

• President announced formation of first Regional Electricity Distributor (RED) in his State of the Nation Address in 2004

• Target date for First RED – RED Day 1 is early 2005

• REDs will be targeted for purchase of green power from IPPs

• Minister may impose minimum standard on RED to ensure uptake of RE – provision contained in the Draft Energy Bill (2004)

WIND ENERGY DEVELOPMENT IN SOUTH AFRICA

ENVIRONMENTAL IMPACT ASSESSMENTSENVIRONMENTAL IMPACT ASSESSMENTS

• Stringent EIA requirements exist in SA – the way is being paved by SA Wind Energy Programme (UNDP/ GEF – supported) to facilitate this process

• Amendment to Environmental Conservation Act specifies 10 MW power plants or less exempt from EIA requirement – positive move forward

• Biospheres and other protected areas are however no-go sites for wind farms

• SA Wind Energy Programme will assist project developers in minimising duplication of effort in selecting suitable sites

Thank you

Stephen Mark De Beer