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How to cite this thesis
Surname, Initial(s). (2012) Title of the thesis or dissertation. PhD. (Chemistry)/ M.Sc. (Physics)/ M.A. (Philosophy)/M.Com. (Finance) etc. [Unpublished]: University of Johannesburg. Retrieved from: https://ujcontent.uj.ac.za/vital/access/manager/Index?site_name=Research%20Output (Accessed: Date). An assessment of the factors that influence the successes and failures of independent power producer projects
A Minor Dissertation Submitted in Partial Fulfilment of the Degree of
MAGISTER PHILOSOPHIAE
in
ENGINEERING MANAGEMENT
at the
FACULTY OF ENGINEERING AND THE BUILT ENVIRONMENT
of the
UNIVERSITY of JOHANNESBURG
by
Buhlebethu Mfundo Ndlovu
11 April 2018
Supervisor: Prof Arnesh Telukdarie
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DECLARATION
I declare that this research project is my own unaided work. It is being submitted for the Degree of Magister of Philosophiae in Engineering Management to the University of Johannesburg. This research has not been submitted before for any degree or examination to any other University
Author’s Signature:
Page 2 of 89 ABSTRACT
The introduction of the Independent Power Producers Procurement Programme (REI4P) in 2011 yielded significant results for South Africa. The REI4P is initiated to procure 17.8 GW of electricity generated from Renewable Energy Sources (RES) over the period 2012-2030. The REI4P had a perception of being expensive from the onset, the average electricity tariff for Renewable Energy (RE) projects is currently 40% cheaper than new coal generation facilities. By the end 2016, a total capacity of 3134 MW has been added to the grid with investment estimated to be $14 billion, thus making South Africa one of the leading destination for RE investment. This has led to the REI4P being acclaimed internationally as a great success. South Africa’s track record in executing major capital expenditure projects has been found wanting in recent times as both Medupi and Kusile coal based power stations have experienced rising execution costs and construction delays. The REI4P’s future beyond round three is currently unclear for Independent Power Producers (IPPs) as the fourth round of winning projects has not started since November 2014. With the announcement made by the South Africa government that the winning projects will be approved before the end of 2017, the challenges and success of IPPs during the first three bidding rounds of the REI4P are studied in this research. This paper aims to define the current REI4P market condition, recommend solutions in order improve the ability of IPPs to survive and be competitive in the future rounds of projects. The researcher uses the main sources of data, including primary data and secondary data. Secondary data is first analysed to assess the current situation of the electricity generation from RES in South Africa when compared with the leading and follower countries. Even though secondary data provides invaluable background information, it does not provide all the necessary information required to address aim of the study. Some primary data collection was gathered through questionnaire survey which assisted to fill the information gaps. The best fit method to address the research problem was to follow a quantitative method. This method enabled the researcher to quantify factors that has an influence on the performance of IPPs in South Africa. According to countries’ gross domestic product, the investment in REI4P is close to parity with the leading economies such as Germany. This has positively influenced South Africa’s installed capacity of both solar PV and
Page 3 of 89 onshore wind to be above follower countries such as India in terms of capacity per capita. The REI4P is demonstrating abilities to be a global leader in RE generation owing to the best solar and wind resources in world available in South Africa. However, the progression of the REI4P is under enormous threat owing to regulatory framework. With the reduced RE tariff proposed by the South African government, the study finds that IPPs are more like to opt for the cost viable multiple contracting method to procure future projects compared to the Engineering, Procurement, and Construction (EPC) contracts that are popular during the first three bidding rounds. Pinto and Slevin [60] list of critical success factors in project management are highlighted as important strategies can be adopted by IPPs to enhance the desired project outcomes.
Keywords Renewable energy, Independent power producers
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TABLE OF CONTENTS DECLARATION ...... 2 ABSTRACT ...... 3 LIST OF FIGURES ...... 8 LIST OF TABLES ...... 9 1. INTRODUCTION ...... 10 Background...... 10 Relevance of the research ...... 11 Aims and objectives of the research ...... 12 Research questions ...... 12 Value of the study ...... 13 Research methodology ...... 13 Chapter layout ...... 14 2. LITERATURE REVIEW ...... 16 2.1 Introduction ...... 16 2.2 The need for alternative energy sources in South Africa ...... 18 2.2.1 Reduction in carbon emulsions ...... 18 2.2.2 Additional generation capacity required in Africa ...... 18 2.2.3 Creation of opportunities for economic development ...... 19 2.2.4 The implementation of REI4P in South Africa ...... 20 2.3 Global development of RES ...... 21 2.4 Regulatory risk associated with RE projects...... 23 2.4.1 The importance of independent regulation ...... 25 2.4.2 Grid availability ...... 25 2.5 Fiscal incentives provided for RES development ...... 26 2.5.1 Costs of RE in South Africa ...... 27 2.6 Ownership and financing of IPP projects ...... 28 2.7 Contracting methods ...... 29 2.7.1 EPC and EPCM contracting strategies...... 30
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2.7.2 The preference towards EPC contracts in engineering ...... 32 2.7.3 The future of the EPC contracts in South Africa ...... 35 2.7.4 Benefits and challenges of multiple contracts...... 36 2.8 Project management ...... 36 2.8.1 Project success ...... 38 2.8.2 Project management critical success factors...... 38 2.9 Summary ...... 41 3. RESEARCH METHODOLOGY...... 42 3.1 Introduction ...... 42 3.2 Research design ...... 42 3.3 Methodology rationale ...... 43 3.4 Market economic assessment ...... 44 3.5 Survey research method ...... 46 3.6 Questionnaire design ...... 47 3.6.1 Introduction ...... 47 3.6.2 Questionnaire layout ...... 47 3.6.3 Development of questions...... 47 3.7 Population and sample ...... 48 3.8 Questionnaire validity ...... 50 3.9 Ethical considerations ...... 50 3.10 Data analysis and interpretation ...... 51 3.11 Summary ...... 51 4. ANALYSE AND DISCUSS ...... 52 4.1 Introduction ...... 52 4.2 Market economic assessment ...... 52 4.3 Sample description ...... 58 4.3.1 Classification of the 41 survey respondents ...... 59 4.4 Factor analysis and interpretation ...... 60 4.4.1 Market conditions ...... 61
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4.4.2 Contracting methods ...... 63 4.4.3 Project management ...... 65 4.5 Summary ...... 66 5. CONCLUSION & RECOMMENDATIONS ...... 67 5.1 Introduction ...... 67 5.2 Research question 1 ...... 67 5.3 Research question 2 ...... 68 5.3.1 Policy factors ...... 68 5.3.2 Economic factors ...... 69 5.4 Research question 3 ...... 70 5.5 Research question 4 ...... 71 5.6 Research question 5 ...... 72 5.7 Research limitations ...... 73 5.8 Recommendations ...... 73 5.8.1 Market conditions ...... 73 5.8.2 Contracting methods ...... 74 5.8.3 Project management ...... 74 5.9 Conclusion ...... 75 References ...... 76 Appendix A: Research questionnaires with cover letter ...... 85 Appendix B: Compilation of research questions ...... 86 Appendix C: List of SPVs sampled ...... 87 Appendix D: Economic factor analyses ...... 88 Appendix E: Respondent total scores ...... 89
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LIST OF FIGURES
Figure 1-1 Research methodology ...... 14 Figure 2-1 REI4P total online capacity ...... 21 Figure 2-2 Global investment in RES ...... 22 Figure 2-3 Investment by economy ...... 22 Figure 2-4 EPCM contract ...... 31 Figure 2-5 EPC contract ...... 32 Figure 3-1 Research design ...... 42 Figure 4-1 Per capita capacity ...... 55 Figure 4-2 Capacity per GDP ...... 55 Figure 4-3 SPVs power capacity per technology ...... 60
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LIST OF TABLES
Table 2-1 REI4P bid submission process ...... 17 Table 2-2 Round one to three price caps and power allocation ...... 20 Table 2-3 REI4P bid prices in relation to global prices ...... 27 Table 2-4 Overall opinion about the EPC contracts ...... 33 Table 3-1 Suitability of solar irradiance and annual wind speeds ...... 46 Table 3-2 Classification of survey participants...... 49 Table 4-1 Comparison of the average annual GHI measurement ...... 53 Table 4-2 Comparison of the countries’ annual wind speeds at 80 meter ..... 53 Table 4-3 Data sources used for installed capacity ...... 54 Table 4-4 Tariff comparison of South Africa, leading and follower countries . 57 Table 4-5 Response rate to questionnaires ...... 58 Table 4-6 Classification of sample survey ...... 59 Table 4-7 Survey results on market conditions ...... 61 Table 4-8 Survey results on contracting methods ...... 63 Table 4-9 Survey results on project management ...... 65
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1. INTRODUCTION
Background The significant economic and social growth that exists today has an impact on energy demand. The energy sector projects are the spine of development in most developing countries and South Africa is no exception. With the increasing electricity demand, governments in many countries are seeking private investment in power generation to assist in meeting the demand. The limitations of fossil fuels in power generation has increased the means to source alternative energy resources. Fossil fuels are not available in all countries neither are they sustainable in their producer country. These fossil fuels are also forecasted to be exhausted in a 100 years from now [1]. The carbon emissions and other toxic gases associated with the use of these fuels result in negative environmental impacts like global warming [1]. In South Africa, the state owned utility organisation called Eskom is in a financial crisis and has been struggling to build up 17 GW additional capacity since 2005 [2]. Old power generation plants have not been replaced and in 2014, Eskom relies heavily on the peaking diesel generation plants to make up the required power capacity. Electricity tariffs have more than tripled and this has prompt changes in the South Africa electricity sector [2]. In response to the challenge of securing permanent energy supply, this has strengthened the motive behind the utilisation of Renewable Energy Sources (RES) as a solution for electricity generation [1]. In 2015, the power generated from RES globally experienced its largest increase of 9%, with an estimated 147 GW of additional capacity was implemented making the total global capacity to be 1 849 GW [3]. While RES such as hydro, wind and solar are generating significate amount of energy, these sources are not as dependable as the conventional energy generation [4]. This suggest the importance of a balanced energy mix system that in-cooperate RES and other sources of energy generation. The Independent Power Producers Procurement Programme (REI4P) is a large infrastructure programme aimed to install 17.8 GW of electricity generation capacity from renewables in South Africa by 2030 [5]. The main three aims for REI4P are as follows: o Reduction in carbon emissions; o Increase generation capacity to the national grid in efforts to reduce the electricity shortages; o Create opportunities for economic development by reducing the high unemployment rate [6].
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This present Independent Power Producers (IPP) opportunities to grow the Renewable Energy (RE) business mainly in wind, solar, wind, biomass and hydropower [7]. The involvement of IPPs into the exploitation of RES has promoted the private sector involvement in the electricity industry in South Africa. The REI4P offers a profitable future and there is sufficient potential for IPPs to invest in this field. However, there is still a level of uncertainty about participation as the IPPs commit assets for long periods when investing. Therefore, IPPs need to conduct thorough investigations on the investment viability of the host country before making investment decisions [8]. The aim of this study is to provide an overview of the current situation of the electricity generation from RES in South Africa. Specific attention is focused on the challenges and success of the IPPs during the completed bidding round one to three projects within the REI4P.
Relevance of the research A number of countries have adopted plans to introduce private sector participation in order to alleviate the electricity shortage through green energy generation. These IPPs enters into long-term Power Purchase Agreements (PPA) with the state utility organisation. The commencement of the REI4P is in line with the principles that were discussed during the Beijing Consensus [9] of achieving economic growth that is led through innovation. South Africa’s track record in executing major capital expenditure projects to support economic growth has been tainted due to project targets not being met [10]. Both Medupi and Kusile coal based power stations have experienced rising execution costs and construction delays. Some experts even opine that IPPs could potentially serve as a benchmark to the state-owned supply [11]. It is therefore important that large infrastructure programmes such as the REI4P are continuously assessed in respect of implementation versus key objectives. This study will be of a great value to the IPPs, because it will seek to unveil the challenges and successes encountered by the IPPs during the first three bidding rounds of the REI4P in South Africa. The focus will be mainly on market conditions, contracting methods and project management during the project life cycle. The IPPs can then plan and prioritise improvement strategies in order to remain competitive.
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Aims and objectives of the research Considering the number and the complexity of projects undertaken by IPPs nowadays is significant, it is imperative that IPPs develop the necessary skills to execute these projects successfully. Environmental factors such as competition, technology, politics, legal, demographics and cultural diversity creates challenges and opportunities for IPPs. Therefore, continuous adaptation to the environment is vital for IPPs to survive. Recently, it has been discovered that many project based companies like IPPs generally ignores evaluating their strengths and weaknesses instead choose to live in the presence [12]. These companies are faced with an important task to analyse and assess the environment in order to improve their abilities to survive and be competitive [13]. The aim of the research is: 1. To investigate the performance of IPPs in South Africa focusing on the challenges and successes; 2. Assess the market conditions for IPPs in South Africa; and 3. Identify a path for future development and improvements in order for IPPs to remain competitive in the REI4P. In order to achieve the aim presented, the research questions are formulated for this research study. These questions are outlined in the following section.
Research questions The following research questions are constructed for this research study. 1. How does South Africa compare globally with regards to RE? 2. The REI4P has made a significate contribution to the South African economy. In order to increase investment, what are the barriers that are threatening the sustainability of this programme? 3. Which contracting methods have been popular within the completed rounds of the REI4P and why? 4. Given the increasing competition in the REI4P, what management strategies can be adopted by IPPs in order to remain competitive? 5. Which are critical success factors that can be considered by IPPs in order to improve the desired project outcomes?
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The results of the questions is expected to assist stakeholders involved in the REI4P to identify a path for future development and improvements.
Value of the study The study aims to: 1. Promote an understanding of the current market conditions for IPPs in South Africa; 2. Promote an understanding of the elements to be considered by the IPPs prior to the selection of the contracting method; 3. Promote a culture of continuous improvement which will improve project management efficacy; 4. Improve IPP’s rate of successfully completed projects, this will enhance further possible investment into the South African RE sector thus improve the economy; 5. Improve electricity generation capacity as the South African power grid depends on the power output of these RE plants.
Research methodology The objectives of the research study is to assess the factors that influence the performance of IPPs in South Africa, focusing on the challenges and successes of the completed projects. In order to achieve the objectives of the study, a review on the available literature is conducted. A number of sources are useful in conducting this research. These sources include textbooks, handbooks, journals, conference proceedings, internet publications, previous research reports on similar subjects, government departments and other relevant sources in the industry. The study further gathers data from participants who have participated in the execution of projects within the REI4P. Only IPP representatives understood to be part of strategic decision making are approached. Chapter 3 will further explain the rationale behind the particular approach selected.
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The research approach that the researcher adhered to is shown on Figure 1-1.
Chapter 1: Research Objectives Chapter 2: Literature Review o Market conditions o Contracting methods o Project Management
Chapter 3: Research Chapter 4: Methodology Analyse & Chapter 5:
Discuss Conclusion & Recommendations
Figure 1-1 Research methodology
Chapter layout Chapter 1: Introduction This chapter discusses the overview of the study, its objectives as well as the methodology to be followed to arrive at the research objectives.
Chapter 2: Literature Review Literature review will discuss the main three topics that are related to the study. This chapter begins with an overview of the power generation markets internationally, assessing the trends and challenges of the development of RES. This is followed by assessment of the challenges and trends that are
Page 14 of 89 emerging from REI4P within the South African context. An insight is given on the available contracting methods for IPPs to implement these projects, and the factors to be considered when selecting the contracting method. An investigation will be done on how these projects are managed by the IPPs during implementation phase.
Chapter 3: Research Methodology This chapter presents a research methodology. The researcher uses the main sources of data, primary data and secondary data [14]. Secondary data is analysed first as it provides invaluable background information required for this study. Even through the secondary data provides invaluable background information, it does not provide all the necessary information required to address aim of the study. A customised survey questionnaire is developed and used to gather valuable inputs from IPPs.
Chapter 4: Analyse and Discuss In this chapter, data collected, insight gained is analysed and findings are discussed in terms of the research questions.
Chapter 5: Conclusions and Recommendations This Chapter revisits the research questions and highlight the findings of the research. A discussion is done on how the research questions have been answered by the results presented in Chapter 4. Conclusion are drawn from the research and stakeholders are provided with the necessary recommendations for improvements.
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2. LITERATURE REVIEW
2.1 Introduction Eskom is the largest power utility in Africa and generates approximately 45% electricity in the continent [15]. Eskom is a public organisation that is owned by the South African government. Eskom’s mandate is to ‘‘provide sustainable electricity solutions to grow the economy and improve the quality of life of the people of South Africa and the region” [15]. In order to achieve this, the Renewable Energy Policy White Paper was published in 2003 recognising the potential contribution that can be achieved from RES in the energy mix [16]. Subsequently, the Department of Energy (DoE) adopted the Integrated Resource Plan (IRP) 2010 which plans to increase the national capacity from approximately 41 000 Megawatts (MW) to 89 532 MW by 2030, and this includes 17 800 MW of the forecasted capacity to be procured from RES [7]. The REI4P was introduced in 2011 and has been seen as an alternative to Eskom [2]. Some experts opine that the REI4P indicates a new paradigm to liberate the electricity sector in the country [17]. The introduction of the REI4P has not fully deregulated the market. The South African government have opted for a single buyer model (SBM) to be implemented, making Eskom the sole buyer for electricity produced by IPPs. This model is intended to increase the competition in the electricity generation sector, thus dilute the monopoly of Eskom. This electricity is sold for a period of 20 year under a PPA [18]. The implementation of the REI4P has its complexity as it involves several key stakeholders, mainly, DoE, National Energy Regulator of South Africa (Nersa), Eskom, project companies, contractors, technology suppliers, local and foreign lenders. Project companies are set up by IPPs and are called Special Purpose Vehicles (SPVs). These companies are used for developing, operating and owning the project. IPPs have to submit bid proposals for new generation capacity to the DoE in order to paticipate in the REI4P. The process assoscated with the bid submission is shown in Table 2-1.
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Table 2-1 REI4P bid submission process [5]
Step Activity Duration Comments 1 Site Selection 1 to 3 Assessing the appropiate location for the years intended technology and signing lease agreement with the landowners
2 Environmental 1 year A study on how the environment will be affected Impact Assessment by the proposed development is required (EIA) 3 Preparation of bid 6 months Legal agreements are complied between all documents parties involved 4 Submission of the 2 months This payment is refundable upon submission of first bid Bond of the bid documents R100 000 per MW 5 Selection of the 6 months Adjudication is done by the DoE preffered Bidder to 1 year 6 Financial Close 2 months This payment is refundable upon signing the Submission of the project documents with the DoE second bid Bond of R100 000 per MW
This chapter will review literature on the three factors, namely, market conditions, contracting methods and project management. The impact these factors have on the performance of RE projects in South Africa is assessed, focusing on the first three bidding rounds of the REI4P. The section on the market conditions will review the global trends and challenges of the development of RES. The country level factors that promote RE investment from IPPs will be discussed. A review on contracts that are observed to be a contracting method of choice internationally will be done. The aim is to understand the reasons behind the selection of these methods and further evaluate the future use of these methods. Lastly, a section on project management will assess the commonly accepted critical success factors in project management that contributes to whether the project is seen as a success or failure.
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2.2 The need for alternative energy sources in South Africa
2.2.1 Reduction in carbon emulsions South Africa’s energy sector is based on coal and about 4% of the world’s coal reserves are located in the country [15]. In the African continent, South Africa accounts for 93% of the annual coal consumption [15]. 71% of the energy generated in South Africa comes from coal and this figure rises to 90% if we consider only electricity [19].The country is thus a major contributor of the world’s carbon dioxide (CO2) emissions.
In 2009, South Africa was at 7.27 (CO2) emission tons per person per year, compared with its BRICS partners, namely Brazil at 1.81; Russia at 11.21; India at 1.18; and China at 4.57. In comparison with other industrialised nations, namely, Germany at 9.71; France at 5.81; Italy at 7.38; Austria at 8.38 and Chile at 4.28 [20]. This high reliant on fossil fuels to power Africa has placed South Africa under international pressure to reduce its carbon emissions. This prompted President Jacob Zuma to make a pledged in 2009, committing to a 34% reduction of carbon emissions by 2020 and 42% by 2025 [2]. If decarbonisation is to be considered as a change to a lower-carbon economy, then it must also address the challenges linked to economic inequality and welfare that exist in the continent [2].
2.2.2 Additional generation capacity required in Africa Africa’s two-third’s populations is without electricity with 620 million people out of 1.2 billion people globally with no energy access are found in Africa [3]. The Sub-Saharan Africa (SSA) is the least developing region with approximately 40% of the population in the region has access to electricity [3]. During the period from 1980 to 2007, world energy consumption grew by 5.4% while that of SSA grew by 1.54% [21]. In 1997, South Africa had an installed generating capacity of about 39 000 MW with maximum demand of approximately 28 330 MW. Eskom’s Integrated Electricity Plan forecasted an assumed demand growth of 4.2% that would cause the surplus generation capacity to be fully utilised by 2007 [22]. This became evident in 2014 and 2015 as the country went through a series of load shedding as a result of the growing energy demand that was not met by the grid. The construction delays of the two coal fired-power stations of approximately 4800 MW each, Kusile and Medupi further intensified the need to source alternative energy sources such as RE [10], [17]. Some experts
Page 18 of 89 argue that in the 1990s and 2000s, Eskom was supposed to be capitalised [17]. Experts further agree that there is a great need to change and improve the energy mix in South Africa [23]. RE can be one of the important parts of the solution, if not already, to the energy shortage in Africa. Developing countries like China have invested heavily in the energy sector and experienced unprecedented growth during the same period. In 2012, China improved its installed generating capacity with an additional 80.2 GW; among which hydro power units take up 15.51 GW and thermal units 50.65 GW, wind power 12.85 GW and solar power 1.19 GW. At the end of 2012, the total installed generating capacity was 1144.91 GW. The increase of 7.8% more than the previous generating capacity was necessary to meet the domestic demand that increased by 5.5% in 2012 [24].
2.2.3 Creation of opportunities for economic development There are observations by researchers that the poverty situation in the SSA has not changed since the 1980s. Thorbecke [25], assessed data available from the World Bank and found that half of the SSA population remain below the poverty line in 2005 and this was the same situation in 1981. In 1994, Africa and China had the same gross domestic product (GDP) per capita. China’s has since increased 17 times compared to Africa’s of only 5 times [23]. China’s GDP increase is directly linked with its generated energy capacity and this increased more than Africa [23]. Against this background and basic requirements for socio-economic requirements. The South African Development plan has set objectives to reduce unemployment rate from 25% to 14% in 2020 and further decrease to 6% in 2030 [5]. These targets to include previously disadvantaged areas in the economy have formed bases for the REI4P. The REI4P’s ownership criteria is that the SPV must have a minimum of 40% of South African company participation, 12% Black Economic Empowerment (BEE) shareholding with a target of 20%; and 2.5% owned by the community residing within a 50 kilometre radius from the project [19]. Tender scoring is allocated on a 70:30% ratio on price and economic development criteria respectively. The tender is require to meet 30% on economic development criteria before the tender price can be considered [19].
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2.2.4 The implementation of REI4P in South Africa South Africa has since launched the REI4P for the procurement of electricity from RES. REI4P is expected to develop 5000 MW by 2019, a further 2000 MW to make a total of 7000 MW is planned to be in operation by 2020 [26]. Power plants ranges from 20 MW to 139 MW for wind; 5 MW to 86 MW for solar PV; and 50 MW to 100 MW for Concentrated Solar Plant (CSP). IPPs are invited to tender for renewable technologies based on the power allocation and this has to be below a certain cap. Table 2-2 demonstrate the power allocation and price caps for the first three bidding rounds. Table 2-2 Round one to three price caps and power allocation [19]
Power allocations (MW) Price caps ($/MWh) Total Technology Round Round Round Project Round Round Round 1 2 3 (No. off) 1 2 3
Solar PV 626 417 435 33 276 165 88 Onshore wind 648 558 787 22 114 90 66 CSP 150 50 200 5 345 262 146 Biomass 0 0 16 1 Landfill gas 0 0 18 1
Hydro 0 15 0 2 Total 1425 1040 1456 64 Average price cap 215 147 127
At the end 2016, a total capacity of 3134 MW as shown in Figure 2-1 has been added to the grid [27]. A total of 64 projects have commenced from round one to round three. All the projects in round one and two are completed with a few projects from round three close to completion [27].
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MW
3500 3134 3000 2500 2040 2000 1520 1474 1500 1460 1075 1000 960 965 467 560 500 200 210 257 0 2013 2014 2015 2016 Solar PV Onshore Wind CSP Total
Figure 2-1 REI4P total online capacity [27]
The REI4P has made a significate contribution to the South African economy. According to the Council for Scientific and Industrial Research (CSIR), solar and wind projects made a total contribution of R8.3 billion in power generation savings in the first 6 months of 2015 [28]. This was achieved firstly, as the amount spend on diesel and coal fuels were reduced which resulted in a total saving equivalent to R3.6 billion. Secondly, the South African economy avoided load shedding [2].
2.3 Global development of RES At present, the world continues to consume mainly fossil fuel, which is 78%. RES also provide an essential part which is around 19%, followed by nuclear at 3% of energy consumed worldwide [3]. Governments have established ambitious green energy targets that promote growth in RE generation. In 2009, the Chinese National Energy Administration more than tripled its wind capacity goal of 2020 from 30 GW to 100 GW. The European Union countries collectively aim for 20% generation to be sourced from RES by 2020. Countries have adopted a variety of policies to encourage new investment [3]. The number of countries with policy targets have increased from 164 in 2014 to 173 in 2015 [3]. The period from 2005 until 2015 has seen the average investment growth rate of 16% per annum in RES as shown in Figure 2-2. This high rate of penetration
Page 21 of 89 of RES into the energy market indicates that RES has become a prominent figure and required close attention [3].
Billion USD 350 300 279 273 286 257 250 239 234 200 182 179 154 150 112 100 73 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Figure 2-2 Global investment in RES [3]
In 2015, the top ten ranked countries investing in RES are China, the United States of America (USA), Japan, United Kingdom (UK), India, Germany, Brazil, South Africa, Mexico and Chile are shown on figure 2-3.
Billion USD
120 102.9 100 80
60 44.1 36.2 40 22.2 10.2 20 8.5 7.1 4.5 3.9 3.4 0
Figure 2-3 Investment by economy [3]
While developed countries has received substantial support in the past three decades, the markets are beginning to shift to developing countries [3]. This is not surprising as the rising power demand in the developing countries requires
Page 22 of 89 more power generating capacity. The global financial crisis on RE markets in Europe and USA in 2008 has also contributed to this phenomenon [5]. This was as a result of a reduction or removal of subsidies by governments and policy uncertainty causing a decline in development RE projects. This influenced the interest of RE development to shift to developing countries [29]. In South Africa, projects in the first three rounds collectively represent an investment commitments of $12 billion [5].
2.4 Regulatory risk associated with RE projects Researchers have found that policy factors are significant drivers of RE investment more than economic factors [30]. Regulatory risks increase the cost of capital for IPPs, as investment levels will tend to be lower in higher risk jurisdictions [31]. The RE industry is seen by IPPs as an industry along with political and market uncertainties in which traditional evaluation of investment and market analysis are difficult [1]. Since the RE is a relatively young industry, judging these risks and balancing the investment benefits remains a challenge for IPPs when assessing the viability of the proposed investment opportunity [31]. Participation of the private sector is of paramount importance to the competitiveness of the RE industry [32]. The published statistics from the Global Energy Organisation, highlights that the share of private sector investment in electricity generation is approximately 80% and nearly 75% of the electricity sale to the end user is undertaken by the private industries in the US [33]. The REI4P’s regulatory framework has been celebrated nationally and internationally for its open and transparent bidding processes [2]. The first three rounds of projects were run very strictly regarding deadlines [23]. All of these elements have been noted to have provided a positive policy signal to IPPs, thus making South Africa one of the leading destinations for RE investment [3]. Despite the profound success made by the REI4P within the first three years of inception, the future of the REI4P beyond round three is currently unclear for IPPs. Some industry players have suggested that the country’s RE industry has now reached its peak [2]. Round three projects experienced five months slippage to the financial close [23]. Round 3.5 projects which is dedicated solely to CSP were submitted in March 2014 and following various delays, the two winning projects were only announced in December 2014 [19]. The fourth round of the REI4P in South Africa has not started. The postponement of the selection of the winning projects of round four, scheduled for November 2014 is still in delayed by October 2017, now pose a threat to the sustainability of
Page 23 of 89 the REI4P [23]. Communication between stakeholders is key, the delays and lack of communication is causing uncertainty. There is a need to guard against this risk as it could delay or derail the REI4P [23]. The following cases have been observed in the different parts of the world on how the local policy and planning frameworks have influenced the development of the RE industry in the different jurisdictions. Case Study 1: The Investment in Canada and in the USA [33] The development of the RE sector in the USA within state of Texas and in the province of Ontario in Canada provides a dramatic contrast. This is as a result of the differing regulatory risks for investors even through both countries are classified as low business risk environments. Both the countries are amongst the first in the world to announce targets to be achieved through RE. In 1999, Texas passed legislation that required the state utilities to source at least 2880 MW of RE capacity by the year 2009, rising to 5880 MW by 2015. In Ontario, after the election of a new party in 2003, the Liberal government announced the plan to achieve 1350 MW from RES by 2007, increasing to 2700 MW by 2010. The investment performance of the two authorities has deviated over the last 10 years. In 2009, Texas investment in wind power exceeded the overall capacity target three years earlier than plan. In 2010, investment had surpassed the 2015 target, reaching more than 10 000 MW of capacity (160% of the 2015 target). This achievement made Texas the largest state for wind power capacity in the USA. In contrast, Ontario has largely failed to meet its policy targets or to replicate the investment successes in Texas. By the end of 2007, the year of the government’s first target, new RE capacity had reached only 472 MW or 35% of the target. Even after a further three years, the investment still had not met the 2007 target. At the end of 2010, the level of installed capacity was at 48% of the government’s 2010 target. The lack of policy stability was cited as the prominent reason behind the failure of Ontario to meet its long term capacity target. In contrast, the stable regulatory environment in Texas, supported by an institutional framework attracted massive private sector investment in RE. In 2009, Texas became the sixth largest authority in the world in terms of wind energy capacity.
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Case Study 2: Middle East: Iran Research done in Iran to determine targeted factors considered by the private sector in order to improve participation in the electricity generation from RES [1]. By climatology, Iran is one of the potential regions in the world for development and utilisation of RES. While Iran owns 10.3% of the oil reserves and 16% of gas reserves in the world, two months’ solar radiation in Iran is equal to total ever discovered reservoirs of fossil fuels in this country [1]. However, less than 3% of the investment and operation in the RE industry is performed by the private sector in the Middle East [1]. Government policies are highlighted as an important concern for lack of investor confidence in Iran [32]. In contrast, countries like Brazil continue to prosper in the RES as the country that has demonstrated exemplary policies [34]. This demonstrate the important need for host government to develop a culture that encourages IPPs to pursue developmental programmes of RES without injustice.
2.4.1 The importance of independent regulation In South Africa, Nersa was set up under the National Energy Regulator act (Act 4 of 2004) as an independent energy regulator. The regulator is responsible to approve PPAs and to issue new projects with licences to sell energy [19]. In a study conducted by Gratwick and Eberhard [35] in 2008, the IPPs reviewed successful are located in North Africa, contrary to the SSA region cited as “being out of balance”. It was observed that the presence of the regulatory governance in North Africa promoted transparency, fairness and accountability. This means that if the regulatory decisions are credible and predictable, the outcomes will be positive for the host country and investors alike. In contrast, the SSA counterparts were reactive as the regulatory agencies were enforced only after PPAs were negotiated. Policy frameworks were found to be inadequate to maintain a competitive environment. International Competitive Bidding (ICB) process for the IPP projects that were developed, were often not conducted because of tight timeframes. This resulted in limited or no competition in the SSA market.
2.4.2 Grid availability Since the inception of the REI4P, RES have contributed significantly to meeting the total electricity demand in South Africa. This has an effect on the power system, including the transmission grid. The transmission grid availability is proving to be one of the key challenges that IPPs are facing under the REI4P
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[16]. The location of the RE projects in relation to transmission network does not guarantee the availability of the grid as the existing network may have no capacity to accommodate the additional generation. The grid availability challenges are said to have attributed to delay of round three projects reaching financial close and the announcing of the winning project bids for round four [2]. It’s further predicted that solar PV and onshore wind will start competing for the same connection point if the transmission capacity remains the same. There is a need for Eskom to strengthen the transmission network and revamp substations in order to accommodate additional generation. To date, Eskom has spent R2.4 billion to upgrade the transmission network and most of the newly created capacity has been used to connect round one to three projects [2]. A study conducted in Germany demonstrated that increasing the capacity of solar PV from 50 to 70 Gigawatts (GW) by 2020 would require an amount equivalent to €1.1 billion for the transmission grid expansion alone [4]. The need to reinforce the transmission grid in South Africa poses a serious challenge to the cash strapped utility company to raise the additional funds required [2]. This situation is also threatening the future success of the REI4P.
2.5 Fiscal incentives provided for RES development The incentives provided to the procurement of RES are classified into system based on price or system based on quantities. The main mechanisms are divided into three categories. o The Feed-In-tariff (REFIT) is based on price, used by European countries like Germany, Denmark and Spain. The REFIT sets a fixed price for the purchase of RE which could result in the host country paying higher rate of generators than the retail price for each unit of electricity generated [31]. o The Auction-Based-Tariff (ABT) is based on quantity, used by countries like South Africa, Brazil, the UK and Ireland. This system consists of establishing a total number of RES to be installed in the country. IPPs have to bid below a certain price cap and the projects with the lowest costs are selected. In Brazil, the bids offered for the onshore wind energy auction in 2010 exceeded the expectations of all the agents in the electricity sector, corresponding to an average discount of 21.5% on an established ceiling price (US$ 114) set by the regulatory agency [34]. o Green Certificate/Quota system is based on quantity, used in some European countries such as Austria, Denmark, Sweden, Belgium and
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USA. The quota system requires electricity supply companies to produce or purchase quotas of energy [34].
2.5.1 Costs of RE in South Africa
In South Africa, the commencement of the REI4P was surrounded by controversy as the average cost of electricity procured from RES was about 250% more than the cost of coal based electricity generation. This figure was $247/MWh in round 1 projects compared to $71/MWh for conventional coal- based power generation [5]. However, significant changes have occurs as the average electricity tariff for RE projects is currently 40% cheaper than new coal [27]. The electricity tariff based on solar PV, onshore wind and CSP in the REI4P are compared with the globally average as shown in Table 2-3. Table 2-3 REI4P bid prices in relation to global prices [5], [36]
Average Cost – REI4P Globally Technology ($/MWh) ($/MWh) 2011 2012 2013 2010 2015 Solar PV 276 165 88 285 60
Onshore wind 114 90 66 126 71
CSP 345 262 146 331 245
Average Cost 255 172 100 229 144
As can be seen from the tableted information, the average electricity tariff in South Africa has dropped by approximately 60% compared to 37% globally. It can further be seen that the average electricity tariff in South Africa is 30% less that the global average. It’s astonishing that these results have been achieved within the first 3 rounds of the REI4P. These are some of the important reasons that the REI4P is internationally acclaimed as the reduction in the electricity tariff has not negatively affected investment. During the period from 2011 to 2013, investment risen from a few hundred million dollars in 2011 to $5.7 billion in 2012, of which approximately $1.5 billion was for onshore wind and $4.2 billion for solar PV, and $4.8 billion in 2013, of which $1.9 billion was for onshore wind and $3 billion for solar PV [2]. These results are largely attributed to the stable policy framework which drove an increase to the RE investment irrespective of the declining electricity tariff [30].
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Global abundance of technology hardware is seen to have played a key role in the steep decline of the RES bid prices. This has increase the competition in the market resulting in significant cost reductions on the average purchase price, particularly in the case of solar PV and wind technologies. Solar modules prices have decreased dramatically, with the prices of PV modules falling by an average of 75% in 2014 when compared to 2009 [36]. This has influenced a sudden decrease of the total cost of the utility scale PV system between 29 – 65% from 2009 to 2014 [36]. This sharp decrease is known as Swanson's Law in the industry [37], which states that the “price of solar PV modules tend to drop by 20% for every doubling of cumulative shipped volume”. During the same period, wind turbines have experienced a 15% decrease [19]. A developing country like China has the most competitive Levelised Cost of Electricity (LCOE) in the world as this country is able to execute RE projects at relatively low cost [36]. This is attributed to the favourable cost of debt for RE projects and the availability of project financing in the country [19].
2.6 Ownership and financing of IPP projects Prior to the 1990s, major sources of funding for new power generation capacity in Africa was achieved through the public utilities [35]. This trend has changed as most African countries are unable to fund their power needs giving rise to project financing. This is achieved either at project or corporate level in a form of leasing from development banks, commercial banks and utilities [3]. The financing and its lack thereof is one of the biggest challenges restricting the development of RES in Africa as projects are not prepared with bankability in mind [23]. In RE, project financing is generally structured on the basis of 70:30 debt to equity ratio on the capital cost of the project [38]. In South Africa, there are cases where this ratio is up to 80:20 [19]. In South Africa, the access to finance for the majority of projects in round one and two was achieved on project financing through the South African main four banks, ABSA Capital, Standard Bank, Nedbank and First Rand. The average cost of debt for a RE project financed under REI4P is said to be based on an average interest rate of 12% per year for a 20 year term [19]. This rate is higher in comparison to European countries, the USA and China, where interest rates are commonly fixed around 7.5% per year for a term between 10 to 15 years [19]. This high cost of debt is one of the main reason that increases the cost of RE projects. A prediction made by the Climate Policy Initiative [39] estimated that the high cost of debt for RE projects in India could cause the cost of power generated from RES to be between 24 – 32% higher when compared to the USA. The commercial bank lack of knowledge of the risk associated with power
Page 28 of 89 generated from RES contributes to the higher perceive risk of which higher returns are expected for the perceived risk taken [40]. The increased competition in round three has seen local IPPs being unable to compete with foreign IPPs. Given that the REI4P is a relatively new industry, most local companies are small to medium enterprises (SMEs) with limited track record in RES and can only rely on project financing. Foreign companies have a wider range of financial instruments to use compared to local companies. Companies such as Enel Green Power (EGP) can leverage on the use of cooperate finance as observed during round three projects. Projects that are financed with corporate finance are subjected to less stringent loan requirements compared to the requirements imposed by South Africa’s banks providing debt finance [19]. EGP won four out of six solar PV projects which equates to 285 MW out of 435 MW awarded, and two out of seven wind projects which equates to 197 MW out of 787 MW [19] . The dominance of foreign IPPs has also been observed internationally except in Malaysia and China where local IPPs dominate [11]. This suggests that the norms of project finance still give preference to IPPs and technology suppliers with extensive experience, this currently favours European and Asians [19]. The 787 MW for onshore wind auctioned in round three was awarded to three foreign IPPs: Italy’s Enel Green Power, Ireland’s Mainstream Renewable Power, and China’s Longyuan Power [19]. This has raised concerns that financial gains are leaving the country rather than being invested locally [19]. This trend suggests that the REI4P could be a market consolidation with a small number of foreign IPPs holding a significant market share. This phenomenon is not new to South Africa as the country’s coal mining industry is dominated by foreign companies which control over 80% of production [19]. The reduced electricity tariff in round three and the minimal appetite for local banks to get involved in debt financing has made conducting business in REI4P challenging. In order for the IPPs to remain competitive in the REI4P, it’s necessary that the contracting methods used by IPPs to delivery RE projects be reconsidered.
2.7 Contracting methods The term procurement refers to the attainment of goods or services. This is generally done through consideration of what is being procured? The initiator would normally conduct a market analysis of some sort before any procuring can be made. In terms of procuring of the engineering and construction services, the same idea would be applied in the acquisition of a new RE plant.
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In the procurement of a new RE plant, the selection of the most suitable contracting method is important for all stakeholders involved [41]. The contracting method of the RE project may be regarded as successful if the project is completed as scheduled, within budget and quality standards as well as meeting the client requirements [42]. Increasingly, the requirement to meet these criteria is linked with the problem of contracting method used on the project. These problems that are associated with the successful delivery of the project are considered in relation to: o Separation of design from construction; o lack of integration; o lack of effective communication; o uncertainty; o changing environment, o changing clients’ priorities and expectations, and o increasing project complexity [43]. These have motivated IPPs to opt for alternative contracting methods such as the Engineering, procurement and construction (EPC) contracts [2]. Both types of EPC contracts, the Engineering, Procurement, Construction contracts (EPC) and Engineering, Procurement, Construction Management (EPCM) contracts have been used to some extend in the REI4P [44]. The parties’ obligations in the EPC and EPCM contracts differs and this will be discussed in the following section.
2.7.1 EPC and EPCM contracting strategies The EPC contract also referred to as a turnkey contract is where the procurement, design and construction are entrusted to one company. This company is solely responsible for project design, procurement of equipment and construction within a defined period to meet the commercial operation of the project [38]. The IPP deals with one EPC contractor, sign only one contract and there is single responsibility. By this method, the IPP can receive a degree of certainty with regards to both the duration and the budget for the project. However, this method allocate risks to the EPC contractor and the IPP has to pay a higher cost for this benefit [44]. The EPCM is a professional service contract where the contractor develop the design and manages the construction process but does not do the physical construction work [44]. The RE industry involves many engineering companies
Page 30 of 89 with proprietary technology. In an event where the technology supplier is not an EPC contractor, the IPP will generally appoint the technology supplier as the EPCM contractor to be responsible for the design and construction of the project. The EPCM contractor becomes an agent of the IPP who manages the contractual relationship between the IPP, suppliers and the contractors. The EPCM obligations as far as construction and procurement includes: o Providing advice to the IPP on the strategy for construction and procurement to be adopted; o Scheduling activities and ordering of long lead items; o Controlling the budget, schedule and managing quality control system; o Supervising and ensuring that the quality of work is achieved safely; o Assessing the contractor’s payment certificate [44]. The difference is that the EPC is a complete turnkey contract, the EPCM is a services contract which has different risk and legal consequences [44]. This is further articulated in Figure 2-4 and 2-5.
IPP
EPCM Contractor
Supplier Contractor Contractor Turbine / Inverter / PV Civil Balance of Electrical Balance of Panels Plant Plant
Figure 2-4 EPCM contract [44]
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IPP
EPC Contractor
Supplier Contractor Contractor Turbine/Inverter/ Civil Balance of Electrical Balance PV Panels Plant of Plant
Figure 2-5 EPC contract [44]
In an event where the project objective are not met under the EPC contract, the EPC contractor will be liable to pay liquidated damages to the IPP. The difference is that even through the EPCM contractor assumes the IPP’s responsibility, the EPCM contractor will not be liable to the IPP should problem arise resulting in the project objective not being met. For this reason, IPPs normally include lucrative incentives and heavy penalties to be adopted in the EPCM contract in order to motivate high performance from the EPCM contractor [44]. As can be seen, the EPC contracts allow for the project to be managed by one company from inception until commercial operation. The integration of the design and construction is key to successfully deliver the project [43].This has motivated IPPs to adopt the EPC contracts as the project delivery method of choice, domestically and internationally [45].
2.7.2 The preference towards EPC contracts in engineering In a study conducted in Croatia [46] done to analyse the use of EPC contracts within the Croatian construction industry and to give some perspective on the subject. The survey was conducted among 105 businesses, whose study sample was investors as well as engineering and construction professionals. Data analysis was performed using the Relative Importance Index (RII), and the result of the survey are summarised in Table 2-4 (value from 0 being the lowest and 1 being the highest)
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Table 2-4 Overall opinion about the EPC contracts [46]
RII RII – Investor RII – RII – Design/Supervisor Contractor Overall sample: 0,72 0,72 0,71 0,75 Respondents who participated in 0,77 0,83 0,76 0,87 EPC Projects:
The results indicate overall satisfaction with the EPC contracts amongst participants. It can be observed that professional who have prior experience with the EPC contracts rated this method even higher when compared with the overall sample. The client objectives requires the project to be delivered within the budget and estimated construction period, and being satisfied with the quality of the project [42]. The ability of the contracting method in achieving these objectives, influences the decision of the client in terms of choosing the type of contract to be used to implement the project. Two cases of projects performed using the EPC contracts are reviewed, one of the study took place in Nigeria (A) and the other in the USA (B). Background A study conducted in Nigeria [47] which focused on a comparative analysis of the performance of multiple contracts versus the EPC A contracts in achieving the client objectives. A sample is randomly selected which targeted three types of organisations: Clients; Consultants (architects, engineers and quantity surveyors) and Contractors (medium and large sized). A study conducted in the USA [48] which focused only on the B performance of EPC contracts in achieving the client objectives. The survey is conducted on clients who procured a total of 15 EPC projects from 2007 to 2013.
The results of the analysis outlines the following in terms of time overrun, cost overrun, and client satisfaction with quality.
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Time overrun On a sample of 63 projects in total (51 multiple contracts and 12 EPC contracts), parameters indicates that 85.6% of multiple contracts A projects have time overrun, in comparison with 36.3% of the EPC projects. However, this test was rejected as statistical test suggests that the results might have been interfered with. The average schedule duration was 517.9 days, ranging from 211 days B to 1132 days. Overall, 9 EPC projects have time overrun and the average time overrun is 1.25% of the project duration.
Cost Overrun On a sample of 68 projects in total (53 multiple contracts and 15 EPC A contracts), parameters indicates that 42.6% of multiple contracts projects exceeded the budget in comparison to only 21.4% of the EPC projects. 6 of the15 sampled projects have negative or zero cost growth values. B This means that the actual cost is below the planned cost and the average cost overrun is 0.82% of the project budget.
Client satisfaction with quality The quality is measured subjectively by asking if the clients are satisfied with the standards of workmanship and specifications. This result shows A that 78% EPC projects are highly satisfied with project outcome, when compared with 51% of multiple contracts projects. The results further indicated that there were also 7.5% clients in the multiple contracts projects who are dissatisfied. Quality data is measured using the Likert scale from 1 to 5. Average as- built quality is understood to be 3.1 out of 5, which indicates that the as- B built quality of some of the facilities is high, while other are below average. Finally, the overall client’s satisfaction scored an average of 3.8 out of 5.
The two cases above demonstrate the reasons that EPC contracts are becoming prevalent in the engineering and construction industry internationally. The rationale is that the client’s objective of having the project successfully delivered, within time, budget and performance are achieved without much effort from the client. This is achieved through the single point of
Page 34 of 89 responsibility where this approach integrate the roles of designer and contractor. Amongst other benefits, this allows a single point of communication between the client and the contracted company which reduces possibilities of miscommunication. The next section assesses the application of the EPC contracts within the South Africa context.
2.7.3 The future of the EPC contracts in South Africa In South Africa, the RE projects are defined by the participation of foreign EPC/EPCM contractors [44], [19]. These projects require complex designs of engineering works and procurement of specialised equipment. These combined skills are not common in the country [19], especially when the IPP desires to appoint a single company to be responsible for the project [45]. The main advantage of EPC contracts are the reduction of the project duration by overlapping the engineering, procurement and construction phases [49]. The REI4P bid requirements states the EPC/EPCM contractor must have 8% minimum BEE shareholding with a target of 20%, and 40% South African company participation [19]. For these reasons, the EPC/EPCM contractor are compelled to form partnerships with one or more South African companies [50]. The EPC contracts are generally the largest cost item in the project budget and are estimated to be between 60 to 75% of the total project cost [51]. Since most of the project risk is placed in the hands of the EPC/EPCM contractor, who in turn decides on the magnitude of a risk premium that must be added to the fixed price to cover his risk [49]. On this approach, Sargent & Lundy [49] conducted several interviews with investors and contractors. In their experience, the EPC/EPCM contractor adds a risk premium to the work of the original equipment manufacturer (OEM), to which the risk premium has already been added by OEM. In addition, a risk premium is added on the subcontractor’s project schedule where the scope of work is on the critical path. While first three rounds have seen foreign EPC/EPCM contractors subcontracting to local companies. This suggest that important skills have been transferred to local companies. Proceeding with round four projects and onwards, there might be an opportunity for those previously subcontracted local companies to be appointed by IPPs as sole contractors in their area of expertise. The shift from an EPC contracts to multiple contracting [50] could be the answer for the IPPs to remain competitive in the REI4P, considering the tariff drop of 42% and 68% of onshore wind and solar PV respectively between round one and three [19]. Sargent and Lundy [49] prepared a cost comparison between EPC contracts and multiple contracts approach, findings reveals that
Page 35 of 89 that multiple contracts approach could result in an estimated 6.8% saving to the IPP. These figures are even higher between 10 to 20% of the project cost according to Ahlfeldt [50].
2.7.4 Benefits and challenges of multiple contracts The multiple contract approach will result in dividing the IPP’s scope into multiple contracts. More contracts would increase the IPP’s opportunity to save costs but also increase the IPP’s risk with respect to project integration [49]. This is because the individual contract would minimise cost associated with the mark-up on subcontractors as well as risk premium on work to be performed later in the course of the project. This approach would allow early work, mainly the civil balance of plant to be awarded early in the project, whereas the electrical balance of plant would be awarded later, closer to the execution of the work. As observed in a study conducted in Nigeria [47] and in the USA [48], multiple contracts projects are linked with high cost overrun, project delays and low quality work being achieved. More involvement from the IPP is required to safe guard against these risks [49]. This would require the IPP to set up systems and processes to deal with procurement, engineering and construction activities [49]. Skilled people would have to be sourced to deal with the overall administration of the contracts. For this type of contract method to work, it requires effective Project Management (PM) measures and IPPs would need to consider investing in the training of personnel [52]. In addition, the need to provide the necessary support in terms of standard, procedures, and working tools necessary to procure and manage the projects would need to be addressed. If this approach is attempted without addressing all the mentioned pre-requisites on time, inadequate cost control measures will not achieve the estimated cost saving benefits to the IPPs [49]. The following section will discuss the critical factor that IPPs would need to consider in order to have higher chances of success when directly managing multiple contracts within a project.
2.8 Project management PM is considered to be one of the main determinants of project success [42]. PM is not a new phenomenon as some can say that PM is as old as the pyramids in Egypt [53]. Work or activities that requires planning and co- ordination of resources is more likely to result in a project. By definition, a
Page 36 of 89 project is a unique one-time event that consists of multiple activities performed to solve a problem [42]. A project is usually managed using some form of tools from PM [53]. PM can be seen as the facilitation of planning, scheduling and controlling activities that must be accomplished to meet the project objectives [42]. More work has been done over the past two decades in order to get the processes of PM in a mature state [53]. These efforts have led to a set of standards for PM, such as the Guide to Project Management Body of Knowledge (PMBOK) from the Project Management Institute (PMI) [54]. Although PMI has an established body of knowledge, there are other PM methodologies that are in existence. Researchers opine that these different methodologies all say the same thing in a different way [53]. Project life cycle as identified by PMI is made up of 5 phases which are initiating, planning, executing & monitoring and closing [54]. The project cost can vary from a few Rands to several billions of Rands. Similar to project cost, the project time varies in duration but the project has to have a definite beginning and finish date. Projects requires project team members, the number of people and the skills required is dependent on the complexities of a project [42]. A project manager is a professional that is appointed by the organisation to be responsible for the project [42]. This professional must have the ability to be proactive, flexible, plan, control, coordinate and have an awareness of the organisation’s business [42]. Ideally, PM methodology chosen by an organisation must be adopted as a standardised process that is known and practised throughout the organisation [42]. This standardised system enables proper document control of the project documentation in order to develop and mature PM processes in an organisation [53]. This means that archiving of lessons learned and best practices can be made possible from this effort. A study conducted by Hillsom [12] suggest that many organisations are aware of the importance of PM methodology, and attempts to deliver the business objective through effective PM. However, organisations cannot always benchmark their PM capabilities against the commonly accepted best practices because they do not know their PM maturity levels. There seems to be a relationship between maturity and project success, as researchers such as Yazici [55], Mullaly and Thomas [56] outlines that organisations at a higher project maturity level generally achieve higher levels of project success. Yazici [55], Mullaly and Thomas [15] further shows how maturity of the project organisation can be measured. Despite this
Page 37 of 89 profound knowledge in PM, overruns, delays still occur and stakeholder’s expectation are still not being met.
2.8.1 Project success Project success is perceived in different ways by stakeholders involved, depending on the prism that is used to measure success. This is demonstrated by the Boston big dig project that was completed in 2007. This is one of the most expensive highway projects internationally. This project experienced 190% cost overrun, years of delay due to design errors and corruption. In 2010, the Boston Globe argued that this project has proved to be a success. The arguments is that the new infrastructure has improved the traffic situation which increased the local property values [57]. These two contrasting views demonstrate that project results can be successful even though the project is unsuccessfully managed. The opposite may also be that the project may be perfectly managed, but the outcome may result in a business disaster such as changing markets. Critical Success Factors (CSFs) in PM are generally used as a recipe to deliver a successful project and this is discussed in the following section.
2.8.2 Project management critical success factors There are different opinions amongst stakeholders concerning the definition of project success [57]. However, success on a project mean that certain expectations for stakeholders are met, which can be owner, customer and so forth. There is a general agreement about the boundaries of the desired project outcome, these includes, delivery of the project in schedule, within the prescribe budget, performance according to the specification and meeting the expectations of the stakeholder [54]. In PM, CSFs are seen as variables that have direct impact on the success of the project [58]. The study of project success and CSFs is considered as one of the important ways to improve the desired project outcomes [58]. The CSFs approach is said to have been established in the last three decades and there is an abundance of literature on CSFs for projects in different fields [59]. Pinto and Slevin [52] list of ten CSFs is regarded as a classical piece of work. This is based on 418 responses to a questionnaire that targeted PMI members. Data was collected over a period of two years to develop the ten CSFs model that has been widely used in PM [52]. The following section discusses each of these ten CSFs, and highlights their importance in the PM.
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1. Project mission The project mission must provide a clear definition of what the project is all about. This defines the purpose, expectations, goals, actions necessary to achieve these goals and it should be aligned with the business objectives. Continuous monitoring of these objectives throughout all the phases of the project are very important and if there is a change with the business objectives, then project objectives need to be realigned accordingly [54]. 2. Top management support The top management support is vital, should provide guidance and direction to the Project Management Office (PMO), especially when one considers that projects exist to support overall goals of the organisation. The top management support, is defined as having continuous support, and commitment from the organisation’s senior management for project activities [54]. 3. Project schedule/plan Project plan/schedule provides a detailed roadmap that give specific instructions of what steps needs to take place, when these steps will be done to ensure successful delivery of a project. This involves defining project activities, identifying required resources, sequencing the activities, developing the schedule, implementing the project activities according to the schedule, monitoring and controlling the plans during the implementation of a project [54]. 4. Client consultation According to Pinto and Slevin [60], client consultation is required early. Constant consultation with the client is vital as this will ensure continued client support to project objectives. It involves active communication with the client, and seeking client input on major decision points during project implementation. 5. Personnel This involves the identification of the human resources with the necessary skills required for the project to be a success. This includes recruitment and training of the project team. According to PMI [54], PM involves application of knowledge, skills and resources to project activities.
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6. Technical tasks This involves equipping the project team with the necessary tools and processes required to implement project activities to ensure successful project delivery [54]. 7. Client acceptance The project is initiated to fulfil the objectives of the client. Thus, it’s important that the project success criteria are jointly determined with the client, and are monitored jointly during the life of the project. This will assist in making the project’s final product acceptable to client. This would be managed according to the defined milestones and the client will be part of the team to assess if the milestone has been completed throughout the duration of a project [54]. 8. Monitoring and feedback Monitoring and feedback is defined as continuous provision of a project’s status (budget, schedule, scope and so forth) to all concerned stakeholders during project implementation. It involves hosting regular formal meetings, informal communication and making certain that the project information is distributed to all stakeholders [54]. 9. Communication Effective communication is vital in PM as poor communication can lead to project failure [43]. Effective communication should provide adequate flow of useful project related information among project stakeholders. The PMI [54] suggest the establishment of a comprehensive communication plan for the project, which define what information needs to be shared, when the information must be shared, and who is responsible to share the information. 10. Troubleshooting This is also referred to as risk management in some studies [42]. Describes the ability to navigate the project in the midst of complex situations and responding to unforeseen changes to the project plan [60]. Risk is part of every project [54], proactive risk identification, evaluation and implementation of risk response mechanism during project implementation is important to the success of the project. The objectives of project risk management are to increase the likelihood and impact of positive events, and decrease the likelihood and impact of negative events in the project [54].
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Slevin and Pinto’s 10 CSFs [60] provides a solid foundation, clear definitions and measurement scales for PM success factors. However, Rolstadás et al. [59] found these CSFs to be rather generic. This had led to further studies by Zarina et al. [58], who developed a conceptual framework that can be considered by companies when developing organisational specific CSFs.
2.9 Summary The high reliance on fossil fuels, shortage of electricity supply has prompt governments internationally to establish green energy targets that promote rapid grow of RE generation. In South Africa, the REI4P was adopted in 2011 following pioneering countries like the USA, China, UK, Germany and so forth [3]. The South African market has been attractive for both foreign and domestic investment. However, the last three years are indicating concerning signs for IPPs who intend to further continue performing business due to project challenges associated with the regulatory risks [19]. IPPs have opted to use the EPC contracts to procure projects within the first three rounds. The selection of this method is understood to be risk driven. It is further understood that the local companies that were subcontracted during round one to three projects have gained important skills from the EPC/EPCM contractors. With the significant price drop of the electricity tariff, the availability of skilled local contractors, literature suggests that IPPs will no longer favour the EPC contracts to procure projects within the REI4P [19]. If the multiple contracts method is to be considered, IPPs will have to establish effective PM measures to alleviate the risk associated with this type of contracting method. The literature suggests that PM is used as a vital tool to manage projects in organisation. Even through PM is as old as the pyramids in Egypt [53], projects still experience cost overruns, delays still occur and stakeholder’s expectation are still not met. In PM, CSFs are seen as variables that have direct impact on the success of the project [58]. Researchers like Rolstadás et al. [59], Pinto and Slevin [52], have provided guidance on CSFs that needs to be considered by project based companies in order to have a higher chances of project success. The CSFs should be customised according to the specific needs of each organisation. The following chapter presents the research methodology. This chapter will explain the data collection and data analysis method that will be used to draw conclusion of the research questions.
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3. RESEARCH METHODOLOGY
3.1 Introduction This chapter present the research methodology used to address the research questions discussed in Chapter 1. In Chapter 2, an in-depth discussion of the researched literature was conducted to address the research question by means of a literature study. This chapter presents how data will be collected, and the processing thereof within the boundaries of the research process. Two basic methodologies of collecting data will be distinguished. One method will be selected to conduct the research is discussed. Cooper and Schindler [61] suggest that the research methodology must take into cognisance the context of the research and desired outcome in order for the study to have a meaningful contribution.
3.2 Research design This study has been undertaken to assess the factors that has an influence on the performance of IPPs in RE projects in South Africa. In order address the aims and objectives of the study, literature was used to identify factors that contributed to the challenges and successes experienced by IPPs during the completed RE projects. It is understood that these factors will influence the strategies adopted by IPPs when perusing future projects within the REI4P. These factors are classified into three different groups for the purposes of data analysis as show in Figure 3-1.
Market conditions
IPP Project Performances
Contracting methods Project management
Figure 3-1 Research design Page 42 of 89
3.3 Methodology rationale Although types of research methods are often associated with the academic field in which the research is conducted, two research methods can be separated either qualitative or quantitative methodology which are of importance in all scientific investigation [14]. Cooper and Schindler states that a research is either qualitative or quantitative approach depending on the researcher’s level of certainty [61]. Deciding on the research method to be used for the study is challenging as the researcher may encounter difficulties if the most appropriate method is not selected. Quantitative methodology is generally associated with analytical research as this method attempts to measure something. With this method, the researcher will assign numbers to observations, data will be gathered by counting and measuring things. Quantitative methodology is often carried out for theory testing instead of theory building. This method is used to measure knowledge, opinion and views. For example, to determine how many people have similar characteristics and views. The survey is considered to be the dominant method of the quantitative researcher [61]. Qualitative methodology refers to research that produces descriptive results where no numbers are assigned to observations. This method is designed to tell the researcher how and why things happens as they do [14]. This method allows the researcher to get to know people personally and understand people’s daily struggles. By so doing, this will enables the researcher to interpret and describe the actions of the people. Given the nature of the research problem discussed in Chapter 1, the best fit method to address the research problem is to follow a quantitative method. This method enables the researcher to quantify factors that has an influence on the performance of IPPs in South Africa. The researcher uses the main sources of data, primary data and secondary data [14]. Secondary data is analysed first as it provides invaluable background information required for this study. Data collected from published materials is used to analyse the economics of solar and wind electricity generation, comparing South Africa to the leading and follower countries. Even through the secondary data provides invaluable background information, it does not provide all the necessary information required to address aim of the study. Primary data is gathered through questionnaire survey to fill the information gaps.
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3.4 Market economic assessment The introduction of the REI4P in the South African energy sector is yielding significant results. In 2016, 3% of the total system load was supplied thought RE technologies [28]. Currently, the onshore wind and solar PV technological options both equally contributes 94% of the total electricity generated from RES in South Africa [28]. To understand the performance of the RE industry in South Africa, the installed RE capacity in South Africa is compared with the leading and follower countries considering the period after the inception of the REI4P. Two leading and two follower countries in both onshore wind and solar PV technologies are considered for this analysis. The leading countries considered are Germany and Spain. These countries are the two pioneering countries for developing onshore wind and solar PV energy in the European Union [3]. China and India are the two follower countries considered for this assessment. The two developing countries have also stepped up in both onshore wind and solar PV installations in recent years and are currently the fastest growing countries in the RE market [3]. The development of both solar PV and onshore wind in these leading and follower countries is discussed below. Renewable Energy (RE) market in Germany Germany is ranked first in the world in terms of RE capacity on per capita basis, with 1.1 GW excluding hydro power [3]. As a member of the European Union (EU), Germany has obligations to promote electricity generated from RES and has set a target to reach 35% of its RE target by 2020 [62]. Electricity procured from RES has increased from 3.1% in 1990, to 6.4% in 2000 and to 22.9% in 2012. In 2011, Germany had cumulatively installed 28857 MW of onshore wind and 25037 MW of solar PV capacity [63]. By 2016, both wind and solar capacity has cumulatively increased to 45639 MW and 40986 MW respectively [63]. RE market in Span Similar to Germany, Spain is also regarded as a success story with regards to its use of RES to generate electricity. Spain is ranked second in the world in terms of RE capacity on per capita basis, with 0.7 GW excluding hydro power [3]. Spain had set a target to reach 12% of RE implement and only achieved 11.3% by 2010. In 2011, Spain had installed 21529 MW of onshore wind and 4352 MW of solar PV capacity [63]. In 2013, the government introduced 6% additional tax on revenues generated from electricity and this reduce further possible investment in RE [64]. By 2016, both onshore wind and solar PV total
Page 44 of 89 capacity has marginally increased to 22987 MW and 4871 MW respectively [63]. The government has reduced the 2020 target for RE from 22.7% to 20.8%. RE market in China China’s onshore wind and solar PV installation has been almost doubling every year since 2007. China has the highest onshore wind and solar PV cumulative installation of 147503 MW and 77788 MW respectively [63]. In 2011, China had cumulatively installed 47961 MW of onshore wind and 3478 MW of solar PV capacity [63]. This is largely attributed to the fact that China has good wind and solar resources better than Germany and Spain [63]. With good solar and wind resources, this suggest that China’s RE capacity on per capita basis, of 0.1 GW excluding hydro power [3] will continue to improve. RE market in India In 2011, India had 62 GW of RE and was ranked fourth in the world in terms of RE capacity with onshore wind and solar PV contributing 16084 MW and 563 MW respectively. By 2016, both onshore wind and solar PV total capacity has increased to 28875 MW and 9658 MW respectively [63]. Currently, RE capacity on per capita basis, is 0.03 GW excluding hydro power [3]. The government targets that RE will contribute 6% to the total energy mix by 2022.
3.4.1 Determining of the current state of solar and onshore wind generation In order to compare South Africa’s current solar PV and onshore wind generation against the leading and follower countries. A period from 2011 to 2016 has been chosen based on the period that both onshore wind and solar PV technologies has been of existence in South Africa [27]. Electricity production – Availability of solar PV and onshore wind The commercial end-product of the photovoltaic panels or wind turbine is the production of electricity. The economics of solar and wind electricity generation is dependent on the availability of both solar and wind resources [65]. Therefore, knowing the available wind and solar resources in the vicinity of the proposed project is key for all stakeholders involved. This information is available from wind database / wind atlas for wind resources and Global Horizontal Irradiation (GHI) for solar resources.
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The availability of solar and wind resources for this study is expressed in terms GHI and annual average wind speeds. IRENA [65] is used to define boundary conditions of the five classes which represent the different suitability levels for solar PV and wind technology as show on Table 3-1 below. Since wind turbine used for commercial purposes have hub heights that ranges for 60 – 120 meters [65]. An average high of 80 meters is used for this study. Table 3-1 Suitability of solar irradiance and annual wind speeds
Not Limited Highly suitable suitability Suitable Suitable Excellent Below 1000 1000-1500 1500-2500 2500-3000 Solar PV kWh/m²/year kWh/m²/year kWh/m²/year kWh/m²/year (GHI) (GHI) (GHI) (GHI) Wind Energy 0-4 m/s 4-5 m/s 5-7 m/s 7-9 m/s >9 m/s
Electricity production – Installed capacity The installed capacity of both solar PV and onshore wind procured since the inception of the REI4P in South Africa is assessed against the four identified countries. This assessment is done in terms of per capita capacity and according to country’s GDP. Assessment of the current global tariff paid solar PV and onshore wind The South African Minister of Energy has committed to signing PPAs for the delayed round 4 projects before the end of 2017. All the wining projects for all technologies would be subjected to tariff cap of R0.77/kWh [66]. An assessment on this proposed tariff is done against the current tariff being paid by the leading and follower countries for solar PV and onshore. These cost are presented in US dollars per kilowatt-hour (US$/kWh).
3.5 Survey research method Surveys are the most common method of generating primary data [67]. The uniqueness of the survey method allows researcher to gather information not available from other sources. According to Leedy and Ormrod [67], a survey research method typically involves a personal interview, telephone survey and written questionnaires. A questionnaire survey was selected for this study. This method is beneficial because of its simplicity in design. The researcher is able to pose a series of questions to participants from geographically dispersed
Page 46 of 89 locations, collect, summarise the responses using statistical indexes and then draw similarities about a particular population [67]. Data collected from this method could result in distorted answers received from participants as the researcher is not nearby to explain uncertainties [14]. Leedy and Ormrod [67] argues that this limitation can be overcome by a well-developed questionnaire.
3.6 Questionnaire design
3.6.1 Introduction There are different types of questions that the researcher could ask in the questionnaire and these include open and closed questions [14]. Open questions refer to questions which allows the responded to give explanation, while closed questions allows the responded to select the most relevant options from a given a number of answers to the question [14]. The questionnaire distributed for this study only used closed questions. The choice of question type, either closed or open, was mainly as a result of time constrain for this research.
3.6.2 Questionnaire layout A structured questionnaire is developed by the researcher in order to gather data for this research and this questionnaire is included in appendix A. The questionnaire is developed such that the responses are grouped into three sections, namely, market conditions, contracting methods, and project management. For instance, all the responses pertaining to the market condition are recorded in section 2.1. The same rationale was applied to categorise the remaining sections of the questionnaire. Questions are rated according to the Likert five-point scale where; (1) strongly disagree, (2) Disagree, (3) Neutral, (4) Agree, and (5) strongly agree. Participants evaluates each question based on their recent experiences in the REI4P.
3.6.3 Development of questions The questionnaire is divided into three sections and this was based on the three factors identified in literature. Each section consisted of five number of
Page 47 of 89 questions. All questions asked are based on the literature review and appendix B is included showing how these questions where compiled. The aim of the three sections is to assess the following: 1. Market conditions To investigated how the current local market conditions could be influencing the IPP’s investment decisions in RE projects. 2. Contracting methods This section assess the type of contracting methods that were popular during the first three bidding rounds of the REI4P. The factors that could be influencing the selection of these contracting methods by IPPs are established. An assessment on the future sustainability of the identified contracting methods is also evaluated. 3. Project management This section assess the role of PM in RE projects. It evaluates the impact of CSFs and how these have influenced the outcomes of the completed projects for IPPs that had a PMO. It further seek to understand the importance of establishing such an office and the necessary organisational support required.
The feedback given to these questions is developed such that meaningful insight could is gathered about what IPPs consider important. This will assist IPPs to identify the necessary actions required for these companies to invest further in the REI4P.
3.7 Population and sample According to Brynard et al. [14] a population refers to a group of people, companies, hospitals, stores and so forth which possesses specific characteristics. A sample is a part of a larger group and should include all the elements of the population. Sampling is therefore divided into two groups, namely probability sampling and non-probability sampling. Since the study is undertaken to understand the factors that impact the growth of IPPs within the REI4P. Non-probability, purposive sampling is used in the study as this enabled the researcher to select participants who possesses specific characteristic required in the study. This
Page 48 of 89 method is selected with the intention of gathering maximum and most valuable information for the study [14]. The literature review allowed the researcher to gain insight on the companies that participated in the REI4P’s first three bidding rounds as research participants. A total population of 64 SPVs are identified and used in this study. An electronic questionnaire is distributed to these companies for their contribution. The list of the companies considered is included in appendix C. A table for calculating the sample sizes is used as a guideline to determine the appropriate sample size for this study [14]. As suggested by the sample size table, the researcher considers not less 60% response rate from the population. In this way, the researcher will have confident that the sample is representative of the population, and the results achieved are a true reflection of the characteristics of the population. In non-probability sampling, the researcher is aware that variations may occur amongst the participants [14]. In an effort to lessen the effect of these variations, the researcher identified beforehand the key participants according to information being targeted. These participant are classified according to their area of responsibility or department, and position occupied within the organisation as show in Table 3-2. Table 3-2 Classification of survey participants
Department / Area of responsibility Position Entire Organisation Country Manager / Chief Executive Officer Project Management Head of Project Management / Project Leader / Project Director / Senior PM Procurement Head of Procurement / Head of Contract Management Business Development Head of Business Development Construction Head of Construction / Construction Director Engineering Head of Engineering / Design leader / Chief Engineer / Engineering Manager Finance Head of Finance / Chief Financial Officer / Chief Accountant Operational & Maintenance Head of Operational & Maintenance
These participants are selected as it’s understood that they are part of strategic decision making and has certain powers to represent their respective companies when conducting business within the REI4P [42].
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3.8 Questionnaire validity According to Brynard et al. [14] validity refers to the potential of a questionnaire used as measurement instrument to measure what it’s intended to measure. The following different forms of validity have been identified:
o Content validity refers to the correctness and the appropriateness of the questions included in the questionnaire, o Criterion-related validity involves testing the extent the results of an assessment correlate with another, o Construct validity refers to the degree the questionnaire acquires the required information, and o Face validity refer to the way the questionnaire appears to the participants.
The researcher made use of the above mentioned approaches to validate the questionnaire used as a measuring instruments. This was done in the following manner: o Literature review is used in the study to address the content validity of the questionnaire. o Pre-testing of the questionnaire is conducted through a pilot test where participants of selected companies are approached. Feedback received is used to improve the questionnaire.
3.9 Ethical considerations It is a requirement of the University of Johannesburg that research questionnaires goes through an ethical clearance process which evaluates the type of questionnaire used. This process ensured the confidentiality and the ethical component of the research questionnaire. The clearance obtained meant that only the necessary information related to the research study is gathered which excluded respondents’; names, race, gender and qualifications. Prior to distribution the questionnaire survey to the intended population, the researcher engaged the supervisor to obtain the necessary approval from the University. This resulted in the standardised questionnaire that is distributed to the participants. Participation is the study is completely voluntary and participants are assured that their responses would remain anonymous. All participants in the study are
Page 50 of 89 guaranteed confidentiality and the data collected would only be reported in the aggregate results of the academic research study.
3.10 Data analysis and interpretation In order to draw meaningful data from the survey, the questionnaire responses are collected and analysed using various statistical methods. Microsoft Excel is used and an important tool for downloading and organising the survey data. All responses are copied from each questionnaire into Microsoft Excel spreadsheet. The researcher uses the Statistical Package of Social Science (SPSS) software program to perform descriptive analysis in order to validate the three factors identified in literature, understood to have contributed to the challenges and successes experienced by IPPs during the completed RE projects. This descriptive analysis consisted of arithmetic means and standard deviations. This enables the researcher to make comparisons between the different mean values and average variation in responses for the three factors being assessed.
3.11 Summary This chapter presents the research methodology, which is a survey that is used to gather data for this study by making use of a questionnaire. Non-probability, purposive sampling is selected. The literature review enabled the researcher to concentrate on only the 64 SPVs that participated in the REI4P’s first three bidding rounds as research participants. The valuable data obtained from the questionnaires will be analysed and discussed in the following chapter.
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4. ANALYSE AND DISCUSS
4.1 Introduction The study investigate the factors that has an influence on the performance of IPPs in RE projects in South Africa. This is approached from a perspective of IPPs who provides insight on the factors currently influencing their participation in the REI4P. The research methodology is intended to collect quantitative data. This enables the researcher to quantify factors that has an influence the performance of IPPs in South Africa. The researcher uses primary data and secondary data. Questionnaire surveys is used to gather information from participants located from different geographically dispersed locations. This chapter presents the results and information obtained from the primary data and secondary data.
4.2 Market economic assessment In order to achieve the aims of the study, this section present the results obtained from the secondary data. The results contribute in answering the first research question presented in Chapter 1. Electricity production – Availability of solar PV and onshore wind The economics of solar and wind electricity generation is dependent on the amount of available of both solar and wind resources [65]. The solar and wind resources are limited to certain areas within the countries’ being assessed. The availability of solar and wind resources for this study is expressed in terms of GHI and annual wind speeds. IRENA [65] is used to define boundary conditions of the five classes. Solar resource maps from Solargis [68] are used to obtain the average annual GHI measurements which is based on a 22 year average. The comparison of the solar irradiance of the five countries are grouped according to the suitability scale as can be seen on Table 4-1.
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Table 4-1 Comparison of the average annual GHI measurement
Limited Suitable Highly Excellent suitability Suitable Below 1000 1000-1500 1500-2500 2500-3000 Source/ Solar PV kWh/m²/year kWh/m²/year kWh/m²/year kWh/m²/year Study (GHI) (GHI) (GHI) (GHI) Germany 1000 - 1200 Spain 1200 - 1950 Solargis China 900 - 2300 [68] India 1250 - 2150 South Africa 1450 - 2350
The comparison of the annual wind speeds of the five countries are grouped according to the suitability scale as can be seen on Table 4-2. The data for the wind resources are obtained from different sources as shown on Table 4-2. Since wind turbine used for commercial purposes have hub heights that ranges for 60 – 120 meters [65]. An average high of 80 meters is used for this study. Table 4-2 Comparison of the countries’ annual wind speeds at 80 meters
Not Limited Highly Source/ suitable suitability Suitable Suitable Excellent Study Wind Energy 0-4 m/s 4-5 m/s 5-7 m/s 7-9 m/s >9 m/s Germany 7 - 10 NREL [69] Spain 5 - 9.5 IDAE [70] China 7 - 11 IEA [71] India 7 - 10 NREL [72] South Africa 7 - 11 IEA [71]
Discussion on availability of the solar and wind resources From the results above, it can be observed that Germany being a leading country globally with the highest solar PV per capita [3], has the lowest average annual GHI out of the five countries being assessed. IPPs have also been attracted to these countries due to the high to excellent suitability of the annual wind speeds. At higher wind speeds, IPPs tends to develop large wind plants for a higher yield. The high wind speeds, for example, from 8 to 9 m/s at hub height will typically increase output from a wind turbine by 10% [73]. It’s also interesting to note that China being a leading
Page 53 of 89 country globally with the highest onshore wind per capacity [3], has similar favourable annual wind speeds conditions as South Africa. The results of the availability of the solar and wind resources demonstrates that both solar PV and onshore wind can be developed in all of the five countries being assessed. It can be further observed that South Africa is endowed with some of the best solar and wind resources in the world [71]. The results of the installed capacity of both solar PV and onshore wind of the five countries from 2011 to 2016 is given in the following section.
Electricity production – Installed capacity The installed capacity of both solar PV and onshore wind procured is assessed in terms of per capita capacity and according to country’s GDP. A number of sources are used to compute the results of the installed capacity of both solar PV and onshore wind, these sources are shown in 4-3 below. Appendix D is included showing the data used for this analysis. Table 4-3 Data sources used for installed capacity
Type of data / statistics Source / Study Online onshore wind & solar PV capacity IRENA [63] Peak loads DIL [74], REE [75], CEC [76], IBEF [77] Eskom [78], [79] Population World Bank [80] GDP World Bank [80]
The data obtained from the mentioned above sources assisted the researcher to compute the installed capacity in terms of per capita and each countries’ GDP. The results are shown on Figure 4-1 and 4-2 respectively.
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Solar PV & onshore wind - Per capita capacity
600
500
400
300
MW/Million peopleMW/Million 200
100
0 2011 2012 2013 2014 2015 2016
SA India China Spain Germany
Figure 4-1 Per capita capacity
Solar PV & onshore wind - By countries' GDP 20 18 16 14 12 10
Billion 8 6 4 MWperbillionUSD ($) 2 0 2011 2012 2013 2014 2015 2016
SA India China Spain Germany
Figure 4-2 Capacity per GDP
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Discussion on installed capacity of solar PV and onshore wind The result above demonstrate how solar PV and onshore wind in South Africa is competing with the leading economies globally. South Africa’s investment in RE is not far from leading economies such as Germany, India and is above a leading country like Spain. The REI4P is making meaningful strides in addressing the countries objectives of reducing the carbon emulations from coal generation by adding clean energy into the national grid. The South African RE policies can be attributed to the positive results of the REI4P which received international accolades [19]. However, the recent changes in the political framework is hindering the REI4P’s progress and has placed the entire programme at risk [23]. As can been seen on Figure 4-1 and 4-2, Spain’s RE policies [64] has detoured the RE progress completely to a point where limited growth is observed. The introduction of 6% additional tax in 2013 on revenues generated from electricity has resulted in a reduction of RE investment [64]. Germany’s success is linked to the Renewable Energy Source Act (Erneuerbare-Energien-Gesetz or EEG) that came into effect in 2000. It increased the importance of RES as it put important measures in place, such as impose obligations to the grid system operators to prioritise RE generation and connect to a point closest to the plant. These grid system operators are also oblige to strengthen the grid network upon request from IPPs wishing to supply electricity to the grid [81]. In South Africa, IPPs have to rely on Eskom for grid access and if the grid network requires upgrades, the cost are normally charged to IPPs and grid available is not guaranteed [81]. China’s success is similar Germany as the introduction of the Renewable Energy law in 2006 gave impetus to RES. Under this law, the government encourages, support grid connected RE generation through medium and long term total volume through a National RE development plan. This plan requires grid operators to enter into grid connection agreements with IPPs [81]. Even though India has stepped up in both onshore wind and solar PV installations in recent years. A country like India with best solar and wind resources similar to South Africa, should be competing with China in terms of installed capacity. India appears to be reactive in the issuing of policies related to the development of RE and lack of policy integration is an issue [82].
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Assessment of the global tariff for solar PV and onshore wind An assessment is done to compare the proposed tariff in South Africa, against the tariff paid in the leading and follower countries for solar PV and onshore wind generation as can be seen on Table 4-4. These cost are presented in US dollars per kilowatt-hour (US$/kWh). Spain is excluded from this analysis as no additional solar PV and onshore wind has been witnessed since 2012 as observed on Figure 4-1. Table 4-4 Tariff comparison of South Africa, leading and follower countries
South Africa Germany China India Onshore wind 0.06 [66] 0.08 [83] 0.04 [84] 0.041 [85] Solar PV 0.06 [66] 0.11 [83] 0.08, 0.10 & 0.11 [86] 0.061 [87]
Discussion on the comparison of the proposed tariff From the table above, it can be seen that the proposed tariff in South Africa is on parity with India and China. Tariff in South Africa are somewhat less favourable for IPPs when compared to Germany. The following factors further strengthen the argument that the development of the winning round 4 projects in South Africa for the proposed tariff will be challenging for IPPs. o South Africa has no commercial turbine manufacturers and PV modules as compared to Germany, Spain, China and Indian [3]. Preferred IPPs are most likely to source turbines, panels from these counties. Therefore, IPPs in South Africa are subjected to paying transportation cost thus adding to the capital cost. o It is a norm to include cost in the RE project for connecting to the nearest grid connection point and not cost associated with the strengthening of the transmission network. In South Africa, grid connection cost includes cost of connecting to the transmission lines including all the necessary substation upgrades required for the additional capacity, and payment of these cost does not even guarantee grid availability [88]. Therefore, the grid connection cost in South Africa are expected to be higher when compared to the leading and follower countries. o The average cost of debt for RE project financed under REI4P is 12% per year for 20 years [19] in comparison to European countries, USA
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and China, where interest rates are commonly fixed around 7.5% per year for a term between 10 to 15 years [19]. Following the results obtained from secondary sources, the researcher further engaged with IPPs through a survey questionnaire. The aim is to validate and quantify the magnitude the market conditions have on the progression of the REI4P. The results obtained from the respondents are discussed below in line with the proposed change strategies for IPPs to remain competitive.
4.3 Sample description In line with the research design, the researcher focuses on SPVs that have been involved in the REI4P’s first three bidding rounds in South Africa. As discussed in section 3.6, non-probability and purposive random sampling process is used to identify the key participants within SPVs. Owing to time constrain, the questionnaires is distributed to the SPVs requesting input from one participant per company. The South Africa Photovoltaic Industry Association (SAPVIA), South African Wind Energy Association (SAWEA) and South African Solar Thermal and Electricity Association (SASTELA) assisted by ensuring that their associate members, mainly IPPs complete the questionnaire. The questionnaire are distributed electronically to the target population via email and Table 4-5 represents the response rate achieved. Table 4-5 Response rate to questionnaires
Details Count % Distributed Questionnaires 64 100% Received Questionnaire 41 64% Declined to respond 5 8%
The questionnaire is divided into two parts. The first part of the questionnaire provides the cover letter which explained the study in context and requested willingness to participate. The second part consist of research questions. The target populations are reminded to complete the questionnaire by sending follow-up emails. A total of 41 responses are received over a period of one month, representing 64% of the target population of which is more than the
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60% minimum response rate required for this study [14]. The received responses represent a total of 17 IPPs, 15 foreign IPPs and 2 local IPPs representing 41 SPVs. Appendix E is included for more information pertaining to the respondents and how questions are rated on a 5-Point Linkert Scale. With the responses obtained, the researcher is confident that the sample is representative of SPVs in South Africa and the results achieved are a true reflection of the characteristics of this population.
4.3.1 Classification of the 41 survey respondents This section elaborates further on the results obtained from the questionnaires and consist of data pertaining to the respondent’s department and the number of SPVs according to the type of technology as shown on the Table 4-6 below. Table 4-6 Classification of sample survey
Technology Number of SPVs % Onshore wind 18 44 Sample size PV 19 46 (41 SPVs) CSP 4 10
Operational and Maintenance 8 20 Respondent's department Project Management 7 17 Engineering 3 7 Or Construction 1 2 Business unit Country Manager / CEO 6 15 Finance 1 2 Procurement 1 2 Business Development 11 27 Contract Management 3 7
The sampled SPVs contributes 2984 MW out of a total of 3921 MW power capacity procured during the first three rounds of projects. The results of total power capacity per technology is shown of Figure 4-3.
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2500 MW
1994 2000 1676 1478 1500
958 1000
500 400350
16 18 15 0 CSP Solar PV Onshore Biomass Landfill gas Hydro Wind Round 1-3 power allocation Survey results
Figure 4-3 SPVs power capacity per technology
4.4 Factor analysis and interpretation As discussed in the methodology chapter, a survey questionnaire is used to validate the factors identified in the literature review. The questionnaire is divided into three section, in accordance with the three factors being assessed and only five number of questions per section is allowed. Statistical analysis provides probabilistic estimates of numerical values that are useful in understanding the research results [61]. The frequency distribution are used to give a general picture about the dispersion, as well and the minimum and maximum responses. A percentage of the presented results is obtained by dividing the category subtotals of the Linkert responses per score (e.g. from strongly disagree to strongly agree) by the sum of the category subtotal. The frequency is usually not sufficient for a researcher to make to make empirical statement about the data [61]. The mean (M) and the standard deviations (SD) are determine to give an overview of the average variation in responses for each of the three sections.
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4.4.1 Market conditions Table 4-7 represent the identified market related matters that IPPs consider important before developing and operating RE plants in South Africa and the effect these have on the IPP’s investment decisions. In order to achieve the aims of the study, the results contribute in answering the second research question presented in Chapter 1.
Table 4-7 Survey results on market conditions
Strongly Strongly Item Description of Item Disagree/ Neutral Agree/ M SD # Disagree Agree
Unstable regulatory environment will have a 2.1a 2.40% 4.90% 92.60% 4.51 0.81 negative impact on the REI4P
Political/legal framework 2.1b will influence RE 0.00% 7.30% 92.70% 4.46 0.634 investment decision
The reduction of RE tariff 2.1c having no influence of the 58.50% 29.30% 12.20% 2.34 1.087 RE investment decision
Policy factors are significant drivers of RE 2.1d 14.60% 36.60% 48.80% 3.34 1.063 investment more the economic factors
The ability of the national 2.1e grid to connect future 14.60% 17.10% 68.30% 3.98 1.107 projects in concerning
Discussion on the market conditions Policy factors (2.1a & 2.1b) – Majority of IPPs are seriously concerned with the current political uncertainty that surrounds the sustainability of the REI4P, policy factors are linked with the postponement of the selection of the winning
Page 61 of 89 projects of round four, scheduled for November 2014. 92.6% of respondents agreed that the unstable regulatory environment will have a negative impact on the REI4P and this will further influence their investment decision. This demonstrate how much of a risk this is posing on the programme and there is a need to guard against this. The high mean values and low standard deviation (below 1) indicates a strong agreement amongst respondents pertaining to the current unstable regulatory environment that is having an impact on investment decisions. Economic factor (2.1c) – IPPs are not too concerned about the proposed reduced tariff as the proposed tariff is competitive with other countries as shown Table 4-4. The economic factors have the low mean and a high deviations (exceeding 1). The variation in responses suggests that local IPPs are concerned with the proposed tariff while foreign IPPs are not too concerned. The results favours the most dominant IPPs in the REI4P which are of foreign origin and the study is made up of 88% foreign IPP respondents. These companies are able to obtain technological equipment (wind turbines, PV modules) and cost of finance at competitive rates better than local IPPs [19]. Economic factors versus policy factors (2.1d) – There is parity between policy factors and economic factors as rated by the participants. The responses have a low mean and high standard deviation exceeding 1. This suggest that the REI4P is founded on good policies that are convenient to do business in South Africa, this is supported by the amount of investment South Africa received during the completed rounds of projects [2]. However, the respondents seem to direct that the problem is the regulatory framework and the implementation thereof. This problem is common in the country as major capital expenditure projects controlled by the government are not able to meet project targets like Medupi and Kusile [10]. Grid availability (2.1e) – There is also uncertainty concerning to the lack of transmission infrastructure to connect future projects as indicated by 68.3% IPPs. The responses to grid connection have a moderate mean and high standard deviation exceeding 1. This suggest that IPPs are concerned about the grid availability but remain optimistic that this risk can be addressed by the grid company as almost all the projects from round 1 to 3 are connected to the grid.
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4.4.2 Contracting methods Table 4-8 represent the contracting methods that were popular during the first three bidding rounds of the REI4P. This further give justification to the reason these methods were selected by IPPs. A perspective on the future sustainability on these popular contracting methods is given. The proposed alternative contracting method is evaluated against these popular contracting methods. The necessary support required for this alternative contracting method to be effective is also evaluated. In order to achieve the aims of the study, the results contribute in answering the third and fourth research questions presented in Chapter 1. Table 4-8 Survey results on contracting methods
Strongly Strongly Item Description of Item Disagree/ Neutral Agree/ M SD # Disagree Agree
EPC contracts were there 2.2a most used contracting 0.00% 2.40% 97.60% 4.49 0.553 method
EPC/EPCM contractors 2.2b were mostly used due local 0.00% 43.90% 56.10% 3.73 0.742 skill shortage in RE industry
EPC contracts are costly 2.2c when compared to multiple 22.00% 29.30% 48.80% 3.44 1.026 contracts approach
Considering the reduction in RE tariff, IPPs could opt 2.2d 14.60% 26.80% 58.50% 3.56 0.896 for multiple contracting approach in the future.
IPPs will need to set up PMO if the multiple 2.2e 12.20% 9.80% 78.00% 3.98 1.172 contracting approach is adopted
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Discussion on the contracting methods EPC Contract in South Africa (2.2a) – The data concurs that majority of IPPs used EPC contracts to procure RE plants in South Africa. The dominance of EPC contracts in the REI4P has the high mean and a low standard deviation (below 1) indicating a strong agreement amongst participants. The reason for EPC Contract in South Africa (2.2b) – 56% of respondents agree that the lack of skills in South Africa is the reason since the RE industry is relatively new. The responses have a moderate to high mean and a low standard deviation (below 1) which further strengthens the agreement amongst respondents. The cost of EPC contracts when compared to multiple contracts (2.2c) – More responded to agree that the EPC contract are costly when compared to multiple contracts. The responses have a moderate mean and a high standard deviation (exceeding 1). This suggest that participant agrees that this contracting method can yield the cost saving provided it is properly managed as suggested Sargent & Lundy [49]. Reduction in tariff to favour multiple contracts in the future (2.2d) – The data suggest that more IPPs will adopt the multiple contracting approach as opine by Ahlfeldt [50], this is confirmed by 58% of respondents. The responses have a moderate mean and a low standard deviation (below 1). This suggests that IPPs are aware of the cost saving that is possible through this method but are sceptical of the risks associated with this method. PMOs to support multiple contracting approach (2.2e) – Majority of respondents agree that the PMO would be vital in ensuring that projects are managed properly in order to deliver the desired outcome. The responses have a moderate to high mean and a high standard deviation (exceeding 1). This results suggest that although respondents see the value of the PMO, respondents are doubtful of the abilities of the PMO office to manage the integration of multiple contracts suggesting more training is required.
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4.4.3 Project management Table 4-9 represent the vital role PM has contributed in the completed RE projects. The results of the identified CSFs in PM are presented in respect of the outcomes of the completed projects for IPPs that had a PMO. In order to achieve the aims of the study, the results contribute in answering the fifth research question presented in Chapter 1. Table 4-9 Survey results on project management
Strongly Strongly Item Description of Item Disagree/ Neutral Agree/ M SD # Disagree Agree
Organisations recognises 2.3a 7.30% 0.00% 92.70% 4.15 1.014 the importance of PM
Organisations have defined PM methodology 2.3b 7.30% 9.80% 82.90% 4.00 0.806 and is used during project execution
Lower and middle 2.3c managers have been 7.30% 24.40% 68.30% 3.78 0.822 trained in PM
Organisations have systems in place to 2.3d 7.30% 17.10% 75.60% 3.88 0.812 manage cost, schedule and quality
The PMO was vital in ensuring that SPVs met 2.3e 7.40% 2.40% 90.20% 4.20 0.813 the goals of the organisations
Discussion on project management Importance of PM in organisations (2.3a) – The data suggest that majority of IPPs recognises the importance of PM. The responses have a high mean and a high standard deviation (exceeding 1). This suggest that respondents agree that organisation see the need for PM but see the room from improvement considering the tight competition going forward. Hillsom’s emphases the
Page 65 of 89 importance for organisations to always benchmark their PM capabilities against the commonly accepted best practices in order to know their PM maturity levels [12]. Organisations adaptation to CSFs (2.3b to 2.3d) – It can further been seen that according to responses, organisations considers Pinto and Slevin [52] list of CSFs as important strategies to improve the desired project outcomes. The responses have a high mean and low standard deviations (below 1), indicating a strong agreement from participants that these CSFs are taken seriously by organisations and there is a close spread of responses from participants. The important role played by the PMO in the completed project/SPVs (2.3e) – The majority of the projects from the first three rounds have been successfully completed and 90.2% of respondents said that this is as a result of having a PMO in their organisations. The responses have a high mean and low standard deviation (below 1), indicating agreement amongst participants that PMOs handled the completed projects well.
4.5 Summary Base on the results obtained, it can be seen that the research design method is appropriate in addressing the research objectives. The researcher is able to gather the necessary and type of information from primary data and secondary data sources. The data addressed the three factors identified in literature to be influencing the progress of IPPs in the REI4P. By doing what is planned in the methodology and analysing the data collected, this ensured completion of the research process. This insightful data obtained and the outputs will be concluded in chapter 5.
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5. CONCLUSION & RECOMMENDATIONS
5.1 Introduction This study is undertaken to address three aims. Firstly, the study aims to investigate the performance of IPPs in South Africa focusing on the challenges and successes. Secondly, the study aims to assess the current market conditions for IPPs in South Africa. Lastly, the study aims to identify a path for future development and improvements in order for IPPs to remain competitive in the REI4P. In order address the aims and objectives of the study, literature is used to identify factors that have contributed to the challenges and successes experienced by IPPs during the completed RE projects. These factors are classified into three groups, namely, market conditions, contracting methods and PM. The literature review provides context for these factors and also dealt with RE in a global context. It’s is established from literature that countries who has experienced RE issues are found in the major economies, such as the Northern America, Europe and Asia. A questionnaire survey is done in order to validate these three factors where data is collected from IPPs participating in the first three rounds of the REI4P. A total sample size of 17 IPPs which represents 41 SPVs is obtained. The literature review (Chapter 2), results and findings (Chapter 4) are used to answer the research questions given below.
5.2 Research question 1 How does South Africa compare globally with regards to RE? To understand the performance of the RE industry in South Africa, the installed RE capacity in South Africa is compared with the leading and follower countries considering the period after the inception of the REI4P. Two leading and two follower countries in both onshore wind and solar PV technologies are considered for this analysis. The leading countries considered are Germany and Spain. These countries are the two pioneering countries for developing onshore wind and solar PV energy in the European Union [3]. China and India are the two follower countries considered for this assessment. The two developing countries have also stepped up in both onshore wind and solar PV installations in recent years and are now the fastest growing countries in the
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RE markets [3]. A period from 2011 to 2016 is chosen based on the existence of these technologies in South Africa. According to per capita capacity shown in Figure 4-1, solar PV and onshore wind in South Africa is competing with the leading economies globally. According to country’s GDP, Figure 4-2 demonstrate that South Africa’s RE investment is not far from leading economies such as Germany, India and is above a leading country like Spain. The REI4P is demonstrating abilities to be a global leader in RE generation owing to the best solar and wind resources in world available in South Africa.
5.3 Research question 2 The REI4P has made a significate contribution to the South African economy. In order to increase investment, what are the barriers that are threatening the sustainability of this programme? The Researcher establishes that policy factors take precedence over economic factors when it comes to RE investment [30]. This is the case in South Africa as the average RE electricity Tariff dropped by approximately 60% from round one to round three but investment grew during the same period [2]. However, the economic factor is concerning as local IPPs are unable to compete with foreign IPPs.
5.3.1 Policy factors Despite the profound success made by the REI4P within the first three years of inception, the future of the REI4P beyond round four is currently unclear for IPPs. Some industry players have suggested that the country’s RE industry has now reached its peak [2]. Round three projects experienced five months slippage to the financial close [22]. Round 3.5 projects which is dedicated solely to CSP were submitted in March 2014 and following various delays, the two winning projects were only announced in December 2014 [18]. The fourth round of the REI4P in South Africa has not started successfully. The postponement of the selection of the winning projects of round four, scheduled for November 2014 in now scheduled for December 2017 [66]. The lack of policy stability is cited as the prominent reason behind the failure of Ontario to meet its long term capacity target. In contrast, the stable regulatory
Page 68 of 89 environment in Texas was instrumental to their success as this state was able to exceed the overall capacity target before the planned date [33]. The current political climate in South Africa is very concerning to IPPs as suggested by 92% of respondents who took part in the survey for this study. The absence of transparency, clear objectives, certainty of policy factors and government support are some of the major reasons giving rise to this phenomenon [2]. Since the dominant IPPs in the REI4P are off foreign descent [19], there is a high possibility that these International companies will change their investment strategy and move to other attractive markets as the current environment is not conducive for RE investment. As can be seen, South Africa’s policy factors are becoming more volatile and thus affecting large infrastructure projects. Urgent attention is required to address this situation, these sentiments are supported by Hlatshwayo and Saxegaard [89] who suggests that programmes such as REI4P are dependent on the policy factor being invested in.
5.3.2 Economic factors
Investment in RE projects will not be favoured as a results of risks perceived by investors to be same as funding any other infrastructure projects, such as low returns due to increased competition. This has been witnessed in the round three projects as local IPPs were unable to compete with foreign IPPs [19]. Foreign IPPs have a competitive advantage over local companies which is associated to the funding of projects. As Baker [19] agues, foreign IPPs have access to funding in Europe, China or the USA and this charged at an average interest rate of 7.5% compared to 12% cost of debt in South Africa [19].
On the 1st of September 2017, the South African Minister of Energy made announcement concerning the tariff cap of the delayed projects. The Minister stipulated that all round 3.5 and 4 projects for all technologies would be subjected to 77c/kWh tariff cap [66]. There is uncertainty in the RE industry as to how this threshold would be met following the escalations in both the construction and grid connection costs [66]. This is a real risk to the REI4P as is the case with Spain, when the government introduced 6% additional tax on revenues generated from electricity and investment in RE projects subsided [64]. In a survey conducted for this study, where 88% of respondents represented foreign IPPs. Almost 60% of respondents cited that
Page 69 of 89 the reduced tariff for future projects will have an influence on their investment decision in REI4P.
The connection to the national grid for future RE projects is adding financial risk to the IPPs [16]. The cash strapped grid company is seen to be reluctant to invest in the additional infrastructure needed, this is also associated with the delay of the awarding of round four projects [2]. These cost are then passed to the IPPs in terms of the required transmission lines or the amount of upstream strengthening needed to the transmission network [90]. In a survey conducted for this study, 68.3% of respondents expressed concerns with the lack of availability for the transmission infrastructure to connect future projects.
5.4 Research question 3 Which contracting methods have been popular within the completed rounds of the REI4P and why? The literature review suggest that EPC contracts (both EPC & EPCM) are becoming more prevalent in the South African construction industry [43]. This phenomenon is not unique to South Africa as is the case in Croatia [45], Nigeria, [46] United States of America [47] and so forth. According to Baker [19], the first three rounds of the REI4P is define by the participation of foreign EPC/EPCM contractors [44]. This contracting method is favoured because IPPs deals with one EPC/EPCM contractor, signs only one contract and there is single responsibility [38]. This is further confirmed in a survey conducted for this study, almost 98% of respondents agreed that most IPPs in South Africa procured RE projects using EPC contracts. 56% of respondents confirmed the sourcing of foreign EPC/EPCM contractors is because of skills shortage in South Africa since the RE industry is relatively new. IPPs prefer EPC contacts because they receive a degree of certainty with regards to both the duration and the budget for the project. According to Ahlfeldt [50], the EPC contracts are also supported by the lenders as it gives them confidence that the plants will perform the way it should since companies with international experience are responsible for the projects. However, this method allocate high risks to the EPC/EPCM contractor and IPPs generally pay a higher premium for this benefit [44]. The cost associated with a fully wrapped EPC are said to increase the project cost by 10-20% [50]. The first rounds of projects are paid higher tariffs in the REI4P, this means that IPPs could afford the use of EPC contracts to successfully delivered RE projects.
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5.5 Research question 4 Given the increasing competition in the REI4P, what management strategies can be adopted by IPPs in order to remain competitive? One of REI4P’s aims is the creation of opportunities for economic development by reducing the high unemployment rate [6]. Under REI4P bid requirements, EPC Companies must have a minimum BEE shareholding of 8% with a target of 20%, and 40% local company participation. For this reasons, foreign EPC/EPCM have are compelled to involve South African companies. Local companies such as Murray and Roberts, Group 5 and Aveng were used as sub-contractors for their extensive experience in the construction industry [50]. This suggest that important skills have been transferred to local companies. Proceeding with round four projects and onwards, there is an opportunity for those previously sub-contracted local companies to be appointed by IPPs as sole contractors in their area of expertise [18]. The shift from an EPC contracts to multiple contracting [50] could be the answer for the IPPs to remain competitive in the REI4P. Sargent and Lundy [49] prepared a cost comparison between an EPC contracts and multiple contracts approach, findings suggests that the multiple contracts approach could result in an estimated 6.8% savings for IPPs. Following the price drop of 42% and 68% of wind and solar PV respectively between round one and three [18], this would make the multiple contracting method an attractive option for IPPs. In the future, its seems that more IPPs will adopt the multiple contracting approach as the EPC approach will no longer be cost viable due to the economic factor. This is further confirmed by respondents who took part in the survey for this study. 48.8% agreed that the EPC contracting method is very expensive when compared to multiple contracting approach, with 22% of respondents disagreeing. The multiple contract approach will result in dividing the IPP’s scope into multiple contracts. More contracts would increase the IPP’s opportunity to save costs but also increase the IPP’s risk with respect to project integration [49]. Multiple contract projects are prone to high cost overrun, project delays and low quality work being achieved [46]. For this type of contracting method to work, more involvement from IPPs is required to safe guard against these risks [48]. This would require IPPs to set up PMOs to deal with the overall administration of the contracts. Sargent and Lundy [49] caution against the use of this approach without effective PM measures, as inadequate cost control measures will not achieve the estimated cost saving benefits to IPPs [49].
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These sentiments are supported by 78% of respondents who took part in the survey. They agreed that for the multiple contracting approach to work, the PMO would be vital in ensuring that projects are managed properly in order to deliver the desired outcome. It is further noted that 90.2% of respondents said that the majority of the successfully completed projects (SPV) are as a result of having a PMO in their organisations. This further suggest that the shift from an EPC contracts to multiple contracts will not have a major impact on the overall management structure of IPPs, since majority of these organisations have already established PMOs who managed the contract administration of the competed SPVs.
5.6 Research question 5 Which are critical success factors that can be considered by IPPs in order to improve the desired project outcomes? As discussed in literature, CSFs are seen as variables that have direct impact on the success of the project [58]. The study of project success and CSFs is considered as one of the important ways to improve the desired project outcomes [58]. The CSFs approach is said to have been established in the last three decades and there is abundant literature available on CSFs for projects in different fields [59]. Pinto and Slevin [52] CSFs model is widely accepted and used in the PM environment [52]. This CSFs model is adopted and tested in a survey conducted for this study. Respondents representing IPPs/SPVs are asked to evaluate their companies on these CSFs. 92.7% of respondents said that their companies are aware of the importance of the PM methodology and this is supported senior management. 82.9% of respondents said that their organisations have define PM methodologies and is used during project execution. 68.3% of respondents said their lower and middle managers have receive training on PM. 75.6% of respondents said the PM professionals in their respective organisations are equipped with the necessary tools and system required to manage projects. Majority of the projects (SPVs) have been successfully completed and 90.2% of respondents said having a PMO in their organisations contributed to his accomplishment. It can be seen from the responses received, the CSFs model from Pinto and Slevin [52] are also applicable to the RE projects.
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5.7 Research limitations Research limitations are defined as potential weakness or problems that affect the internal validity of the study [61]. Data collected from questionnaires is dependent on the honesty of the participant’s response [61]. The following aspects are limitations to the study: o The RE projects that are constructed within the first three rounds of the REI4P are made up of different types of technology, namely, onshore wind, solar PV, CSV, biomass and landfill gas. The study grouped all these different technologies into one category.
o The research methodology only considered one respondent per organisation. There is a possibility that the views expressed are personal opinions and not representative of the organisation. The researcher had to carefully consider the scope of the study and the depth to which each aspect is evaluated given the time and resource constrains of this study.
5.8 Recommendations 5.8.1 Market conditions Based on the findings obtained from the main sources of data, primary data and secondary data, the researcher is left to believe that the sustainability of the REI4P is entirely at the hands of the South African Government. In order to deal with uncertainty regarding policy factors, open and transparent communication between government and IPPs is important. Government need to ensure that it remains accessible for engagement by IPPs when required as this has been a major concern of late from IPPs. The government is also the gatekeeper financially, as seen with the imposed price cap given as a condition to the IPPs for the signing of the PPA for round 4 projects [66]. In order to arrive at a win/win situation, the government need to reaffirm IPPs that the REI4P will proceed well going forward, this would be a trade-off for the imposed tariff.
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To further promote power generation from RES, South Africa should adopt grid connection model similar to Germany, China where priority is given to the connection of installations generated from RES to a point closest to the plant.
5.8.2 Contracting methods The current economic factors suggests that the EPC contracts would be replaced by multiple contracting methods in the future projects. The transition to this approach would require thorough training to the IPP’s PM professional, to enable them to properly manage the different contract interphases of each balance of plant contractor. This approach can achieve the required cost saving benefits for IPPs to remain competitive [49]. However, there is a higher price to pay for IPPs if contracts are not administered properly as the higher project risks would be carried by IPPs [49].
5.8.3 Project management The survey conducted for this study proved Hillsom’s [12] theory, that many organisations are aware of the importance of PM methodology, attempts to deliver the business objective through effective PM. Hillsom further states that organisations cannot always benchmark their PM capabilities against the commonly accepted best practices because they do not know their PM maturity levels [12]. The researcher suggests that measurement model must be used by IPPs in order to understand their companies’ strengths, weakness and priorities the required improvements. Since the majority of the first three rounds projects (SPV) are completed, it’s recommended that a post-mortem of these projects is done by IPPs using the measurement model. By so doing, IPPs would be in a better position to establish if they are at a mature state to adopt the multiple contract approach.
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5.9 Conclusion Based on the arguments presented in the study, it is clear that the progression on the REI4P is under enormous threat owing to policy and regulatory framework. The state has a pivotal role to fulfil and to ensure cohesive conjunction with all stakeholders in order to increase IPPs’ confidence. The study further attempted to simplify this complex environment by providing clarity on the identified factors that are in the control of the IPPs and recommended alternatives to them. There is no doubt that RES are the future of power generation [3]. South Africa is endowed with the best solar and wind resources in the world [3]. The REI4P has made a significate contribution to the South African economy [28]. With such good results observed from the three years of REI4P existence, it is unfortunate that regulatory framework and the implementation thereof are acting against RE rather than in the best interest of the country.
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Appendix A: Research questionnaires with cover letter
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Appendix A - Research questionnaire with cover letter
Dear Participant,
I’m a postgraduate student at the University of Johannesburg conducting research on Independent Power Procurers (IPPs) in the renewable energy sector. The objective is to find out more about the successes and challenges experienced by IPPs who participated and completed projects within the Renewable Energy Independent Power Producer Programme (REI4P).
This survey has been sent to IPPs who participated within the first three bidding rounds to answer questions about their recent experiences in the REI4P. It will take approximately 5 to 10 minutes to complete the questionnaire and your participation is completely voluntary.
It is very important for me to learn from your opinion and there are no foreseeable risks associated with this project. However, if you feel uncomfortable answering any questions, you can withdraw from the survey at any point. Your survey response will be strictly confidential and data from this research will be reported only in the aggregate results of the academic research study
If you have questions at any time about the survey or the procedures, you may contact my supervisor or me. Our details are provided below.
Dr Arnesh Telukdarie Mfundo Ndlovu
Supervisor Researcher
E-mail: [email protected] E-mail: [email protected]
Phone: +27 11 559 1736 Phone: +27 71 177 8944
Thank you very much for your support and please turn to the next page to begin with the survey.
Appendix A - Research questionnaire with cover letter This section gathers some information about the Independent Power Producers (IPP) and Special Purpose Vehicle (SPV) that have participated within the first three bidding windows (BW) of the REI4P.
The information will help in comparing groups of respondents. Please complete the following questions by making a tick in the circle relevant to your answer.
1. Which of the following best describes your current occupation?
Country Manager / Chief Executive Officer
Head of Project Management / Project Leader / Project Director
Head of Procurement
Head of Business Development
Head of Construction
Head of Engineering
Head of Contract Management
Head of Finance / Chief Financial Officer / Chief Accountant
Head of Operational and Maintenance
2. What is the name of the IPP/Main Shareholder and SPV being represented?
Name of IPP: ______
Name of SPV: ______
Appendix A - Research questionnaire with cover letter This questionnaire is devided into three sections, namely, makert conditions, contracting menthods and project management. Each section has five questions with five Linkert scale options as shown below. Kindly tick the response that best characterizes how you feel about the statement, where:
1. Strongly Disagree
2. Disagree
3. Neutral
4. Agree
5. Strongly Agree
2.1 Market Conditions 1 2 3 4 5 N/A
The unstable regulatory environment in South a) Africa could have a negative impact on the
progress of REI4P
Our renewable energy investment decisions are b) influenced by the political/legal frameworks in
South Africa
The cost reductions on the purchase price of Renewable Energy (RE) from bidding round one c) to four will have no influence on the companies’ RE investment decision
I consider most policy factors as significant d) drivers of renewable energy investment more
than economic factors
I’m concerned with the availability of the grid to e) connect future projects Assessment of factors influencing IPP’s progress in the REI4P
2.2 Contracting Methods 1 2 3 4 5 N/A
The EPC contracts were the most used a) contracting methods compared to multiple
contracts to manage completed projects (SPV)
IPPs used foreign EPC/EPCM contractors due to b) local skill shortage as the RE industry is relative
new in South Africa
Even though the EPC contracts have several benefits over the multiple contract approach. The c) EPC contracts are general costly when compared to the multiple contracts approach
Considering cost reductions on the purchase price of RE and the skills transfer to local d) companies. The shift from EPC contracts to
multiple contracting in the future could be the answer for IPPs to remain competitive
The multiple contracting approach requires more involvement from the IPPs to manage the project e) during execution phase. The IPPs may need to
set a Project Management Office (PMO) to perform this function
2.3 Project Management 1 2 3 4 5 N/A
Our company recognises the importance of a) project management and this is supported by all
levels of management
Our company has a well-defined project b) management methodology and is used during the
project life cycle phases
Our lower and middle managers have been c) trained in project management
Our company has systems in place to manage d) cost, schedule and quality
The PMO was vital in ensuring that the project e) (SPV) was delivered within the defined PM
parameters
You have reached the end of this questionnaire and thank you for taking time to complete it. Appendix B: Compilation of research questions
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Appendix B - Compilation of research questions
Factor Question Question Asked Relevant Literature reviewed Assessed no. Despite the profound success made by the REI4P within the first three years of inception, the future of the REI4P beyond round four is currently unclear for IPPs. Some industry players have suggested that the country’s renewable energy industry has now reached its peak [2]. Round three projects experienced The unstable regulatory environment in South five months slippage to the financial close [22]. Round 3.5 projects which is dedicated solely to CSP 2.1a Africa could have a negative impact on the were submitted in March 2014 and following various delays, the two winning projects were only progress of REI4P announced in December 2014 [18]. The fourth round of the REI4P in South Africa has not started successfully. The postponement of the selection of the winning projects of round four, scheduled for November 2014 but still delayed by August 2017 A case study on the state of Texas in the USA and in the province of Ontario in Canada demostrated how the local policy and planning frameworks have influenced the implementation of the renewable Our renewable energy investment decisions are energy industry in different jurisdictions [33].The lack of policy stability was cited as the prominent 2.1b influenced by the political/legal frameworks in reason why Ontario failed to meet its long term capacity target. In contrast, the stable regulatory South Africa environment in Texas, supported by an institutional framework attracted massive private sector investment in renewable energy. Texas became the sixth largest authority in the world in terms of wind Makert energy capacity in 2009 Conditions Even though electricity cost have reduced significantly in the REI4P, the investment risen from a few The cost reductions on the purchase price of hundred million dollars in 2011 to $5.7 billion in 2012, of which approximately $1.5 billion was for wind Renewable Energy (RE) from bidding round one 2.1.c and $4.2 billion for solar, and $4.8 billion in 2013, of which $1.9 billion was for wind and $3 billion for to four will have no influence on the companies’ solar [2]. This further strengthens the argument that stable policy framework are significant drivers of RE investment decision renewable energy investment more than economic factors [30]. I consider most policy factors as significant Researchers have found that policy factors are significant drivers of renewable energy investment more 2.1.d drivers of renewable energy investment more than economic factors [30]. Regulatory risks increase the cost of capital for IPPs, as investment levels than economic factors will tend to be lower in higher risk jurisdictions [31]. The transmission grid availability is proving to be one of the key challenges that IPPs are facing under the REI4P [16]. While IPPs pay for the connection of their projects, there is a need for Eskom to I’m concerned with the availability of the grid to 2.1.e strengthen the transmission network and upgrade substations to connect projects accordingly [16]. It connect future projects has been reported that in certain sites where projects are proposed, the grid is getting scarcer and this poses a serious challenge to the cash strapped utility company to raise the additional funds required [2]. Appendix B - Compilation of research questions
Factor Question Question Asked Relevant Literature reviewed Assessed no.
According to Van Dyk [43], EPC contracts are becoming more prevalent in the South African construction industry. In a study conducted in Croatia [45], Nigeria [46] and the United States of America [47], the results indicate overall satisfaction with the EPC contracts amongst participants. It was further observed that professional who have prior experience with the EPC contracts rated this method even The EPC contracts were the most used higher when compared with the overall sample. These cases demonstrate the reasons why EPC 2.2.a contracting methods compared to multiple contracts are becoming prevalent in the engineering and construction industry internationally. The main contracts to manage completed projects (SPV) reason is that the client’s objective of having the project successfully delivered, within time, budget and performance are achieved without much effort from the client [42]. The integration of the design and construction is key to successfully deliver the project [43].This has motivated IPPs to adopt the EPC contracts as the project delivery method of choice, domestically and internationally [45].
In South Africa, the renewable energy projects are defined by the participation of foreign EPC/EPCM IPPs used foreign EPC/EPCM contractors due to contractors [44], [19]. These projects require complex designs of engineering works and procurement of 2.2.b local skill shortage as the RE industry is relative specialized equipment. These combined skills are not common in the country [19], especially when the new in South Africa IPP desires to appoint a single company to be responsible for the project [45]. Contracting Even though the EPC contracts have several In study conducted by Sargent and Lundy [49], who prepared a cost comparison between an EPC Methods benefits over the multiple contract approach. The contracts and multiple contracts approach. The findings revealed that the multiple contracts approach 2.2.c EPC contracts are general costly when compared could result in an estimated 6.8% saving to the IPP. These figures are even higher as 10 to 20% of the to the multiple contracts approach project cost according to Ahlfeldt [50].
The first three rounds have seen foreign EPC/EPCM contractors subcontracting to local companies. Considering cost reductions on the purchase This suggest that important skills have been transferred to local companies. Proceeding with round four price of RE and the skills transfer to local projects and onwards, there might be an opportunity for those previously sub-contracted local 2.2.d companies. The shift from EPC contracts to companies to be appointed by IPPs as sole contractors in their area of expertise [19]. Furthermore, price multiple contracting in the future could be the drop of 42% and 68% of wind and solar PV respectively between round one and three [19] makes the answer for IPPs to remain competitive EPC contracts option more expensive and less attractive to IPPs. Multiple contracts projects are linked to high cost overrun, project delays and low quality work being The multiple contracting approach requires more achieved [46]. More involvement from the IPP is required to safe guard against these risks [48]. This involvement from the IPPs to manage the project would require the IPP to set up systems and processes to deal with procurement, engineering and 2.2.e during execution phase. The IPPs may need to construction activities [48]. Skilled people would have to be sourced to deal with the overall set a Project Management Office (PMO) to administration of the contracts. For this type of contract strategy to work, it requires effective Project perform this function Management (PM) measures and the IPP would need to consider investing in personnel by training them to be competent [52]. Appendix B - Compilation of research questions
Factor Question Question Asked Relevant Literature reviewed Assessed no. The top management support is vital and should provide guidance to PM, especially when one Our company recognises the importance of considers that projects exist to support overall goals of the organisation. The top management support, 2.3a project management and this is supported by all is defined as having continuous support, and commitment from the organisation’s senior management levels of management for projects, and project activities [54]. Ideally, PM methodology that is chosen by an organisation must be adopted as a standardised process that is known and practised throughout the organisation [42]. This standardised system should enable Our company has a well-defined project proper document control of the project documentation in order to develop and mature PM processes in 2.3b management methodology and is used during the an organisation [53]. A study conducted by Hillsom [12] revealed that many organisations are aware of project life cycle phases the importance of PM methodology and attempts to deliver the business objective through effective PM. However, organisations cannot always benchmark their PM capabilities against the commonly accepted best practices because they do not know their PM maturity level. Project Management Effective Project Management (PM) measures requires IPPs to consider investing in personnel by Our lower and middle managers have been training them to be competent [52].This involves the identification of the human resources with the 2.3c trained in project management necessary skills required for project success. This includes recruitment and training of the project team. According to PMI [53], PM involves application of knowledge, skills and resources to project activities. There is a general agreement about the boundaries of the desired project outcome, these includes, Our company has systems in place to manage 2.3d delivery of the project in schedule, within the prescribe budget, performance according to the cost, schedule and quality specification and meeting the expectations of the stakeholder [53]. PM is considered to be one of the main determinants of project success [42]. Researchers such as The PMO was vital in ensuring that the project Yazici [55], Mullaly and Thomas [56] outlines that organisations at a higher project maturity level 2.3e (SPV) was delivered within the defined PM generally achieve higher levels of project success. Yazici [55], Mullaly and Thomas [15] further showed parameters how maturity of the project organisation can be measured which is importance for continuous improvement Appendix C: List of SPVs sampled
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Appendix C - SPVs sampled
Response received/ Project Bid SPV Name Technology capacity Not received/ # Round Declined 1 1 Kalkbult Solar PV 72.5 Declined 2 1 Aries Solar Solar PV 9.65 Declined 3 1 De Aar Solar Power Solar PV 45.6 Response received 4 1 Greefspan PV Power Plant Solar PV 9.9 Not received 5 1 Kathu Solar Plant Solar PV 75 Not received 6 1 Droogfontein Solar Power Solar PV 45.6 Response received 7 1 Herbert PV Power Plant Solar PV 19.98 Not received 8 1 Solar Capital De Aar 3 Solar PV 36 Response received 9 1 SlimSun Swartland Solar Plant Solar PV 5 Response received 10 1 Solar Capital De Aar Solar PV 75 Response received 11 1 Letsatsi Solar Park Solar PV 64 Response received 12 1 Lesedi Solar Park Solar PV 64 Response received 13 1 Witkop Solar Park Solar PV 30 Not received 14 1 Soutpan Solar Park Solar PV 28 Not received 15 1 Mulilo Solar PV De Aar Solar PV 10 Response received 16 1 Mulilo Solar PV Prieka Solar PV 20 Response received 17 1 Konkoonsies Solar Solar PV 9.65 Declined 18 1 RustMo1 Solar Farm Solar PV 6.93 Not received 19 2 Jasper Power Company Solar PV 75 Response received 20 2 Boshoff Solar Park Solar PV 60 Not received 21 2 Upington Solar PV Solar PV 8.9 Response received 22 2 Vredendal Solar PV 8.82 Response received 23 2 Linde Solar PV 36.8 Declined 24 2 Dreunberg Solar PV 69.6 Not received 25 2 Solar Capital Aggeny Solar PV 75 Not received 26 2 Sishen Solar Facility Solar PV 74 Not received 27 2 Aurora Solar PV 9 Response received 28 3 Adams Solar PV 2 Solar PV 75 Response received 29 3 Electra Capital Solar PV 75 Response received 30 3 Mulilo Sonnedix Prieska PV Solar PV 75 Response received 31 3 Mulilo Prieska PV Solar PV 75 Response received 32 3 Tom Burke Solar PV 60 Response received 33 3 Pulida Solar Park Solar PV 75 Response received 34 1 MetroWind Van Stadens Wind Farm Onshore Wind 26.2 Declined 35 1 Hopefield Wind Farm Onshore Wind 65.4 Not received 36 1 Dassiesklip Wind Energy Facility Onshore Wind 26.2 Response received 37 1 Jeffreys Bay Wind Energy Facility Onshore Wind 133.9 Response received 38 1 Noblesfontein Onshore Wind 72.8 Response received 39 1 Dorper Wind Farm Onshore Wind 97 Response received 40 1 Cookhouse Wind Farm Onshore Wind 135 Not received 41 1 Red Cap Kouga Wind Farm - Oyster Bay Onshore Wind 77.6 Not received 42 2 West Coast 1 Onshore Wind 90.82 Response received 43 2 Grassridge Onshore Wind 59.8 Response received 44 2 Gouda Wind Facility Onshore Wind 135.5 Response received 45 2 Chaba Onshore Wind 21 Response received 46 2 Waainek Onshore Wind 23.28 Response received 47 2 Tsitsikamma Community Wind Farm Onshore Wind 94.8 Response received 48 2 Amakhala Emoyeni (Phase 1) Onshore Wind 133.7 Response received 49 3 Longyuan Mulilo De Aar 2 North Wind Energy Facility Onshore Wind 139 Response received 50 3 Longyuan Mulilo De Aar Maanhaarberg Wind Energy Facility Onshore Wind 96 Response received 51 3 Nojoli Wind Farm Onshore Wind 87 Response received 52 3 Red Cap - Gibson Bay Onshore Wind 110 Response received 53 3 Khobab Wind Farm Onshore Wind 138 Response received 54 3 Loeriesfontein 2 Onshore Wind 138 Response received 55 3 Noupoort Wind Farm Onshore Wind 79 Response received 56 1 !Khi Solar One CSP 50 Response received 57 1 !Ka Xu Solar One CSP 100 Response received 58 2 Bokpoort CSP Project CSP 50 Not received 59 3 Karoshoek Solar One Solar CSP 100 Response received 60 3 !XiNa Solar One Solar CSP 100 Response received 61 2 Stortemelk Hydro Hydro 4.4 Not received 62 2 kakamas/Neusberg Hydro Project Hydro 10 Not received 63 3 Mkuze Biomass 16.5 Not received 64 3 Joburg Landfill Gas to Electricity Landfill Gas 18 Not received Appendix D: Economic factor analyses
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Appendix D: Economic factor analyses
Data collected Analyses
MW (Solar PV + onshore wind) % Installed Capacity 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 South Africa 44 49 504 1570 2085 2989 South Africa 0 0 1 4 5 6 India 3545 6596 9317 12507 17257 25431 India 1 3 3 4 12 14 China 19113 37530 61776 92241 140291 192965 China 2 3 5 7 10 14 Spain 1267 2821 3129 3148 3185 3249 Spain 1 3 3 3 3 3 Germany 9352 19073 25534 31826 36957 42061 Germany 6 12 16 19 22 24
Total installed Capacity (GW) Solar PV & onshore wind power capacity - MW/USD Billion GDP 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 South Africa 41.7 41.7 42.4 43.5 44.1 46 South Africa 0.1057 0.12364 1.3748 4.47548 6.569 10.1048 India 252.5 278.3 294.9 316.4 317 330.3 India 1.9446 3.60832 5.01723 6.14595 8.17093 11.2328 China 1136.2 1223 1341 1462 1482 1605 China 2.5238 4.38383 6.43031 8.79994 12.6788 17.2306 Spain 98.2 100.1 100.5 100.6 101 100.1 Spain 0.8515 2.11153 2.29736 2.28779 2.66974 2.63718 Germany 154.5 165.24 173.74 181.63 189.69 197.25 Germany 2.4886 5.38177 6.80362 8.20469 10.986 12.1318
Population (Million) Solar PV & onshore wind power capacity - MW/Million people 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 South Africa 51.7 52.5 53.3 54.1 55 55.1 South Africa 0.8511 0.93333 9.45591 29.0203 37.9091 54.2468 India 1247 1263 1279 1294 1309 1324 India 2.8428 5.22249 7.2846 9.66538 13.1833 19.2077 China 1344 1351 1357 1364 1371 1379 China 14.221 27.7794 45.5239 67.6254 102.327 139.931 Spain 46.7 46.8 46.6 46.5 46.4 46.4 Spain 27.131 60.2778 67.1459 67.6989 68.6422 70.0216 Germany 80.3 80.4 80.6 81 81.7 82.7 Germany 116.46 237.226 316.799 392.914 452.35 508.597
GDP (Billion USD) 2011 2012 2013 2014 2015 2016 Germany 3758 3544 3753 3879 3364 3467 Spain 1488 1336 1362 1376 1193 1232 China 7573 8561 9607 10482 11065 11199 India 1823 1828 1857 2035 2112 2264 South Africa 416.4 396.3 366.6 350.8 317.4 295.8 Appendix E: Respondent total scores
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Appendix E - Suvery responses
SPV # Occupation IPP/Main Shareholder SPV Technology 2.1 (a) 2.1 (b) 2.1(c) 2.1 (d) 2.1 (e) 2.2 (a) 2.2 (b) 2.2 (c) 2.2 (d) 2.2 (e) 2.3 (a) 2.3 (b) 2.3 (c) 2.3 (d) 2. 3 (e)
1 Project Management Enel Green Power RSA Upington Solar PV PV 5 5 2 3 4 5 4 5 5 5 5 4 4 4 5
2 Business Development Enel Green Power RSA Adams Solar PV 2 PV 1 4 1 3 4 4 4 5 5 5 5 5 5 5 5
3 Engineering Enel Green Power RSA Electra Capital PV 4 4 2 3 2 4 3 2 3 4 4 4 4 4 4
4 Construction Enel Green Power RSA Pulida Solar Park PV 3 4 4 2 2 4 4 4 3 4 5 5 4 4 4
5 Procurement Enel Green Power RSA Tom Burke Solar Park PV 4 4 2 4 3 4 4 5 5 4 4 4 4 4 4 Nojoli Wind Farm 6 Finance Enel Green Power RSA Onshore Wind 5 5 2 2 4 5 5 4 4 5 4 4 3 4 4 Red Cap - Gibson Bay 7 Contract Management Enel Green Power RSA Onshore Wind 3 5 5 5 5 5 5 5 4 5 4 4 4 4 3
8 Operational & Maintenance Gestamp Noblesfontein Onshore Wind 4 5 5 4 4 3 4 4 4 5 5 5 4 4 4
9 Business Development Sumitomo Corporation Africa Dorper Wind Farm Onshore Wind 5 5 1 5 2 5 5 4 2 3 5 5 5 4 4
10 Project Management Solar Reserve Lesedi Power Company PV 5 5 2 3 5 5 4 2 3 5 5 5 5 5 5
11 Project Management Solar Reserve Letsatsi Power Company PV 5 5 2 3 5 5 4 2 3 5 5 5 5 5 5
12 Project Management Solar Reserve Jasper Power Company PV 5 5 2 3 5 5 4 2 3 5 5 5 5 5 5
13 Operational & Maintenance Emvelo Karoshoek Solar 1 CSP 5 5 2 3 5 4 4 3 4 5 5 5 4 4 5
14 Country Manager Cennergi Tsitsikamma Community Wind Farm Onshore Wind 5 5 4 4 5 5 3 5 3 4 5 3 4 5 5
15 Country Manager Cennergi Amakhala Emoyeni (Phase 1) Onshore Wind 5 5 4 4 5 5 3 5 3 4 5 3 4 5 5
16 Country Manager Globeleq Jeffreys Bay Wind Energy Facility Onshore Wind 5 5 3 3 2 4 3 2 2 1 1 2 2 2 2
17 Contract Manager Globeleq De Aar Solar Power PV 5 5 3 3 2 4 3 2 2 1 1 2 2 2 2
18 Contract Manager Globeleq Droogfontein Solar Power PV 5 5 3 3 2 4 3 2 2 1 1 2 2 2 2 Longyuan Mulilo De Aar 2 North Wind Energy 19 Engineering Longyuan Facility Onshore Wind 5 5 2 4 5 5 5 4 4 4 4 4 4 4 5 Longyuan Mulilo De Aar Maanhaarberg Wind 20 Engineering Longyuan Energy Facility Onshore Wind 5 5 2 4 5 5 5 4 4 4 4 4 4 4 5 21 Business Development InnoWind Grassridge Onshore Wind 4 4 1 4 5 4 3 3 4 3 4 4 4 4 4
22 Business Development InnoWind Chaba Onshore Wind 4 4 1 4 5 4 3 3 4 3 4 4 4 4 4
23 Business Development InnoWind Waainek Onshore Wind 4 4 1 4 5 4 3 3 4 3 4 4 4 4 4
24 Operational & Maintenance GDF Suez West Coast 1 Onshore Wind 5 3 1 3 4 5 3 3 3 5 4 4 3 3 4 Khobab Wind Farm 25 Country Manager Mainstream Onshore Wind 5 5 1 4 5 5 4 3 4 4 4 4 4 4 5 Loeriesfontein 2 26 Country Manager Mainstream Onshore Wind 5 5 1 4 5 5 4 3 4 4 4 4 4 4 5
27 Country Manager Mainstream Noupoort Wind Farm Onshore Wind 5 5 1 4 5 5 4 3 4 4 4 4 4 4 5
28 Operational & Maintenance Acciona Dassiesklip Wind Energy Facility Onshore Wind 4 5 2 5 5 5 5 3 5 5 5 5 5 5 5
29 Operational & Maintenance Acciona Gouda Wind Facility Onshore Wind 4 5 2 5 5 5 5 3 5 5 5 5 5 5 5
30 Business Development Mulilo Mulilo Solar PV De Aar PV 4 5 3 1 3 4 3 4 4 4 4 4 3 3 4
31 Business Development Mulilo Mulilo Solar PV Prieska PV 4 5 3 1 3 4 3 4 4 4 4 4 3 3 4
32 Business Development Mulilo Mulilo Prieska PV PV 4 5 3 1 3 4 3 4 4 4 4 4 3 3 4
33 Business Development Mulilo Mulilo Sonnedix Prieska PV PV 4 5 3 1 3 4 3 4 4 4 4 4 3 3 4
34 Business Development Moncada Solar Capital De Aar PV 5 3 3 3 4 4 3 3 3 4 5 3 4 3 4
35 Business Development Moncada Solar Capital De Aar 3 PV 5 3 3 3 4 4 3 3 3 4 5 3 4 3 4
36 Project Management Abengoa (Spain) !Khi Solar One CSP 5 4 3 4 4 5 4 4 4 5 4 4 3 4 4
37 Project Management Abengoa (Spain) !Ka Xu Solar One CSP 5 4 3 4 4 5 4 4 4 5 4 4 3 4 4
38 Project Management Abengoa (Spain) !XiNa Solar One CSP 5 4 3 4 4 5 4 4 4 5 4 4 3 4 4
39 Operational & Maintenance SlimSun SlimSun Swartland Solar Park PV 5 5 1 4 5 5 4 5 3 5 4 4 3 4 4
40 Operational & Maintenance Solairedirect Vredendal PV 5 4 2 3 3 4 3 2 2 2 4 4 4 4 4
41 Operational & Maintenance Solairedirect Aurora PV 5 4 2 3 3 4 3 2 2 2 4 4 4 4 4