Part I Energy sector overview South Africa Lydie Menouer – Oct 2019 Maryll consulting – Project structuring & sustainable finance • Market size – 58 M habitants (65% urban) • Middle income country: 2nd largest economy SSA – advanced & diversified economy – Rating BBB-/BB+. Emerging middle class – consumption supported by high debt level. Interesting • Social – 90/10. high expectation on ‘transformation agenda’ – need to upskill people facts to know • Transparency and regulations – consultation process before… • Very open for FDI - President Cyril Ramaphosa aims to attract $100 billion in FDI by 2023. Much more confidence than with Jacob Zuma. • Europeans - primary partner Energy sources – 85% Coal (total of 51 GW cap.) • Mainly coal. South Africa is the biggest coal producer in Africa. coal-fired power generation (for electricity generation) and coal-to liquid (CTL for transport – synthetic fuel – because no crude oil locally sourced) • South Africa, integral part of the South African Power Pool (SAPP) is furthermore trading electricity with Botswana, Lesotho, Mozambique, Namibia Swaziland, Zambia and Zimbabwe. • Other fossil fuels. Natural Gas (Mossel bay – game changer?) • Nuclear (Koeberg – lifespan to be expanded) Energy’s ownership – Monopoly situation • Generates, transmits and distributes electricity to about 5 M customers in the industrial, mining, commercial, agricultural and residential sectors • Eskom holds 90% of the country’s effective/nominal generation capacity. Remaining generation capacity is held by municipalities (2%) as well as Independent Power Producers that sell power to Eskom (8%). • Eskom’s electricity is mostly sold to municipalities (42%) that further distribute electricity to end-users, followed by industrial consumers (23%) and mining (14%). Eskom under fire • Due to a massive failure of strategic and financial management over many years, the utility is burdened with huge debt, inflated operating costs and power plants which, on average, have reached at least 70% of their originally intended lifespan. • Governance issue - State capture (vote of no confidence) • Since 2007, the cost of power has risen dramatically as Eskom has struggled to remain profitable and grow its investments in new power capacity, most notably the Medupi and Kusile coal power plants. With an increase in the price of electricity of around 520% over the 15 years from 2004 to 2019, it has far outstripped consumer price inflation of 136% over the same period. load shedding (since 2008) Load-shedding impact on Economy • Hard to estimate but some experts tried… • Cost estimation = 62 M EUR per stage, per day • Rating agencies downgrades based on huge ESKOM liquidity risk (systemic risk – too big to fail) • Rescue Plan by The South African Department of Finance - almost 4 billion USD Total cost of load shedding just for T1 2019 …. Rands 30 billion (1.8 Bn EUR) in 3 months Unbundling of ESKOM has been announced: • From too big to fail – rescue plan from NT (Capital/ cash injection) • Management of risk more efficient (especially for private sector funding - reorganization should also crowd in private finance and enable lenders to more accurately assess and reflect the risks of the underlying businesses when funding them) • Presidential Task team should deliver conclusions with pressure from Unions. • Higher role for embedded generation market to close the gap – decentralization of energy ownership. WHAT ROADMAP FOR ENERGY … CLEARLY TOWARDS RE The role of the NDP – National Development Plan 2010-2030 • a guideline/vision for the country (backed up by strategic medium and short-term plans). The strategic objectives of the NDP is to eradicate poverty, reduce inequality and address unemployment (triple challenge). • in Energy: • Access to electricity (objective – 95% versus 85% now) • Diversification power sources and ownership in the electricity sector • Coal exit + green energies - South Africa committed to its Nationally Determined Contribution (NDC) as part of the Paris Agreement at COP21 in 2015. Coal exit also driven by lower global demand • Reliability • Affordability – Price ESKOM has been ramping up. 2009/2019 – x 2!!! In EUROPE 18 cents EUR/kwh but not comparable as the purchase power is much higher and RELIABLE In SOUTH AFRICA 7/8 cents EUR/kwh). Still affordable comparatively (+ Free Basic Electricity) MOVE TO ENERGY TRANSITION – The RE potential • 2003 White paper on RE • Economic – Coal-based energy price too high + declining global Demand + divestment (Word Bank and Medupi) • Price parity is being reached (even with storage…) • Environmental – Externalities (social costs of emissions of air pollutants) • Cleaner coal technologies are being explored (2 plants – operational in 2022) but more expensive… • Transition will have to be managed carefully (triple challenge) REIPPP (2011) – The Renewable Energy Independent Power Producer Programme • The REIPPP is a public-procurement program that allows Independent Power Producers (IPPs) to submit competitive bids to design, develop and operate large-scale renewable energy power plants across South Africa. • All the IPPs from REIPPPP projects sell their electricity to Eskom. (PPAs) – back up by National Treasury (guarantee). • Process – Bid Windows (capacity per technology) REIPPP results (2011 to date) • To date, more than 100 IPP projects have been procured from 4 bidding round windows. • Total = 6,377 MW capacity added • 8 years REIPPP has attracted approx. USD 14.2 billion in committed private sector investment into South Africa. • 60% owned by foreigners – major EU players (developers, EOMs, EPC…) • Some of the main contributing countries are Germany, France, Italy, Spain, and the USA. • Mobilization of local funding (Pension Funds, banks, Life Insurers…) Capacity Technology (MW) Support from EU – on developing Biomass 52 feedstock market (economy of scale) – Durban and CPT Solar CSP 600 Growing interest – Municipalities – Landfill Gas 18 gas-to electricity Wind 3,366 onshore Solar PV 2,322 Small Hydro 19 Total 6,377 Source: Energy Intelligence Source – Greencape Utility-scale renewable energy 2019 - Market Intelligence Report Price parity is reached • Solar Capital De Aar Project – 175MW • Phelan Energy Group (IRISH) • Largest solar farm in the country • power up to 100,000 South African homes • Year 2011 and 2014 (Window 1 and 2) • EPCs - Moncada Energy Group (ITALIAN) KaXu Solar One - 100MW concentrated solar power (CSP) plant 1st one in SA (2011) – Window 1 Developped by Abengoa (shareholder 51% – IDC/BEE 49%) Abener and Teyma, two subsidiaries of Abengoa, as EPC Rioglass manufactured the mirrors and Siemens supplied the steam turbine for the solar thermal power plant. Kathu Solar Park –100MW CSP plant (2019) Developed and co-owned by ENGIE (with local Trust/Funds/Investors) SENER and ACCIONA was awarded EPC Jasper Solar Power Project – 96MW 2014 SolarReserve (USA) and its consortium partners Kensani and Intikon Energy. Khobab windfarm Eastern Cape – 100 MW - 2017 Lekela, a Dutch renewable energy leading the development Part II Dynamic around the RE market South Africa RE to support the transformation objectives • Energy transition has been engaged – beginning of a major market opportunity in the RE space. • But comes with high pressure to be transformative for the local economy: • Transition to be managed (coal exit ) • Transformation objective (REIPPP criteria: This is reflected in the evaluation which ensures each bid is assessed according to price (70% weighting) and other development factors (30%). job creation, local content and black economic empowerment. This encourages joint ventures with local renewable energy companies, as well as a number of foreign firms to set up local factories which cater for export. • Role of the Integrated Resource Plan (IRP) 2010-2030 currently being revised The IRP long awaited 2019 version is CRUCIAL The role of the battery/storage • The role for storage/batterie solutions to ensure the Energy Transition: • Hydro-pumped storage – large scale projects for load balancing (especially for peak- usage hours). • Storage that would be used to attenuate the impact of renewable energy generation on the grid – Eskom contracted with UK Red T (Solar plus storage system) for the Eskom Distributed Battery Storage Programme (in rural areas). • Research Programme on Hydrogen Fuel cells energy storage system (ambitious programme HySA - 25% share of the global Hydrogen and Fuel Cell market based on platinum resource – good catalyst for speeding up the chemical reactions) Opportunities on REIPPP – (wait & see IRP) • High opportunities for international players (+ 20,000 MW over the next 10 years) but with high entry barriers: • High competition (lower returns) • Delays in the rollout of the REIPPPP and statements made by Eskom and Coal unions about the future of RE have created doubt in the market – IRP should put an end to debates. • Local content (development ratio – from 20 to 30% criteria assessment) • Launch of Atlantis SEZ for Green Technologies, with national Department of Trade and Industry (the dti) encouraging Greentech investment through incentives. Source – Greencape Utility-scale renewable energy 2019 - Market Intelligence Report Some OEMs local presence Company Status Jinko Solar 100 MW/year facility – decreased capacity due to delay in CHINESE REIPPPP Sun Power US 160 MW/year facility – currently dormant 75 MW/year facility – decreased capacity due to delay in ART Solar SA REIPPPP 300 MW/year facility – recently upgraded to tier 1