PANEL DISCUSSION ON RENEWABLE ENERGY PROCUREMENT FOR INDEPENDENT POWER PRODUCERS BIDDING: WINDOW 1 Johan van den Berg Chair: Steering Committee South African Renewable Energy Council 7 June 2012

The South African Renewable Energy Council 1 During 2011, the SA Government through Nedlac formed the vision of a Green Economy. The renewable energy community participated. The Green Economy Accord, was signed in November 2011 – see series/123-accord-4-green-economy-accord. series/123-accord-4-green-economy-accord On P 19 (SESSA, SAPVIA, SASTELA, SAWEA undertake to…..:“establish an organisation that will facilitate the renewable energy sector working in partnership with other social partners in the development of the sector.” Press releases of progress energy-associations-to-launch-umbrella-body ; umbrella-body-becomes-sas-voice-on-renewable-energy; umbrella-body; africa.com/Umbrella/body/SA/renewable/energy/associationshttp:// energy-associations-to-launch-umbrella-body http://mg.co.za/article/ umbrella-body-becomes-sas-voice-on-renewable-energy umbrella-bodyhttp:// africa.com/Umbrella/body/SA/renewable/energy/associations Honoured and thankful to be addressing the PCE.

Introduction 2 SAREC is very encouraged and heartened by the sustained Government initiative to procure RE and build an industry. SAREC fully supports the drive towards localisation, local benefits, job creation and community involvement. SAREC supports price efficiency and value for money. SAREC aims to help build a strong, vibrant and sustainable RE industry in SA for the long term. Our comments today are guided by what is required for sustainability that renders long term benefits to “South Africa Inc”.

In summary 3 The process has for the greater part been run professionally and transparently South Africa seems set to have a RE industry soon – with better energy security, more jobs and other socio-economic benefits. Prices have dropped significantly between rounds 1 and 2. We caution against a price “race to the bottom” with the accompanying adverse consequences seen in other countries. We welcome the local content levels achieved so far and urge that the rate at which it is increased be managed very carefully. We urge that medium term certainty on further procurement is critical to ensure long term, sustainable localisation. We think the rules of the bidding process are undemocratically secretive. We point out that participating in the bidding is complex and expensive and creates challenges for smaller and emerging players.

The procurement process – complexity and cost 4 The system seems designed to avoid cavalier bids that cannot be built in the real world and that delay everything: Bid bonds as high as ZAR 13 million, requirement for under- written debt and equity, very stringent documentary requirements. Also preferred bidder bonds as high as ZAR 26 million. This within the context of a bidding system is essential, however: Typical bid may be 3,000 – 5,000 pages x 7 hard copies Cost to prepare may be ZAR 2 – 4 million (mostly legal and consultancy) Time to prepare several months for a team of people Can cavalier bids not be avoided in a slightly simpler fashion?

The procurement process – rules and process 5 In terms of the bid rules, participants must pay ZAR 15,000 to receive a copy of the bid documents. The reason is not clear to us. The rules of what is a public tender process are secret and no participant is allowed to divulge the content of the bid documents. We do not think this is democratic or healthy. The reason may have been to prevent collusion. We think there may be better ways to achieve this and that secrecy in public tenders should be avoided. We urge that aggregated data be published after each round.

Procurement – visibility, stability, predictability (1) 6 The IRP 2010 contains an energy blueprint until 2030 containing significant renewables

Procurement – visibility, stability, predictability (2) 7 The present procurement process includes all IRP allocations for RE until In some technologies, the 2016 “quota” may be filled as early as round 3 - closing in a few months. There is then a 3 – 4 year period before 2017 – it is critical that procurement continues in this time to keep momentum, grow the industry and especially to enable localisation. We urge that clarity is needed on this asap to create the confidence that will permit the building and financing of local manufacturing plants and facilitate success for BBBEE companies and community trusts being created now. RE projects are large infrastructure projects that have a multiplier effect and can play a key role in the government’s new infrastructure driven growth model.

Putting SA on the RE map – creating an industry 8 At present far less than 1% of our delivered electricity comes from grid connected wind or solar power. Within 12 months more than 1,000 MW’s of RE of various technologies will be under construction (including Solar Thermal, Solar PV and Wind power). This will fundamentally change our energy sector – make it more modern and more diversified. If we stay with the IRP 2010 and avoid cavalier bids, by 2015 we can be a significant player in the global RE sector.

SA’S POSSIBLE PLACE IN 2015 RE GLOBAL PECKING ORDER

“Cavalier” bids 10 If “cavalier” bidders are successful in their bids but unable to build, the MW’s allocated to them are delayed by at least 6 months. If they actually start building and then stop or go bankrupt, the MW’s may be delayed by several years (before MW’s can be put back into the “bidding pot”). Various mechanisms in the bid rules are aimed at preventing this, most prominently a ZAR 200,000/MW “Preferred bidder bond” payable within 14 days. This could cost up to ZAR 26 million for large projects. We urge optimisation of collaboration between licensing Government Agencies to ensure no bid bond is ever forfeited due to Government factors. We further urge that in cases where non-performance can be laid at the door of the bidder, the bid bonds should be forfeited without exception - this will prevent cavalier behaviour.

Costs, value-for-money, long term sustainability 11 The process is fiercely competitive This rapid drop looks like a “race to the bottom” - very early in the life of a new industry If there is no ability for projects to absorb set-backs and remain profitable, some will not be built/completed and others will meet with bankruptcy in time. We urge that value-for-money should be approached broadly, with an insistence that projects succeed to ensure energy security, the building of an industry, job creation, community benefits and localisation. “Stop-start” should be avoided along with a race to the “bottom”. Debt and equity finance for the long term should be courted throughout.

VALUE FOR MONEY IN CONTEXT – EXTERNATILIES AT KUSILE (University Pretoria)

Conclusion 13 The RE industry is organised and wants to work with Government to build a strong, sustainable local industry that contributes to Commitment 3 of the Green Economy Accord - 50,000 RE jobs by Collectively, the socio-economic objectives must be met. We need to learn from Round 1 and 2 procurement and improve/optimise. Sustainability is the key word. The challenges that exist can be met through co-ordinated action. SAREC offers to host a workshop with all stakeholders to find the best way forward.

THANK YOU Johan van den Berg SAREC