+ DOING GOOD WIND BUSINESS IN SOUTH AFRICA – EWEA 2014 Johan van den Berg CEO, SAWEA

SUMMARY OF CONTEXT AS PER HAND-OUT INFORMATION South Africa is a top 30 global economy with about 45,000 MW installed, and a very good wind regime Policy is favourable to wind power and envisages about 9,000 MW‘s installed by 2030 Growth in the past years has been rapid Localisation, socio-economic development and the advancement of previously disadvantaged South Africans are factors that are important alongside the cost of energy delivered. Successful bids over the three procurement rounds averaged around € 0.11 (R1); € 0.08 (R2) and € 0.06 respectively Average windfarms are large – > 80 MW Capacity factors on successful bids on P50 are 35% +

WIND REGIME

PROCUREMENT FRAMEWORK Competitive bid system within technologies for allocated MW‘s 70% price 30% other - socio economic development - local ownership, local content, job creation, community development etcetera – strong local content requirements Process requires extensive documentation (7 x 5,000 pages) and implies significant cost (€ 200k – 400k in bid preparation) Game for big and sophisticated players

INDUSTRY GROWTH

INDUSTRY GROWTH (2)

INDUSTRY GROWTH (3)

FIVE MAIN CHALLENGES EXERIENCED Securing permits and approvals Preparing a competitive bid that complies with REIPPPP rules Structuring socio-economic benefits in an optimal and sustainable manner Complying with local content requirements Ensuring grid access

PERMITS AND APPROVALS Similar to other jurisdictions Environmental impast assessment – about a 15 month process costing about € 70,000 (birds, bats, visual impact, heritage, agricultural land). But the country is very large (Germany + France + Italy) and there is usually a place to go Act 70/1970 – agricultural land Radar/air force Others SA has extremely sophisticated law firms that understand this very well by now

PREPARING A COMPETITIVE BID THAT COMPLIES WITH REIPPPP RULES As said above, 70:30 price/socio economic factors There are minimum thresholds on certain socio economic aspects The drive to empower, develop communities close to the projects is perhaps a world first and if successful, will create tremendous political capital Suggest buy into the spirit of what is being aimed for, rather than “ticking boxes“ In round 3, some communities had 40% shareholding in projects – this is financed by local banks through innovative structures

PREPARING A COMPETITIVE BID THAT COMPLIES WITH REIPPPP RULES (2) The sophistication of the process requires expert advisors and leads to “bidding costs“ of € 150 – 300k Bid bonds of about € 7,000/MW bid are required to ensure only responsible participants bid – these are doubled at preferred bidder stage

STRUCTURING SOCIO-ECONOMIC BENEFITS IN AN OPTIMAL AND SUSTAINABLE MANNER Main drivers are ownership by previously disadvantaged South Africans (“BBBEE“); economic development of communities; community ownership; socio economic benefits from wind farms (schools, health clinics, pension schemes) The community‘s needs must be well understood Find out “who is the community?“ and who speaks for them

STRUCTURING SOCIO-ECONOMIC BENEFITS IN AN OPTIMAL AND SUSTAINABLE MANNER (2) Recruit able and responsible peope to serve on Community Trusts Employ expert consultants to optimise bid Non-fulfillment of obligations can ultimately be a contractual termination event – so hire the best to ensure iongoing compliance and optimisation See the opportunity not the onus

COMPLYING WITH LOCAL CONTENT REQUIREMENTS Industrialisation, job creation through localisation are key reasons for government‘s strong support of wind power Thresholds started at 25% in Round 1 and are now at 40% Breakdown, approximately, is Balance of Plant 25%; tower up to 15%, blade up to 15%, turbine approx 45% Both steel and cement towers now made in SA Hope that international blade manufacturer will come soon with certification

COMPLYING WITH LOCAL CONTENT REQUIREMENTS (2) SA makes Mercedes Benz 180 for the world market, so the ability is there Distributed/hybrid electricity market in Africa includes 600 million people without electricity

ENSURING GRID ACCESS Present wind farms are aiming at locations where deep connection costs and their concomitant costs can be avoided This means small/medium sized wind farms with “loop in loop out“ arrangements can be made, or proximity to large substations with spare evacuation capacity Opposing projects (also solar) can sometimes sterlise grid if they succeed Eskom the utility gives buget quotes (estimates) prior to bid These are fully quantified later on – variances still too wide SAWEA assisting Eskom with long term, strategic grid planning to unlock high potential areas

SEE YOU SOON!

THANK YOU Johan van den Berg CEO SAWEA