KZN ENERGY AGENCY AN INNOVATIVE APPROACH SEPTEMBER 2015

- Current Energy Crisis- calls for innovation and private sector involvement

- KZN Provincial Growth And Development Strategy (2400 MW Renewable Energy by 2020)

- KZN Success rate on the REIPPPP

- Link between Economic development and Energy Provision

- KZN’s competitive advantage- Need a platform to compete

The Current Status Quo

There is a growing interest from private sector to develop energy projects in the province

3 © 2014 Deloitte Touche Tohmatsu Limited

A. Newcastle co-generation plant (steam and power) A. Combined Cycle Gas Turbine (CCGT) B. Privately owned IPP – Owner: IPSA C. Nominal capacity: 18 MW D. Off-taker: Eskom

B. Ingula Pumped Storage Power Station A. State-owned – Owner: Eskom B. Nominal capacity: 1332 MW

C. Mariannhill Landfill Gas to Electricity A. Gas engines B. PPP – Owner: Ekurhuleni Municipality C. Nominal capacity: 1 MW

D. Bisasar Road Landfill Gas to Electricity A. Gas engines B. PPP – Owner: Ekurhuleni Municipality C. Nominal capacity: 6.5 MW

E. Mkuze Biomass Plant A. Biomass Power Plant – Sugar Cane B. IPP – Owner: wholly owned by Navosync C. Round 3 winner in REIPPP program D. Nominal capacity: 16.5 MW

F. Dube Tradeport – solar PV – 711 kW G. Amatikulu Biomass Power Plant – Planned - 91 MW, Tongaat-Hulett Sugar Ltd – Grid-

connected – existing 5 MW H. NCP Alcohols – steam turbine – 500 kW I. Dew Water – wind turbine – 10 kW J. 20 projects - eThekwini Municipality’s undergoing feasibility studies K. Sachet Manufacturing – 30 kW – rooftop PV (EPG) – Jacobs, Durban - Eskom Standard

Offer program L. Belgotex facility – 1 MW - rooftop PV (EPG) M. MAN truck plant – 580 kW – rooftop PV (EPG) N. Hazelmere CPV plant – Owned by Soitec – 500 kW O. Land Rover PV plant – 150 kW rooftop PV (EPG) P. Liparm corporation PV plant – 124 kW rooftop PV Q. Hilton Hotel – 20 kW solar PV plant R. Sitho – 11.5 kW solar PV S. Umhloti Primary School – 10 kW solar PV system T. Avon OCGT project – 670 MW – 15 year PPA with DOE (GDF Suez as an IPP) U. Colenso Coal Power Station – 750 MW developed by Colenso Mine and Energy group V. Eston Sugar Mill Power Plant – 60 MW developed by Illovo – 2MW to Grid W. Empangeni Wind Project – 100 MW connected to grid – Astrum Energy Group X. Sappi Saiccor Co-Gen – Umkomaas – 5 MW biomass Y. Tongaat Hulett Sugar – Felixton – 9 MW – Empangeni Z. Mtutatuba - Umfolozi Sugar Mill – 4.5 MW biomass AA. Illovo Sugar – Sezela – 5 MW power plant BB. Mooi rivier small hydro project – 0.4 MW - Mooi Hydro

List of power projects

A

Durban-Area

New Castle

B Van Reenen

C

D

Richard’s Bay

Mkuzi

E

State-owned PPP / Municipality Key:

Privately-owned Own Use Feed to grid Planned

F

H

G

I J

K

http://pqrs.co.za/s-a-solar-pv-list-2/solar-pv-list-100kw/

Pietermaritzburg L

M

N

O P

S

R

Q

T

Shakaskraal

U Colenso

V

Eston sugar mill

W

X

G

Empangeni Y

Z

V

AA

BB

Source: Deloitte Analytics as per

15.07.2015

4 © 2014 Deloitte Touche Tohmatsu Limited

33.2

1682

1375.41

15

25

9

0

5

10

15

20

25

30

0

200

400

600

800

1000

1200

1400

1600

1800

Embedded ownuse (grid-tied)

Planned Sell to grid

Num

ber o

f pro

ject

s

MW

KZN Power Generation Profile (as per 14 July 2015)

MW (LHS) Projects (RHS)

A

Durban-Area

New Castle

B Van Reenen

C

D

Richard’s Bay

Mkuzi

E

F

H

G

I J

K

Pietermaritzburg L

M

N

O P

S

R

Q

T

Shakaskraal

U Colenso

V

Eston sugar mill

W

X

G

Empangeni Y

Z

V

AA

BB

State-owned PPP / Municipality Key:

Privately-owned Own Use Feed to grid Planned

Source: Deloitte Analytics as per

15.07.2015

A rise in embedded generation, planned projects and current projects selling to the regional or national grid

KZN solar resource potential

5

• In urban areas along the KZN coast, solar resources are the lowest. However, for urban areas, solar PV is still the best solution for light and heavy commercial properties or businesses

• Solar PV (rooftop or ground mounted) could meet the needs of businesses such as shopping malls, retail parks, warehouses, schools, sport stadiums, municipal buildings, office parks, etc.

• Solar PV (without storage) is ideal for operations which operate during daytime such as the facilities mentioned above

• Solar PV has a projected Levelised cost of electricity of between R1.00 and R1.50 per kwh

• In the rest of the province solar PV would also make sense as long as the load / demand profile of the facility matches the supply profile of the solar solution

• For facilities demanding base-load capacity (such as production facilities, manufacturing, agriculture, hospitals etc.) solar would only be able to meet a certain portion of the demand requirements

• The land requirement for solar PV becomes quite large for larger installations above 1 MW. Space restrictions and capital costs becomes the drivers for solar adoption

• PV modules have undergone significant price decreases, further increasing their attractiveness to investors and accelerating the technology’s drive toward competitiveness with conventional electricity sources

Key notes

Solar Key:

High - 1700-1800 kWh/kWp

Low - 1300-1400 kWh/kWp

Medium - 1500-1600 kWh/kWp

Pietermaritzburg

New Castle

Richmond

Kokstad

Mkuzi

Durban-Area

Solar Wind

Click for biomass

and hydro

KZN wind resource potential

6

• KZN has good wind resources North and South of Durban along the coastal areas

• The North Western parts of KZN also have good wind resources

• Small and large wind projects could be developed in those areas

• Wind projects could support rural communities and agricultural facilities (light and heavy industrials) in the high wind resource areas

• Wind projects could also be deployed in the southern areas on KZN

• Wind energy is there to use, it is renewable, clean and does not give off harmful gases. Coastal regions are ideal for use of this technology

• Comparing the cost of wind energy to that of “new coal” – coal-fired power stations currently being built – wind energy cost 89c a kilowatt hour and coal 97c/kWh

• A North West University study found the “external cost” of coal, which included pollution and water usage, added another 90c/kWh to the cost. This made coal twice as expensive as wind.

• Coal is used for “baseload” electricity generation, but wind can play a big part in generating electricity for peak demand. Wind was far cheaper that traditional peaker plants, which cost R4 to R6.93 k/Wh.

Key notes

Wind Key:

High – 8 to 9 m/s

Low – 4 to 5 m/s

Medium – 6 to 7 m/s

Pietermaritzburg

New Castle

Richmond

Kokstad

Mkuzi

Durban-Area

Solar Wind

http://www.kznenergy.org.za/download/publications/non-ksef_publications/Green%20Energy%20opportunities2.ppsx

Click for biomass

and hydro

KZN Biomass Potential

A provincial KZN Agency could play a key role in deploying strategic energy projects

8 © 2015 Deloitte Touche Tohmatsu Limited

• Stifling provincial economic growth due to power shortages, lack of energy security, lack of energy control and project delays within private sector

• “To be a self-sustaining and centralized Agency that drives provincial growth and investment through the rapid development of private and public sector energy related projects”

• Front-end development and power generation capacity building

• Smaller regional projects (1-75MW)

• Strong focus on solar, gas, hydro, wind, biomass, waste-to-energy and sugar industry

• Ensure short project lead times

• Enable favourable project economics to owners

• Provide favourable business environment

• Create “One-stop” shop for project needs

• Technical – Business development and feasibility

• Legal – PPA, generating licenses, and contracts

• Environment – EIA / permitting

• Investment / transaction advisory – Pre-development financing

• Industry focussed account managers

• Engineering and plant optimisation

• Central Agency Structure

• Dependent on off-takers, strategy and mandate

• Organisational structure to be agile and lean to keep costs low

Problem statement and the need for a provincial energy

Agency

Vision and mandate

Business Model

Value proposition and strategy

Key expertise that will be developed within the Agency

Operating Model elements (still in

progress)

1 2 3 4 5 6

The initial role of a provincial energy Agency should be to enable the rapid deployment of private sector energy projects and support projects in the province. The Agency also envisage becoming an entity that trades energy within the province through a brokerage model

Global Examples of Energy Trading Agencies

9 © 2015 Deloitte Touche Tohmatsu Limited

Proposed KZN Energy Agency Business Model

Organisational Redesign

Geographic footprint

Services

Products

Agency Business

Model

Transaction advisory

Energy efficiency advisory

EPCM

Capital raising

Assist with plant operations

Energy equipment (SHWs, Heat Pumps, solar PV panels) RE technology market intelligence and reports

Electricity Gas

Biomass / Bio fuel

Metro only

Provincial

National

Regional

Rest of Africa

IPPs (P)

Project developers (P)

Industrials Co-generation (P,U) Property owners (P,U)

Privately-owned (A), Private Investors (F)

Primary customers

Agency employees

Rural areas / off-grid

Upfront scoping

Pre-feasibility

Bankable feasibility

EPCM execution

Generation – Operating Asset Asset performance services

Transmission & Distribution

Solar

Gas Coal

Biomass / Waste to energy

Wind Hydro

Primary Customer segments

Electricity Broker

Heavy commercial (U) Light / Heavy industrial (U)

Power trader

P – producers

U - users

Nuclear

KZN Agency Other options

Key:

EPCM monitoring

Role in value chain

Primary beneficiaries

Agency / Fund ownership

Municipalities

Shareholders

Provincial residents

State-owned (A), Private Investors (F)

Privately-owned (A), Government Investors (F) State-owned (A), Government Investors (F)

Process heat/steam

Assist in project development, licensing, permitting

F – fund

A - agency

The KZN Energy “Agency of tomorrow” Municipalities (P,U)

Energy Mix

(1-75 MW)

Privately-owned (A), Private Investors (F)

Private/State owned (A), Private/State Investors (F)

© 2015 Deloitte Touche Tohmatsu Limited

What should the “Agency of today” focus on in the near term?

Organisational Redesign

Geographic footprint

Services

Products

Agency Business

Model

Transaction advisory

Energy efficiency advisory

Capital raising

Electricity

Upfront scoping

Pre-feasibility

Bankable feasibility

Asset performance services

Primary Customer segments

Electricity Broker

Power trader

KZN Agency of today

Key:

EPCM monitoring

Role in value chain

Primary beneficiaries

Agency / Fund ownership

Process heat/steam

Assist in project development, licensing, permitting

The KZN Energy “Agency of today”

Energy Mix

(1-75 MW)

© 2015 Deloitte Touche Tohmatsu Limited

Funding and Guarantee Support for the Agency

1.) Ability to identify quick wins and implement incremental power in KZN (PLAY IN THE GAP)

2.) Central contracting point for IPP’s

3.) Streamline and reduce time and cost of project development

4.) Research and Project Development

Summary of KZN Energy Agency