Cost efficient procurement of solar PV assets

Cost efficient procurement of solar PV assets Transnet - CSIR Solar PV Workshop CSIR Energy Centre Energy Autonomous Campus with Energy Markets & Policy Pretoria Campus: Knowledge Commons, Ulwazi 19 May 2017 Lehlogonolo Chiloane Cell: +27 72 333 9491 Email: LChiloane@csir.co.za Dr Tobias Bischof-Niemz Chief Engineer

Professional Experience August 2016 today: Senior Researcher: Macro Energy Economics at the CSIR Conducting economic and policy analysis of energy supply options and regulations research 2015: Energy Account Manager at the National Business Initiative Managing the delivery of energy efficiency targets, and implementation of identified recommendations 2014: Climate Change Consultant at the Department of Environmental Affairs Compiling the National GHG inventory using IPCC guidelines and monitoring climate change projects in the country 2011-2013: Research Officer at the University of Cape Town Managing various energy efficiency measures implemented across the country that are initiated by Eskom s IDM 2010 2011: UNITAR Intern at the University of Cape Town Working alongside researchers at the Energy Research Centre on sustainability projects, which assess the impacts and contribution of energy to the global climate change Education MSc Chemical Engineering, University of Cape Town BSc Chemical Engineering, University of Cape Town 2

Agenda Background: The procurement guide Procurement process Results at the CSIR Power purchase agreements 3

The procurement guide Cost effective PV asset procurement Based on lifecycle cost Mechanism for penalising poor PR Based on complete system optimisation Performance based frame conditions for RFP Operational Lifetime Annual efficiency loss O&M costs Solar irradiation (average GHI) System size EPC Price O&M price Guaranteed Performance Ratio Response from bidder Traditional PV asset procurement Based on purchase price only No mechanism to enforce PR Based on component level performance Capacity based frame conditions for RFP Set system size (kwp) System size EPC Price 4

Agenda Background: The procurement guide Procurement process Results at the CSIR Power purchase agreements 5

What do we procure? 1 2 EPC Contract million Rand Engineering, Procurement and Construction of the solar PV asset by one contractor We do not do the design, that is the job of the EPC contractor The asset is ours Operations and Maintenance Contract Rand per year Three-year period after commercial operation Gives entire responsibility to operate and maintain the PV plant to the contractor EPC Contract and O&M Contract are issued in one tender and evaluated as a package 6

The procurement process 1. Preparatory work 2. Develop a Request for Proposal (RfP) 3. Administer the RfP 4. Evaluate the bids 5. Select the bidder and finalise the contract 7

cont The procurement process 1. Preparatory work Energy demand and supply assessment Conduct background/ base level permitting 2. Develop a Request for Proposal (RfP) Release tender documents 8

cont The procurement process Site assessment by bidder 3. Administer the RfP Provide fixed inputs for procurement process Bidders submit their parameters in standardised form 9

cont The procurement process Bidders submit their parameters in standardised form 4. Evaluate the bids Determine LCOE using inputs from bidders Verify lowest LCOE 10

cont The procurement process Provide standard EPC and O&M contract 5. Select the bidder and finalise the contract Negotiate and finalise contracts 11

Within clearly defined boundary conditions, the design is up to the EPC Where? - Area available for PV array - Specify connection point 1 ha of land Scope of EPC contract 11 kv campus grid What? - Solar PV - Specify preferred technology Stringent quality criteria 1. Experience of EPC contractor 2. Quality of design 3. Quality of components (certification of modules, inverters) 12

What do we ask the bidders to provide? Bidders responses 1) Total installed capacity in kwp 1 ha of land 2) Total EPC price in R 3) O&M contract price in R/yr 4) Guaranteed Performance Ratio in % 13

Our PR definition is slightly different from industry standard! 14 Important difference, because industry-standard PR leaves the module layout design risk with the owner!

How do we define Performance Ratio? We (the CSIR) measure the total Global Horizontal Irradiation (GHI) during the O&M period We furthermore measure the total electrical energy produced by the solar PV plant and fed into the grid during the O&M period Performance Ratio is then defined as: Total specific energy [kwh/kwp] PR = x [kwp/m 2 ] Total GHI [kwh/m 2 ] Periods of non-production that are outside of the control of the contractor are ignored for PR calculation (e.g. downtime of the CSIR campus grid) 15

How do we evaluate the bidders responses? Input: Bidders responses CSIR-defined Excelbased LCOE model Outputs 1) Total installed capacity in kwp 2) Total EPC price in R 3) O&M contract price in R/yr 4) Guaranteed Performance Ratio in % INPUTS TO BE PROVIDED BY TENDERERS RESULT 1: BASIS FOR FINANCIAL EVALUATION OF PROPOSALS Minimum requirement by CSIR (not to be modified) Design system installed DC capacity 558.0 kwp 500 Levelised Cost of Energy (LCOE) after-tax (nominal, escalating) 0.83 R / kwh Tendered price for EPC part 10 750 000 R Tendered price for O&M in year 1 300 000 R/yr Guaranteed Performance Ratio (PR) during O&M period 102.4% 97% INPUTS PREDEFINED BY CSIR (not to be modified) RESULT 2: BASIS FOR CALCULATION OF LIQUIDATED DAMAGES Lifetime 25 yrs Liquidated damages per percentage point of underperforming PR 270 000 R / % Duration of O&M contract 3 yrs Penalty factor for PR underperformance 1.5 Efficiency loss after O&M period 0.40% / yr OPEX after end of tendered O&M contract 360 R / kwp / yr Replacements in year 11 as percentage of initial CAPEX 15% Inflation 6% WACC = discount rate (nominal) 10.0% Average GHI at site (historically) 2 050 kwh / m2 / yr Specific energy yield during O&M period 2 099 kwh / kwp / yr CALCULATIONS AS DEFINED BY CSIR (not to be modified) Year --> Unit 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Production on/off./. 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Energy kwh 1 171 354 1 171 354 1 171 354 1 157 297 1 152 612 1 147 927 1 143 241 1 138 556 1 133 870 1 129 185 1 124 499 1 119 814 1 115 129 1 110 443 1 105 758 1 101 072 1 096 387 1 091 702 1 087 016 1 082 331 Revenue 971 093 1 029 358 1 091 120 1 142 708 1 206 367 1 273 550 1 344 453 1 419 280 1 498 246 1 581 578 1 669 516 1 762 313 1 860 236 1 963 565 2 072 597 2 187 644 2 309 035 2 437 117 2 572 257 2 714 840 CAPEX R -10 750 000-2 887 742 OPEX R -300 000-318 000-337 080-239 251-253 606-268 823-284 952-302 049-320 172-339 383-359 745-381 330-404 210-428 463-454 170-481 421-510 306-540 924-573 380-607 782 Cash flow R -11 050 000-318 000-337 080-239 251-253 606-268 823-284 952-302 049-320 172-339 383-3 247 487-381 330-404 210-428 463-454 170-481 421-510 306-540 924-573 380-607 782 Total cash flow discounted (nominal) R 15 485 968 Energy stream kwh 1 171 354 1 241 635 1 316 133 1 378 360 1 455 146 1 536 185 1 621 709 1 711 967 1 807 217 1 907 734 2 013 807 2 125 741 2 243 858 2 368 496 2 500 012 2 638 784 2 785 208 2 939 704 3 102 713 3 274 699 Total energy discounted (nominal) kwh 18 679 516-10 078 907 711 358 754 040 903 457 952 760 1 004 728 1 059 501 1 117 231 1 178 073 1 242 195-1 577 971 1 380 983 1 456 026 1 535 103 1 618 427 1 706 223 1 798 729 1 896 193 1 998 877 2 107 057 1) LCOE in R/kWh 2) Liquidated damages for underperformance during O&M period in R/%-point LCOE is the basis for the financial evaluation 16

Agenda Background: The procurement guide Procurement process Results at the CSIR Power purchase agreements 17

CSIR electricity supply: Before solar PV installation Operating Unit 1 Operating Unit 2 City of Tshwane Facilities Department Operating Unit 3 Operating Unit 4 CSIR Pretoria Campus Operating Unit 5 18

City of Tshwane s energy charges Tariff structure that is applied to the general campus, City of Tshwane s tariff book 2016-2017 City of Tshwane's Energy Charge in R/kWh Tariff week in high-demand season (July & August 2016, June 2017) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 1 Sunday 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 2 Monday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 3 Tuesday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 4 Wednesday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 5 Thursday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 6 Friday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 7 Saturday 0.58 0.58 0.58 0.58 0.58 0.58 0.58 1.07 1.07 1.07 1.07 1.07 0.58 0.58 0.58 0.58 0.58 0.58 1.07 1.07 0.58 0.58 0.58 0.58 City of Tshwane's Energy Charge in R/kWh Tariff week in low-demand season (September 2016 --> May 2017) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 12 Sunday 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 13 Monday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 14 Tuesday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 15 Wednesday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 16 Thursday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 17 Friday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 18 Saturday 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.70 0.70 0.70 0.70 0.70 0.50 0.50 0.50 0.50 0.50 0.50 0.70 0.70 0.50 0.50 0.50 0.50 A demand charge of half-hourly maximum demand payable in peak and standard periods on weekdays and Saturdays per kva, City of Tshwane demand charge R 104 kva/months 19 Sources: Tshwane tariff book

CSIR electricity supply: After solar PV installation Energy Center 90 % Refinance Asset Operating Unit 1 Operating Unit 2 City of Tshwane Facilities Department Operating Unit 3 10 % Financial Benefit Operating Unit 4 CSIR Pretoria Campus Operating Unit 5 20

Facilities Management will saves 10% compared to CoT energy charges Tariff structure that is applied to the general campus, City of Tshwane s tariff book 2016-2017 City of Tshwane s Energy Charges in R/kWh for the CSIR campus Energy Centre s Energy Charges in R/kWh for the CSIR campus City of Tshwane's Energy Charge in R/kWh Tariff week in high-demand season (July & August 2016, June 2017) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 1 Sunday 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 0.58 2 Monday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 3 Tuesday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 4 Wednesday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 5 Thursday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 6 Friday 0.58 0.58 0.58 0.58 0.58 0.58 3.11 3.11 3.11 1.07 1.07 1.07 1.07 1.07 1.07 1.07 1.07 3.11 3.11 1.07 1.07 1.07 0.58 0.58 7 Saturday 0.58 0.58 0.58 0.58 0.58 0.58 0.58 1.07 1.07 1.07 1.07 1.07 0.58 0.58 0.58 0.58 0.58 0.58 1.07 1.07 0.58 0.58 0.58 0.58 City of Tshwane's Energy Charge in R/kWh Tariff week in low-demand season (September 2016 --> May 2017) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 12 Sunday 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 13 Monday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 14 Tuesday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 15 Wednesday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 16 Thursday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 17 Friday 0.50 0.50 0.50 0.50 0.50 0.50 0.70 1.15 1.15 1.15 0.70 0.70 0.70 0.70 0.70 0.70 0.70 0.70 1.15 1.15 0.70 0.70 0.50 0.50 18 Saturday 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.70 0.70 0.70 0.70 0.70 0.50 0.50 0.50 0.50 0.50 0.50 0.70 0.70 0.50 0.50 0.50 0.50 90% CSIR s electricity tariffs are highest on weekdays during the day A demand charge of half-hourly maximum demand payable in peak and standard periods on weekdays and Saturdays per kva, City of Tshwane demand charge R 104 kva/months 21 Sources: Tshwane tariff book

Highlights: Summary of installed solar PV plants Project Size Achieved LCOE and year Investment Savings in 2015/16/17 1. Solar PV plant (1-axis) 558 kw 0.88 R/kWh in 2015 R10.75 m R1.8 m 2. Solar PV plant (2-axes) 200 kw 1.00 R/kWh in 2016 R7.0 m Start-up 3. Solar PV plant (rooftop) 250 kw 0.87 R/kWh in 2016 R4.5 m N/A 22

Savings to CSIR from the single axis tracker over 19 months operation Savings (ZAR) 140 000 Savings from demand reductions Savings from Energy generation 120 000 100 000 80 000 60 000 40 000 20 000 0 Oct 15 Nov 15 Dec 15 Jan 16 Feb 16 Mar 16 Apr 16 May 16 Jun 16 Jul 16 Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 23 Months

Latest internal billing Actual April 2017 Performance 78 600 kwh produced Energy charge avoided: R55 400 Demand charge avoided: R24 700 Total value per solar PV energy: 1.02 R/kWh Average value since grid connection: > 1 R/kWh 24

Agenda Background: The procurement guide Procurement process Results at the CSIR Power purchase agreements 25

Power Purchase Agreements Agreement between Transnet and PPA provider Solar PV system installed by PPA provider Solar PV system generates energy for Transnet. Transnet pays a pre-determined energy price PPA provider owns, manages and maintains system 10 to 25 years fixed rate 26

Procuring own asset vs Power Purchase Agreement Procuring own asset Power purchase agreement Short payback period Lowest LCOE from project developer Direct job creation Stimulate solar PV market Revenue to fund future projects Solar PV technologies require little maintenance No responsibility of project management Only sign the contract Fixed price 27

Ha Khensa Re a leboha Siyathokoza Enkosi Thank you! Re a leboga Ro livhuha Siyabonga Dankie 28

Results from LCOE model and actual qualified bids Ground mounted single axis tracker:558 kwp Bidders Installed Capacity in kwp Guaranteed Performance Ratio (PR) EPC Price in R O&M Price for first year in R/yr Resulting LCOE in R/kWh (basis for evaluation) Bidder 1 558.0 102.4% 10 750 000 400 000 1.32 Bidder 2 501.6 99.7% 12 445 093 400 000 1.063 Bidder 3 547.0 107.0% 16 192 800 240 000 1.109 29

30 RE IPP trends over time First four Bid Windows results of Department of Energy s RE IPP Procurement Programme (REIPPPP) Average tariff in R/kWh (Apr-2016-R) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 3.65 1.51 0.0 Bid W 1 (4 Nov 2011) Bid submission dates 2.18 1.19 Bid W 2 (5 Mar 2012) = 2.8 GW 1.17 0.87 Bid W 3 (19 Aug 2013) = 4.0 GW 0.87-0.95 0.69-0.80 Bid W 4 & additional (18 Aug 2014) Solar PV plant CSIR LCOE Solar PV Wind LCOE (R/kWh) 1-axis tracker 0.88 2-axes 1.00 Rooftop 0.87 Sources: South African Department of Energy IPP Office s publications on results of first four bidding windows http://www.energy.gov.za/ipp/list-of-ipp-preferred-bidders-window-three- 04Nov2013.pdf; http://www.energy.gov.za/ipp/renewables_ipp_procurementprogram_windowtwoannouncement_21may2012.pptx; http://www.ipprenewables.co.za/gong/widget/file/download/id/279; IPP Office on Bid Window 4 expedited; StatsSA on CPI; CSIR analysis 0.62 0.62 Bid W 4 expedited (11 November 20