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

1. DOING GOOD WIND BUSINESSIN SOUTH AFRICA – EWEA 2014 Johan van den Berg CEO, SAWEA

2. 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% +

3. WIND REGIME

4. 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

5. INDUSTRY GROWTH

6. INDUSTRY GROWTH (2)

7. INDUSTRY GROWTH (3)

8. 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

9. 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

10. 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

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. SEE YOU SOON!

18. THANK YOU Johan van den Berg CEO SAWEA johan@sawea.org.za 082 925 5680