RENEWABLE ENERGY FEED – IN TARIFF REGULATORY GUIDELINES

1. RENEWABLE ENERGY FEED – IN TARIFF REGULATORY GUIDELINES Waste-to-Energy Seminar 17 July 2009 Cape Town By Bianka Belinska

2. PRESENTATION OUTLINE • NERSA Mandate • Renewable Energy Policy • REFIT Phase 1 Regulatory Guidelines • REFIT Phase 1 Tariffs • REFIT Phase 2 • Biomass/Biogas power generation • REFIT Phase 2: NERSA public consultation process

3. NERSA MANDATE NERSA mandate is derived from the objectives of the Electricity Regulation Act, 2006 as follows: • Achieve the efficient, effective, sustainable and orderly development and operation of electricity supply infrastructure in South Africa • Promote the use of diverse energy sources and energy efficiency • Promote competitiveness and customer and end user choice; and • Facilitate a fair balance between the interests of customers and end users, licensees, investors in the electricity supply industry and the public In terms of tariff principle the ERA prescribes that the Setting or approval of tariffs must enable efficient licensee to recover the full cost of its licensed activities, including reasonable margin of return 3

4. RENEWABLE ENERGY POLICY • Renewable Energy is a major contributor in protecting our climate, nature and the environment as well as providing a wide range of environmental, economic and social benefits that will contribute towards long term global sustainability. • The NERSA initiated a development of the REFIT regulatory framework to promote renewable energy in South Africa and to meet the Government target of 10 000GWh by 2013. • The initially selected technologies in REFIT Phase 1 are: • − Concentrated Solar Power with storage • − Landfill Gas • − Small Hydro • − Wind 4

5. REFIT PHASE 1 REGULATORY GUIDELINE - 26 MAR 2009 • The main principles of the Regulatory Guidelines include: • The REFIT Qualifying Principles/technologies • REFIT applies for new grid connected projects with capacity >= 1 MW • Renewable Energy Feed – in Tariffs • Renewable Energy Purchasing Agency (REPA) • Term of REFIT PPA 20 years • Annual review of the REFIT every year for the first 5-year period and every 3-year thereafter • The MTPPP PPA be used as a basis for the REFIT PPA • Tariffs based on the life cycle cost of electricity produced by RE facilities based on the adopted financial assumptions 5

6. REFIT PHASE 1 REGULATORY GUIDELINE - 26 MAR 2009 (2) • The term of the Power Purchase Agreement is twenty (20) years: • This is in line with international best practices and ensures bankability of the renewable energy projects. • Clean Development Mechanism (CDM) was not included: • In the context of the number of uncertainties post 2012 the NERSA REFIT act as a “stand alone” financial instrument and is separated from third party market volatility • IPPs to apply for CDM revenue separately, this will improve the attractiveness of the FITs. • REPA (Eskom) is the Single Buyer of electricity from REFIT IPPs • This is in line with the Cabinet Meeting statement of 5 September 2007 6

7. REFIT PHASE 1 TARIFFS - 26 MAR 2009 The above tariffs are in constant Rand 2009 Licensees awarded these tariffs will have them adjusted for inflation using CPI once per annum 7

8. THE REFIT PHASE 2– END OF SEP 2009 The second phase of the REFIT includes: Development of generic Power Purchase Agreement (PPA) for renewable energy projects on the basis of the Medium Term Power Purchase Program (MTPPP) PPA Development of qualifying principles for additional commercially available RE technologies such as: biogas, biomass, photovoltaic, concentrated solar without storage and concentrating PV Development of the tariffs for the newly included technologies as per b) above 8

9. THE REFIT PHASE 2– END OF SEP 2009(2) Qualifying technologies under Phase 2 are: • Concentrated solar power plant without storage • Biomass solid • Biogas • Photovoltaic (PV) systems (large ground- or roof-based > 1 MW) • Concentrating PV 9

10. BIOMASS & BIOGAS POWER GENERATION WASTE TO ENERGY CONVERSION UNDER CONSIDERATION FOR BIOMASS RENEWABLE ENERGY • Grouped into two categories: • Biomass (Solid) – plants residue, tree residue, forest wood waste, agricultural waste, and • Biogas (non-wood organic waste, water waste, manure, municipal waste) Biogas power generation based on fuels derived from biological treatment of waste Phase 2 focus more specifically on biogas derived from anaerobic digestion Phase 1 of REFIT already provided tariff for Landfill Gas (LFG) 10

11. BIOMASS & BIOGAS POWER GENERATION(2) Biogas REFIT will cover plants fueled by biogas produced in dedicated anaerobic digester system facilities The biogas is produced from water waste, animal waste or agricultural manure Assumed that the generation plant is in close proximity to waste treatment facilities Estimated biomass/biogas tariffs range from R 0.9 to 1.2 /kWh at load factor of 80% Biogas facility and power plant should be ring fenced from the other waste management systems 11

12. BIOMASS & BIOGAS POWER GENERATION(3) Financial assumptions and methodology identical to REFIT Phase 1 Tariffs based on life cycle cost of the power plant PPA term 20 years Applicability – new facility with capacity >1 MW Grid-connected facilities Power plant location in close proximity to biogas/biomass production facility 12

13. REFIT PHASE 2: NERSA PUBLIC CONSULTATION PROCESS Publication of consultation paper 20 Jul 2009 (Qualifying principles, tariffs & PPA) Public comments submission on REFIT Phase 2 by 20 Aug 2009 Public Hearing on qualifying technologies, tariffs & PPA 03 Sep 2009 NERSA approval of technologies and tariffs 23 Sep 2009 (29 Oct 2009) 13

14. THANK YOU!