TERMS OF REFERENCE TECHNICAL, FINANCIAL AND ECONOMIC ASSESSEMENT MODEL (TOOLKIT) FOR EVALUATING RENEWABLE ENERGY PROJECTS

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1 TERMS OF REFERENCE TECHNICAL, FINANCIAL AND ECONOMIC ASSESSEMENT MODEL (TOOLKIT) FOR EVALUATING RENEWABLE ENERGY PROJECTS 1. INTRODUCTION The Electricity Control Board (ECB) is the statutory regulatory authority established in terms of Electricity Act (Act 4 of 2007). The ECB has the core responsibility of exercising control over the electricity supply industry (ESI); which entails regulation of generation, transmission, distribution, supply, use, import and export of electricity in Namibia. The Electricity Control Board has the mandate to manage licenses and to approve electricity tariffs in Namibia and in this regard has developed tariff methodologies for generation, transmission and distribution. The ECB has also developed an Independent Power Producer (IPP) and investment market framework to ensure an equitable market model for Namibia, that addresses the concerns of investors and mitigates risk for NamPower and the government. Due to the shortage of energy in the Southern African Region, and a large interest by private developers for projects, regulators are finding it challenging to identify the most financially feasible and attractive project among different renewable energy technologies. Regulators also have a responsibility to ensure that consumers pay affordable tariffs but at the same time that the proposed projects are financially feasible. In view of the above the ECB decided to engage a consultant to develop a financial and economic performance model to allow the Regulator to assess the financial viability of project proposals to ensure that utilities/independent Power Producers (IPPs) are maintaining a strong financial position with the tariffs as proposed by the IPP for approval by the Regulator. In view of the above the ECB decided to engage a consultant to: Develop a technical, financial and economic (model) toolkit for evaluating Renewable Energy (RE) projects. 2. OBJECTIVE To obtain the services of a consultant/s, with appropriate and relevant economic, engineering, financial tariff modeling, economic, financial analysis and financial advisory expertise in the energy sector that shall assist the ECB in developing an investment decision-making process, and professional spreadsheets for the detailed financial project appraisal, including the determination of a tariff level. 01/08/2014 Page 1 of 5

2 3. SCOPE OF SERVICE Develop a model to evaluate and communicate the financial performance of a project, prior to an investment decision-making process. The model should consist of, but not limited to the following characteristics. 3.1 An MS excel model consisting of the following functional sheets; Input, analysis and results (outputs), including sensitivity tests, the model must also have the following capabilities: Assist with investment decision-making procedure by testing the financial feasibility of proposed projects Assessment of the economic and financial costs and benefits of projects Financial analysis calculations and financial performance of the project(s) considering individual funding scenarios and financial support schemes, and financing for project financed projects The model (toolkit) should be structured to allow for sufficient flexibility and to permit extensive sensitivity testing The model should be user-friendly - designed in a way that should minimise the difficulties during its use, e.g. colour code for easy interpretation, cost categorizing, comments & name cells Clearly identify what cost data and input (technical, economic and financial) parameters are required to conduct the feasibility assessment Develop an information requirement sheet comprising of cost (input) data (technical, economic and financial) and relevant parameters necessary to conduct the feasibility assessment with the model Determine an indicative tariff for the project based on available relevant technical, economic and financial information Conduct different financial feasibility scenarios depending on the source of funding (debt or equity) and advice on the return to be allowed (WACC differentiation) Risk identification matrix for financial risks, mitigation strategies. 3.2 The toolkit should be equipped for the following functions: A risk assessment tool for the review of project risk and mitigation measures Benefit calculation (avoided electricity demand) Troubleshooting Evaluation matrix for Financial Viability (project financial Internal Rate of Return (FIRR); financial Net Present Value (FNPV); Debt Service Coverage Ratio (DCSR); Return on Equity (RoE); Payback; and Dynamic Unit Cost (DUC) Defining of funding scenarios 01/08/2014 Page 2 of 5

3 3.2.6 Comparison of funding scenarios Sensitivity analysis on relevant project parameters Free cash flow calculation Financial statements (pro-forma cash flow statement; profit and loss statement; balance sheet and key financial indicators) Key performance ratios The model should be time flexible (being able to choose from different time profiles, representing different intervals of consideration (e.g semi annual, full years). It should also be able to assign different time profiles to the different phases in the project (i.e. Construction and Operation) It is expected of the consultant to produce a manual to guide the users in the efficient use of the model A brief report that summarizes how the model was constructed and how it works including worksheet descriptions, key formulas and limitations The consultant is expected to input and conduct up to two scenarios of identified projects It is expected of the consultant to produce a report on the out-come of the scenarios. 4. REFERENCE DOCUMENTATION/INFORMATION SOURCES 4.1 ECB WACC Methodology National Integrated Resource Plan (NIRP) Development of procurement Mechanisms for Renewable energy resources in Namibia IPP and Investment Market Framework 4.5 National tariff study ECB latest pricing path to cost reflectivity in the ESI 4.7 Application for a license to Generate Electricity in Terms of the Electricity Act 4 of Generation Licence Application Technical Review Information Requirements 4.9 The ECB IPP Financial Model 5. ASSUMPTIONS 5.1 The ECB will appoint a representative to co-ordinate the project with the consultant. 5.2 After appointment the successful consultant shall convene a conceptual meeting with the ECB. 5.3 All meetings will be held between the consultant and ECB. The consultant shall be responsible for record keeping of all proceedings and minutes of meetings. 5.4 The ECB or consultant may request additional ad-hoc meetings on specific issues if required 5.5 All reports, minutes, presentations, models (including calculations & source codes) and studies conducted shall be made available to the ECB in full electronic media. PDF or any 01/08/2014 Page 3 of 5

4 encoded files will not be accepted. 5.6 Copyright of all reports, minutes, presentations, models and studies shall vest in the ECB. 5.7 Work must be original and tailor made to Namibian circumstances extensive copying from other similar reports whatever the origin will not be accepted. 5.8 All models developed during the consultancy shall be the property of the ECB. 5.9 The consultant shall conduct at least three workshops The consultant shall provide training to the relevant ECB staff on the maintenance and use of various models developed in the course of this assignment. 6. DURATION 6.1 The work should be completed by end of January The Consultant shall submit a detailed project program to the ECB within a week after the approval of the proposal. 7. Proposals to be submitted The proposals should be submitted in two separate envelopes clearly marked Technical and Financial proposal, of which two copies should be provided and a soft copy version. The Technical Proposal shall, at least, contain: 7.1 Profiles of all Companies participating in the bid, including, but not limited to the scope of business similar experience and overall human, operational & financial resources. 7.2 The proposed key human resources (project team) and general qualifications, this includes education and training, length of experience, type of position held etc. 7.3 Experience from similar projects, in relation to the project, the suitability to perform the tasks of the assignment. Should have worked in a human resource study research environment (corporate environment, utility, regulator or have done similar projects for the ESI), contact details for all reference projects should accompany the proposal. 7.4 The proposed methodology to be implemented to cover the scope of services. 7.5 The proposed work plan (including time frames) to be implemented to cover the scope of services. 7.6 The available resources of the consultant, including the necessary support. Consultant should provide proof of the ability to replace members in the team with new members of equal competence / expertise. The consultant should prove a broad range of different relevant expertise possessed by the team. 7.7 The Namibian component of the company shareholding and human resources. The consultant should prove ownership of companies participating and use of local expertise (foreign bidders), transfer of skills / technology (foreign bidders) 7.8 The consultant s affirmative action and BEE policies and achievements. 01/08/2014 Page 4 of 5

5 The Financial Proposal shall be: 7.9 In the Namibian Dollar currency Inclusive of all relevant taxes Inclusive of professional fees, transportation cost, accommodation and subsistence cost and administration fees (including logistical arrangements for meetings, workshops, venues and catering). 8. Evaluation Criteria The bids will be evaluated using the two (2)-envelope process whereby the technical proposals will be evaluated first. The financial proposals of the qualifying tenderers will also be evaluated. To qualify, a tenderer needs to score 75% or higher in the technical component. The main criteria in the technical evaluation will be: 8.1 Methodology. 8.2 Work plan and time frames. 8.3 Knowledge, Qualifications and Relevant Experience of the key Team members (project team). 8.4 Consultants resources (Operational, Human & Commercial). 8.5 Affirmative action & BEE policies and achievements. 8.6 Namibian component & skills transfer. 9. GENERAL 9.1 The consultant shall provide the ECB with a proposal that contains a full technical and financial proposal inclusive of all costs. 9.2 The deadline for submission of proposals is 16:00 on 22 August Proposals should be submitted before the deadline date and time to the offices of the ECB, at 8 Bismarck Street, ECB House, Windhoek, Namibia. Electronic tenders or faxed tenders will not be accepted. 9.4 The ECB reserves the right to change the scope of this project subject to negotiations with the successful contractor. 9.5 No proposals will be accepted unless submitted in a plain, sealed envelope addressed to the Chief Executive Officer and bearing the word Tender followed by the tender number, RSS 2014/ RSS, and tender description Develop a technical, financial and economic toolkit for evaluating Renewable Energy projects. 9.6 Enquiries should be directed to Mr. Tonateni Amakutuwa, Financial Analyst, Tel , Fax , tamakutuwa@ecb.org.na. 9.7 The ECB retains the right to, at any time to change its criteria. 01/08/2014 Page 5 of 5