NERSA Consultation on REFIT Rates

Transcription

1 NERSA Consultation on REFIT Rates 5 May 2011

2 What is SAPVIA? The South African Photovoltaic Industry Association is a not for profit organization and represents a number of public and private organizations. Amongst other things, SAPVIA aims to:- represent the views of the PV industry, with as much consensus as possible, towards government and the wider public be the government s preferred communication channel with the PV industry promote growth in the PV industry across all business areas

3 Some of our Registered Members

4 Contributions made Over 30 companies provided us with input for this presentation and written response All with an active interest in the South African PV market, and many with international experience in REFIT based markets. 4

5 Overview of comments Cost of debt Return on equity CPI escalation CAPEX OPEX Overall program implementation 5

6 Cost of Capital Calculating Cost of Debt We recommend a 3 year projection of the JIBAR rate with 15 year swap should be used NOT the current JIBAR rate Base Rate, e.g. JIBAR Use 8.8% Premium for interest rate hedge Nominal Cost of Debt Bank Margin 6

7 Cost of Capital Calculating Cost of Debt Base Rate, e.g. JIBAR Use 8.8% A year interest rate hedge is generally accepted as normal, particularly for markets where interest rates are volatile. Premium for interest rate hedge Add 0.7% Nominal Cost of Debt Bank Margin 7

8 Cost of Capital Calculating Cost of Debt Base Rate, e.g. JIBAR Use 8.8% The all-in margin quoted by commercial banks in South Africa today, is typically in the range of 3.6% to 4.1%, with renewable energy projects ranging at the higher end due to the higher risk perception attached to first of their kind projects in the country. Premium for interest rate hedge Bank Margin Add 0.7% Add 4% Nominal Cost of Debt 8

9 Cost of Capital Calculating Cost of Debt Use an all-in nominal cost of debt of 13.5% 9

10 Cost of Capital Cost of equity Factors effecting investors return expectation Regulatory Delays Political Risk Unproven REFIT program Inflation rate risk Historical evidence Foreign exchange rate risk Real Return on Equity Cap on Allocation 10

11 Cost of Capital Real Return on Equity Wind and solar installations of 19GW will require R500bn To attract equity investors returns must account for the current risks perceived Particularly applicable to first round, where significant money has already been spent Increase the required real return on equity from 17% to 20% 11

12 CPI Rate CPI indexation of tariff ROE after tax * 100% 17.3% 75% 15.3% 50% 13.0% 25% 10.1% 0% 6.7% CPI indexation of tariff and tariff rate are inversely proportional. Apply CPI to full tariff and investors have more security 12

13 PV Capital Costs Excerpt from IRP 2010 It is still unclear as to which figure is being used for the overnight plant cost; however it appears from the REFIT paper that costs are based on Amorphous Silicon Basing the cost only on thin-film means taking an extreme view rather than a balanced approach Hidden costs in using cheaper but less proven technology should be taken into account 13

14 Capex Capex Use a turn-key price of 2.6EUR/W* installed, and disclose the cost assumptions used in NERSA model NOTE: this does not include Project development costs Upfront Financing Costs Interest during Construction *As of May 2011, subject to revision in accordance with market trends 14

15 Large scale PV has a specific cost and risk profile Complex Project Development with significant Costs Identify sites with best resources Negotiate use of land with owner Solar resource assessment Environmental Impact Assessment Site design and layout Submit planning application and EIA Power Purchase Agreement Procure modules, balance of system Secure access to grid Secure project funding Scale Effects reduce Turnkey Costs, but Allowance for funds under construction (Interests During Construction) needed Ensure realistic project development costs are included, use 10-12% for the first round Financial Close 15

16 PV Operation & Maintenance Costs Employing local contractors Grid Usage (undefined) Insurance Admin Costs with first time projects Security OPEX Conventional O&M costs for PV Add R100/kWp/yr Use R400/kWp/yr 16

17 PV Operation & Maintenance Costs Use an OPEX cost of R500/kWp equivalent to R0.32/kWh 17

18 Holistic View of REFIT Program There must be a long term transition from REFIT subsidy to conventional procurement methods when the industry is more mature or grid parities are reached Setting REFIT and procuring MW must closely linked One clear common vision between government departments and NERSA on entire REFIT program, covering price and procurement process. More regular and informative engagement with industry 18

19 Thank You! 19

20 Price? SAPVIA has provided all relevant inputs for generating a levelised cost of energy, however we need to see the PPA and the selection criteria before we can provide you with an accurate price. SAPVIA has been developing a financial model tool, on behalf of the industry, which we would like to share with NERSA, where tariffs can be projected forward to 2015 where risks based on the PPA and extra costs for local economic development can be included. 20