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									                        Bidders‟ Guide to Power Purchase Programmes




________________________________
Bidders’ Guide to Power
Purchase Programmes
Overview of what they are and how they will
work
May 2008
_______________________________




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                                                        Bidders‟ Guide to Power Purchase Programmes




     The material provided in this document is meant only to provide a broad descriptive guide to certain
     key aspects of the various programmes discussed here, and is not meant to be either
     comprehensive or definitive. In all cases bidders should refer directly to relevant agreement
     documents for consideration of any and all of these matters.

     Bidder‟s are also cautioned that material changes might be applied to any or all of the documents
     referred to in this descriptive guide and the summaries provided here may become obsolete as such
     changes are made. Eskom does not intend to update this specific document to reconcile such
     changes if and when they are made to relevant agreement documents.

     Moreover, this briefing does not form part of an agreement between Eskom and bidders, and in any
     and all cases where this document is found to be inconsistent with agreement documents in
     meaning or intent, the agreement documents shall take absolute precedence.




slEconomics
Economics Consulting in Utilities and Infrastructure




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                                            Bidders‟ Guide to Power Purchase Programmes




TABLE OF CONTENTS




1     OVERVIEW                                                                       1
    1.1   MEETING SOUTH AFRICA‟S ENERGY NEEDS                                        1
    1.2   PRIVATE SECTOR PARTICIPATION IN POWER SUPPLY                               1
2     THE POWER PURCHASE PROGRAMMES AT A GLANCE                                      3
    2.1   PILOT NATIONAL COGENERATION PROGRAMME                                      3
    2.2   MEDIUM TERM POWER PURCHASE PROGRAMME                                       9
    2.3   BASELOAD IPP PROGRAMME                                                    11
    2.4   PROGRAMME COMPARISON                                                      12
APPENDIX A: PROGRAMME TIMELINES                                                     14

APPENDIX B: FREQUENTLY ASKED QUESTIONS                                              16




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                                              Bidders‟ Guide to Power Purchase Programmes




1 Overview

 1.1     Meeting South Africa’s energy needs
       Electricity is a strategic sector of the South African economy underpinning
       growth and developmental objectives set out by Government. Over the next
       few years, the country is expected to experience continued growth in
       electricity demand, driven by growth in the industrial, mining, commercial
       and domestic consumer sectors.
       As a result of higher than anticipated demand growth and limited investment
       in new generation infrastructure over the last 15 years, Eskom‟s generation
       reserve margin has fallen below 10%. This low level of reserve margin is
       well below conventional industry benchmarks, and Eskom plans to restore
       generation reserve margins to 15% in the medium term and to 19% on a
       long term basis.
       However, the reality of the Electricity Supply Industry is that there are long
       lead times to build needed infrastructure. On the generation side, fuel
       sources need to be secured, planning and environmental requirements must
       be addressed, sophisticated power generation equipment needs to be
       purchased, and extensive civil engineering works to be undertaken in
       building power plants. There are also the high voltage wires to put into place
       to connect power generation to major demand centres, and the lower
       voltage distribution network often needs to be upgraded to get this power to
       end use customers.
       These long lead times mean that a „horizon of approaches‟ must be
       undertaken together to ultimately meet South Africa‟s energy needs now
       and into the future. In the short term, demand side initiatives will play an
       important role. In the medium term, alternative supply side options become
       feasible and in the longer term, more traditional baseload power supply
       options can be relied on to secure the nation‟s position as an efficient and
       low cost power producer.

1.2      Private sector participation in power supply
       Eskom and Government are moving ahead on a number of demand side
       and supply side initiatives. Importantly - private sector participation will play
       a significant role in meeting the medium and long term power supply needs
       of the country. This is set within the context of Government‟s directive that
       30% of new generation capacity will be developed by the private sector.
       In light of these matters, three key programmes have recently been
       developed to procure power supply from the private sector:
             Pilot National Cogeneration Programme (PNCP)
             Medium Term Power Purchase Programme (MTPPP)




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        Multi-site Baseload Independent Power Producer Programme
         („Baseload IPP Programme‟)
These three key programmes are meant to each achieve separate but
related goals, and have been designed with the unique aspects of different
power developers needs in mind. For example, the very nature of
cogeneration facilities requires flexibility in operation of the facilities and
supply on an „as-available‟ basis, where as large stand-alone baseload
power generation facilities would be expected to supply on a more „firm‟
basis. The various terms and conditions of power purchase agreements
(PPAs) set out for each programme will reflect these fundamental
characteristics.
Moreover, each of these programmes will play a significant role in the
development of medium and long term power supplies. The PNCP and
MTPPP have been designed focusing on projects that can realistically be
commissioned in the short to medium term. Alternatively, it is recognised
that large baseload power plants will only be able to be built in the longer
term, and that commissioning of these projects would be aimed for over the
next five year or more. Again, the fundamental differences between these
two types of programmes (medium and long term) will be reflected in the
terms and conditions of a PPA as well as the price offering


Power Conservation Programme
In the short term demand side programmes are crucial to stabilising supply/
demand balances in the system. Eskom, in concert with Municipalities,
Government, and customers, is developing an Energy Conservation
Scheme (ECS) with the aim of reducing the need to load shedding in the
short term, and to enable sustainable growth in the sector for the long term.
While the details of the programme are still being refined, the criteria used in
designing it are to:
 •        Achieve a sustainable balance in supply and demand.
 •        Provide a framework that is simple to implement and administer.
 •        Set rules that are fair and equitable to all.
 •        Signal efficient use of electricity.
 •        Facilitate cost-effective outcomes.
 •        Minimise impact on customers.
Key features of the ECS are that it would establish baseline consumption
thresholds applying to various end use segments with penalties attached for
over-stepping these thresholds, and where proven practical, allow for
trading consumption allocations - or the „right to consume‟ (RTCs).




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2 The power purchase programmes at a glance
      While the many details underlying a PPA are complex by nature, there are a
      number of key aspects within each PPA that can be usefully summarised to
      highlight key similarities and differences between the various programmes
      underway. In this regard, the aim here is to help bidders form a broad view
      on which programme might best suit their needs, and for them to be able to
      better understand why certain provisions might vary between the alternative
      programmes.      As such, this summary is not intended to provide a
      comprehensive overview to any of the individual programmes, but is intended
      to provide a map for further exploration. A brief summary of the more unique
      aspects of each of the three programmes is provided below.1

2.1       Pilot National Cogeneration Programme
      Key objectives of the Programme
      The development of cogeneration facilities within South Africa has been
      identified as an important component of the overall strategy to obtain power
      supplies form the private sector in the medium term. In line with the National
      Energy Regulator of South Africa‟s (NERSA) position regarding the
      introduction of cogeneration into South Africa‟s electricity industry, Eskom is
      embarking on a process to procure approximately 900 MW of commercial
      cogeneration supply.
      The objective of the PNCP is to stimulate the development of cogeneration
      technologies in South Africa and in so doing contribute towards meeting the
      need for new generation capacity. The additional benefit here is that in many
      cases, early commissioning of facilities would be feasible, thereby providing
      needed capacity in the medium term. The duration of contracts is for up to 25
      years, so that this Programme provides a „bridge‟ from the medium term to
      the long term. The 25 year duration is also meant to support project finance
      arrangements that developers may wish to secure with their financiers.
      Bidders should further note that the specific objective of the PNCP is to
      stimulate cogeneration development in isolation from other types of
      development initiatives within the electricity generation sub-sector, e.g.
      renewables. The NERSA is moving ahead on a renewables policy, and the
      outcome of that initiative would likely provide an additional option for potential
      power developers. With this in mind, the requirements unique to renewables
      projects have not been catered for in the PNCP.
      Price incentives for early commissioning
       Keeping in mind that one key aim of the PNCP is to facilitate early
       commissioning of cogneration facilities, an Early Completion Incentive (ECI)
       has been provided for in the pricing arrangements. The ECI applies to the
       Base Energy Rate (price) for those projects that are able to achieve early
       commissioning of plant.

1
 With the aim of setting out some of the more unique components of the programme provisions, we note that we
have not discussed vital aspects of the PPAs more generic in nature, such as provisions for force majuere,
change in law, termination, change of ownership, etc. These are important matters, and bidders will need to fully
examine the details of each PPA accordingly.



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 The incentive works on a step basis over time whereby the Base Energy
 Rate is uplifted by a proportionally greater amount in the very early periods of
 the Programme, and reduces through to 2013. Keeping in mind that the
 duration of the contracts is for up to 25 years, the Base Energy Rate would
 be expected to be in line with long run cost of production.
 Bidders have the ability to bid in values up to the maximum as set out in the
 table below. That is, they can bid up to the Base Energy Rate plus the
 additional ECI % uplift for those years set out below.


 Early Completion Incentive
      Early Completion Period                          Early Completion Incentive
                                                       (uplift of Base Rate)

 Sub-period 1      1 May 2008 – 30 April 2010     Bidders may bid up to 45% ECI

 Sub-period 2      1 May 2010 – 30 April 2011     Bidders may bid up to 40% ECI

 Sub-period 3      1 May 2011 – 30 April 2013     Bidders may bid up to 30% ECI

 Note: bid ECI % is addition to the bid Base Energy Rate


 This declining step structure is meant to address short run constraints on
 South Africa‟s power supply and thereby recognises the added value of
 additional power sources in the next several years. Alternatively, the draw
 down (to the Base Energy Rate) by 2013 recognises that in the medium to
 long run more cost effective supply solutions will become available by way of
 lower cost baseload stations. From 1 May 2013 the Early Completion
 Incentive reduces to 0%. The ECI thus serves to fulfil two important
 objectives:
i)   It reflects current shortage of capacity and the value of early generation on
     the overall system and hence allows producers to sculpt prices in line with
     this; and
ii) It provides an incentive to producers to bring their plant on line sooner with
    the advantage of them being able to profile their prices in line with this and
    benefit from the incentive for longer


 Self dispatch energy supply
 Cogneration facilities will operate and sell power to Eskom on a self dispatch
 basis. The self dispatch nature of the PPA recognises the unique operating
 characteristics of most cogeneration facilities. Nevertheless, Sellers will
 provide in their signed PPAs generation profiles setting out on a monthly
 basis, for the full term of the contract, forecast energy to be generated by the
 cogeneration facility.
 Various allowances to these forecast generation profiles are made for both
 planned and unplanned outages, and performance-linked penalties are



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      attached where prescribed thresholds are breached (we discuss these in
      later sections).
      Off-set against Power Conservation Programme
      As broadly outlined in a previous section, Eskom is looking at policies to
      introduce a Power Conservation Programme (PCP) which may impact
      Bidders. To allow Bidders to use capacity of the Cogeneration Facility to
      satisfy obligations they may have under a PCP, provisions relating to the
      PCP will be inserted to the PPA once the Programme details have been
      finalised.
      Broadly the provisions will state that the implementation of a PCP will trigger
      an option for the Seller to (i) terminate the PPA within 2 months (without
      penalties) or (ii) elect to lower the Net Capacity contracted for, and the Seller
      will be free to “self-supply” or on-sell the remaining capacity (that is no longer
      subject to the PPA) without any restrictions or limitations for the remainder of
      the Term.
      Energy only payments
      A key aspect of this PNCP is that payment to Sellers is on an „energy only‟
      basis, and fixed capacity payments will not be provided. Sellers receive a
      Commercial Energy Payment for metered Net Energy Output (kWhs) for the
      period set out in the Fixed Term of the Agreement (i.e 7-25 years).
      The energy only payment structure is central to the design of this self
      dispatch PPA. Sellers have reasonable flexibility in regard to the operation of
      their facilities - albeit with strong financial incentives to operate. Alternatively,
      Eskom only pays for energy generated (metered deliveries of Net Energy
      Output).
      Broadly speaking, if cogeneration facilities are not in operation, they do not
      receive payments (aside from very special circumstances set out in the PPA).
      This energy only payment structure greatly simplifies provisions that would
      otherwise be needed where availability is contracted for (i.e. by way of
      capacity payments and penalties for non-performance) while providing
      needed operational flexibility to the cogenerators.
      Time of Use
      With operating efficiencies at the system level in mind, Energy Payments
      have been modified by defining Time of Use (TOU) Energy Rates (prices).
      The TOU approach is intended to provide greater incentives for cogenerators
      to operate during peak periods of demand, while also recognising that there
      is value to baseload power generation as well.
      For the purposes of this PPA, Peak Period is defined as 06h00 through
      20h00, with Off-Peak as 21h00 through 05h002. The TOU Factors for the
      corresponding TOU Periods are as follows:




2
 If the Fixed Term is in excess of 15 years, the Buyer may amend the TOU Periods, and the corresponding
TOU Factors, occurring in the period after such 15 (fifteen) years; provided that such amendments shall not
have a material adverse effect on the commercial benefits for the Seller over such remaining Term.



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  TOU Period                                  TOU Factors

  Peak                                              1.309

  Off-peak                                          0.485



Performance Factors
Unlike large stand alone generation facilities that can be centrally dispatched
and that may provide power on a „fully firm‟ basis - cogeneration facilities are
only able work on a self dispatch / „non-firm‟ basis. While there are clear
advantages stemming from the self dispatch and energy only payment
arrangements as applied to the PNCP, a counterpoint is that Sellers (without
the adjusting the Base Energy Rate by a Performance Factor) would be paid
the full price even if the plant‟s production drops significantly from what was
provided for under the generation profile provided in a bid. Poor performing
plants have less value to Eskom, thereby needing some form of price
adjustment for plants that do not operate within the planned supply
parameters set out in the PPA. This matter is addressed by a penalty type
arrangement in the form of the Performance Factor.
The purpose of the Performance Factor is therefore to:
      Reflect the lower value of unreliable power supply to Eskom.
      Provide greater incentive to the Seller to operate the cogeneration
       facility within the planned supply parameters set out in their bids.
The basic principle of the Performance Factor is that the Seller should
receive the full Energy Rate (price) if the plant is able to meet or exceed a
specified minimum production levels as referenced to its bid production
schedule. On the other hand, the value of non-firm energy is essentially
Eskom‟s variable cost of production which consists mainly of fuel costs. The
Performance Factor should therefore modify the price received to reflect the
facility‟s „firmness‟ (or in other terms - reliability).
The following factors have been addressed in design of the Performance
Factor under the PPA:
      Monthly plant performance is measured as a percentage and is the
       actual energy production (kWhs) in a month divided by the Sellers‟
       production schedule (submitted as part of the bid) for the same month.
      In order to cancel out the affects of planned maintenance shutdowns,
       seasonal variations and short periods of high unplanned breakdowns
       the measure of performance of the plant is taken over a 12-month
       period. The performance is measured as a percentage and is the
       actual energy production (kWhs) over any 12 consecutive months
       divided by the Sellers‟ production schedule (submitted as part of the
       bid) for the same period.
      It is recognised that production profiles are rather variable and
       uncertain for any single cogeneration facility. Alternatively, Eskom will
       be largely „diversified‟ from this risk given the number of facilities



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               (portfolio) that will be supplying under the PNCP. With this balance of
               risks in mind, the Performance Factor only starts to trigger when actual
               production for a given facility falls below 60% of planned production
               (over a 12-month period).
              At severely deficient operating levels, the price received by a Seller is
               reduced to 30% of the Base Energy rate, simulating Eskom‟s variable
               (avoided) costs.
              It is recognised that production profiles are rather variable and
               uncertain for any single cogeneration facility. Alternatively, Eskom will
               be largely „diversified‟ from this risk given the number of facilities
               (portfolio) that will be supplying under the NCPP. With this balance of
               risks in mind, the Performance Factor only starts to trigger when actual
               production for a given facility falls below 60% of planned production
               (on a 12 month rolling average basis).
              At severely deficient operating levels, the price received by a Seller is
               reduced to 30% of the Base Energy rate.
      The following diagram illustrates how the above approach is applied to
      determine the Seller‟s (average) price received with regard to the
      Performance Factor:




      Indexing, fuel costs and pass-through
      The energy only basis for payments is augmented by an escalation factor
      recognising general affects of inflation on project variable costs3. With this in
      mind bidders nominate the variable proportion of their costs (percentage of
      total cost) and that proportion is used with the RSA PPI in escalation of the
      Base Energy Rate.


3
  The full Energy Rate is indexed through through April 2013 to preserve the benefit of the ECI. There after only
the variable component is indexed.



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Under the PNCP, this indexing of variable costs is the only mechanism
provided to Sellers in regard to increasing fuel costs. Bidders take this risk
and must price it into their bids. The logic here is that cogenerators will be
primarily utilising waste fuels and should be able to manage these costs
accordingly.
The only pass through provided for is in regard to network use-of-system
costs. However, Bidders are reminded that network connection costs will for
their account and should be built into the price offered to Eskom




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2.2       Medium Term Power Purchase Programme
      Key objectives of the Programme
      Eskom is seeking to augment its short to medium term power supply under
      the MTPPP. The Programme is set up for power supply solutions ranging
      from 5MW to 1000MW that have the ability to reach commercial operation by
      at the latest 2012, and contracts will not extend past December 2018.
      Eskom will not prescribe the types of technologies or generation facilities to
      be developed under this Programme. By way of example (and by no means
      limited to) Eskom is anticipating the following types of generation options to
      be proposed, and will only require that they incorporate proven technology:
            New build.
            Incremental capacity increases to existing plant.
            Refurbishment of existing plant leading to greater efficiencies.
            Arrangements where third parties with available capacity (not
             necessarily the producer of such energy) may allocate capacity to
             Eskom.
      The aim here is to provide an option to project developers that have the ability
      to bring supply on line by 2012 or sooner, and that prefer not to have long
      term off-take arrangements in place. While not meaning to be prescriptive, the
      type of projects that might find this suitable are existing facilities that may
      already be depreciated, technologies that have shorter life cycles, or for
      developers that anticipate alternative uses of that capacity post 2018.
      The relatively short duration of the PPA probably means that project finance
      arrangements would not be feasible (or at least severely limited) under the
      terms and conditions of the MTPPP. The thinking here has been that the type
      of facilities most likely to rely on project financing would not in any case be
      able to be commissioned by 2012 (i.e. large greenfield projects). For those
      projects that do require project financing, the PNCP or Baseload IPP
      Programme would be better options to pursue as they have been designed
      with project financing in mind.
      Admittedly, smaller long lived renewables projects might not be well catered
      for by these Programmes, but as noted previously, NERSA is intending to
      implement a renewables policy in the near future and it is anticipated that that
      would offer a solution for then in regard to duration of contracts and ability to
      secure financing.
      Price incentives for medium term supply
      The pricing structure employed for the MTPPP recognises the value to Eskom
      of being able to secure power in a timeous manner, and with those
      commitments extending to 2018 at the latest. In this regard, some of the
      same broad logic in which the ECI is based on within the PNCP is applied to
      pricing in the MTPPP.




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     Noting the value of energy supplied to Eskom over the short to medium term,
     a sculpted price will be allowed that recognises the additional value of energy
     in the first years of the Programme, and that tapers off towards a long run cost
     of production in the later years of the PPA. For facilities that have useful lives
     in excess of 10 years, all rights to power supply would return to the Seller, and
     remaining capital costs would be recovered as they choose.
     Self dispatch energy supply
     The MTPPP is designed to cater to a range of facility types and sizes, and for
     this reason they will operate and sell power to Eskom on a self dispatch basis
     (as for the PNCP). Likewise as for the PNCP, bidders will provide generation
     profiles setting out on a monthly basis, for the term of the contract, energy to
     be supplied to Eskom from the facility, and various allowances will be made
     for both planned and unplanned outages.
     The MTPPP also anticipates that some projects will already have existing
     commitments in place regarding off-take, and that others may wish to retain a
     portion of capacity for own use. With this in mind, bidders are able to declare
     a level of Contracted Capacity, and the terms and conditions of the agreement
     will apply to that amount. This would also allow bidders to set aside capacity
     for any PCP obligations that might apply.
     Energy payments
     A number of key payment structures are broadly the same as for the PNCP.4
     Key features of the payment mechanisms similar to those of the PNCP are
     that:
              Payment to Sellers is on an „energy only‟ basis.
              There are no fixed capacity payments provided.
              Sellers receive a Commercial Energy Payment for metered Net
               Energy Output (kWhs).
              Energy payments are modified by TOU rates.
              A Performance factor is applied in cases where production drops
               significantly from what was provided for under the generation profile
               provided in a bid.
     However, indexing is rather different for the MTPPP, as there is a simple
     indexing of the full Base Energy Rate by the PPI, as opposed to the variable
     only component of the PNCP (after April 2013). There are no other
     adjustments made for fuel costs, and remaining risks are to be priced into the
     bid and then managed by the Seller.




4
 We note that there are some subtle but material differences in payment clauses, and that bidders should
closely examine the relevant PPAs in any case.



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2.3       Baseload IPP Programme
      In addition to the PNCP and MTPPP, there is a need to fill a long-term supply
      gap of at least 2 100 MW with baseload and dispatchable power in the 2012
      to 2016 period. As the designated Single Buyer of power from Independent
      Power Projects, Eskom together with Government has recently issued an
      Expression of Interest (EOI) for a Base Load IPPs (excluding nuclear) in the
      Republic of South Africa.
      Eskom will be the sole off-taker of power provided by the relevant facilities
      under a PPA with a term of up to 40 years from the date of commercial
      operation. A minimum size per project is 400 MW.
      Depending on the EOI responses to be received in early June 2008, it is
      expected that the next steps will be as follows:


            Request for Qualification (RFQ) will be issued at the end of June 2008
            Request for Proposal (RFP) will be issued in July 2008
            Tender award is expected in the 2nd Quarter of 2009


      The details of this Programme are being formulated and will be provided to
      bidders accordingly.




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2.4      Programme comparison
      While not meaning to imply that all aspects of these complex PPAs can be
      summarised in one short table, we have set out below some key aspects of
      the PPAs on a comparison basis for the three programmes examined in this
      Guide. We also note that all terms and conditions summarised below are
      subject to change.


      Comparison of power purchase programmes
                     PNCP*                   MTPPP**                Baseload         IPP
                                                                    Programme***

       Latest COD    Latest COD = 2012       Latest COD = 2012      Latest COD = 2016

       Duration      7 - 25 years duration   No later than 2018     TBD

       Dispatch      Self dispatch           Self dispatch          Central dispatch to
                                                                    be       determined
                                                                    (TBD)

       Technology    Cogeneration, 1 MW      Any    technology,     Any      technology,
                     or greater              5MW-1000MW             minimum size of
                                                                    project 400MW

       Payments      Energy           only   Energy          only   Capacity and energy
                     payments                payments               payments (TBD).

       Currency of   Rand                    Rand                   TBD
       payments

       Fuel supply   Seller        solely    Seller        solely   TBD
                     responsible for fuel    responsible for fuel
                     (and/or heat source)    (and/or heat source)
                     supply.                 supply.

       Fuel costs    No fuel cost pass       No fuel cost pass      TBD.
                     through other than      though other than
                     fixed indexing to       fixed indexing to
                     PPI.                    PPI.

       Indexing      Energy         Rate     Energy rate indexed    TBD
                     indexed by PPI to       by PPI.
                     2013, there after
                     only        variable
                     component indexed.




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Comparison of power purchase programmes (continued)

                        PNCP*                     MTPPP**                  Baseload           IPP
                                                                           Programme***

 Performance            Minimal bid and           No        bid   or       Anticipates industry
 bonds     and          performance bonds         performance bonds        standards           for
 liquidated             and       liquidated      required. Moderate       performance bonds
 damages                damages       noting      liquidated damages       and         liquidated
                        „energy         only‟     payments.                damages         noting
                        payment structure.                                 likelihood of capacity
                                                                           payments         being
                                                                           provided to sellers
                                                                           (TBD).

 Location               Any location in RSA       Any location in RSA      Any location in RSA
                        - subject to fit with     - subject to fit with    - subject to fit with
                        network.                  network.                 network, fuel and
                                                                           water.

 Rights           to    Seller allowed to use     Seller allowed to use    Buyer to be sole off-
 excess                 capacity in excess of     capacity in excess of    taker of capacity
 capacity               that contacted for        that contacted for       (and         energy)
                        own use, or to sell to    own use, or to sell to   provided   by    the
                        3rd parties.              3rd parties.             facility.

 Power                  Able to off-set PCP       Able to off-set PCP      No ability to off-set
 Conservation           obligations     from      obligations     from     obligations under the
 Programme              capacity          not     capacity          not    PCP or to trade
 (PCP)                  contracted for (and       contracted for (and      consumption rights.
                        trade consumption         trade consumption
                        rights if available       rights      available
                        under the PCP).           under the PCP).

 Pricing                Early     Completion      Sculpted        price    Long run cost of
                        Incentive reflecting      reflecting high value    production keeping
                        high value of power       of power in early        in mind the duration
                        in    early    years,     years, tapering to       of the PPA (TBD)
                        tapering to long run      long run cost of
                        cost of production in     production in later
                        later    years     of     years               of
                        Programme.                Programme.

 Renewables             No       renewables       No       renewables      No      renewables
 premium                premium.                  premium.                 premium (TBD)

* Based on PPA dated 20 March (revision2).

** Based on draft PPA posted on Eskom tender site1 April 2008.

*** PPA not yet available. Illustrative only.




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Appendix A: Programme timelines


PNCP procurement timeline
Item        Action                                                    Date

1           RFT issue date                                       4 October 2007

2           Complete and submit Notice of Intent to Respond      29 October 2007
            and Submit Bid Bond

3           Complete and submit confidentiality undertaking      29 October 2007

4           Bidders‟ Conference                                  7 November 2007

5           Final date for Bidders to submit completed           28 January 2008
            requests for improvements

6           Final date for Bidders to submit completed           15 November 2007
            APPENDIX E - Supplier Application Form

7           Final Date for Bidders to submit requests for        14 April 2008
            clarification

8           Bid Submission Deadline, including Bid Bond          30 May 2008

9           Start date for Project Site Visits by Eskom          30 June 2008

10          Announcement of Preferred Bidders                    20 September 2008

11          Deadline for submission of Completion Bonds          30 September 2008

12          Effective Date, i.e. Signature of PPAs               30 September 2008

13          Last date for Scheduled Commercial Operation         30 April 2012
            Date




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                                             Bidders‟ Guide to Power Purchase Programmes




MTPPP procurement timeline
Item          Action                                                   Date

1         Draft RFP issue date                                   31st March 2008

2          Where any party has already expressed an interest     30th April 2008
          in the Programme under the Notice of Request for
          Proposal and no longer intends to bid then it is
          requested to notify Eskom in writing of this fact.

3         Complete and submit confidentiality undertaking in     prior to submitting any
          the form together with the registration form for the   clarification questions in
          intranet site                                          relation       to     the
                                                                 Programme
                                                                                   th
4         Release of Appendix H and final form RFP               On or after 15         April
                                                                 2008

5         Bidders‟ Conference                                    21st April 2008

          Further Bidder Conference where Appendix H was         Bidders will be given 5
          not available to Bidders prior to the first Bidders'   days prior notice of this
          Conference.                                            conference.
                                                                  st
6         Final date for Bidders to submit completed requests    1 November 2008
          for clarifications
                                                                  st
7         Latest Bid Submission Deadline                         1 December 2008

8         Notification of Preferred Bidders in relation to       on or before 20th March
          Maximum Programme Price Bids                           2009

8         Last date for Scheduled Commercial Operation           30th June 2012
          Date




Baselaod IPP Programme procurement timeline
    The Baseload IPP Programme procurement timeline is being developed.
    Depending on the EOI responses to be received in early June 2008, it is
    expected that the next steps will be as follows:


    - Request for Qualification (RFQ) will be issued at the end of June 2008


    - Request for Proposal (RFP) will be issues in July 2008-05-09


    - Tender award is expected in 2nd Quarter of 2009.




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                                          Bidders‟ Guide to Power Purchase Programmes




Appendix B: Frequently Asked Questions
  What are the various power purchase programmes?
   Eskom and Government are moving ahead on a number of demand side
   and supply side initiatives. Importantly - private sector participation will play
   a significant role in meeting the medium and long term power supply needs
   of the country. This is set within the context of Government‟s directive that
   30% of new generation capacity will be developed by the private sector.
   In light of these matters, three key programmes have recently been
   developed to procure power supply from the private sector:
         Pilot National Cogeneration Programme (PNCP)
         Medium Term Power Purchase Programme (MTPPP)
         Baseload Independent Power Producer Programme („Baseload IPP
          Programme‟)


  Why are there so many programmes?
   Eskom‟s three power procurement programmes underway are meant to
   each achieve separate but related goals. The PNCP and MTPPP have
   been designed focusing on projects that can realistically be commissioned
   in the next several years. Alternatively, it is recognised that large baseload
   power plants will only be able to be built in the longer term, and that
   commissioning of these projects would be aimed for over the next five year
   or more. The Baseload IPP Programme has been developed with this in
   mind.
   Moreover, each of these programmes will play a significant role in the
   development of medium and long term power supplies. The PNCP and
   MTPPP have been designed focusing on projects that can realistically be
   commissioned in the next several years. Alternatively, it is recognised that
   large baseload power plants will only be able to be built in the longer term,
   and that commissioning of these projects would be aimed for over the next
   five year or more.
   Again, the fundamental differences between these two types of programmes
   (medium and long term) will be reflected in the terms and conditions of a
   PPA.
   These long lead times mean that a „horizon of approaches‟ must be
   undertaken together to ultimately meet South Africa‟s energy needs now
   and into the future. In the short term, demand side initiatives will play an
   important role. In the medium term, alternative supply side options become
   feasible and in the longer term, more traditional baseload power supply
   options can be relied on to secure the nation‟s position as an efficient and
   low cost power producer.




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                                       Bidders‟ Guide to Power Purchase Programmes




Who should apply for which?
 The three Programmes have been designed with the unique aspects of
 different power developers needs in mind. For example, the very nature of
 cogeneration facilities requires flexibility in operation of the facilities and
 supply on an „as-available‟ basis, where as large stand-alone baseload
 power generation facilities would be expected to supply on a more „firm‟
 basis. The various terms and conditions of power purchase agreements
 (PPAs) set out for each programme will reflect these fundamental
 characteristics. Perhaps the key aspect for project developers to consider is
 if they intend to build a large stand-alone baseload facility allowing for
 central dispatch (which the Baseload IPP Programme will require), or if they
 require self dispatch (allowed for under the PNCP and MTPPP).
 Of course there are a number of other equally critical matters to consider,
 and Eskom has provided a Bidder‟s Guide to set out some of the key factors
 that project developers will want to consider in choosing the right
 Programme.


Is it fair that Eskom pays me less for what I might be paying to Eskom?
 Eskom will be purchasing power on a wholesales basis, thus prices paid
 may well be less than what a customer might pay Eskom f the same MWhs
 of energy generated. The key factor to consider here is that Eskom‟s tariffs
 to customers must recover not only the cost of generation, but also the cost
 of high voltage transmission, distribution (where Eskom is the distributor)
 and overheads.      While the Programmes do factor in defined network
 benefits from a project, there will still be a material difference between the
 wholesale value of power generation and the all-up cost of energy supplied
 to end use customers.
 In a related point, we appreciate that in some countries „feed-in‟ tariffs are
 provided to power suppliers at or above end use tariff levels - usually with
 the aim to stimulate renewables. Eskom's power purchase programmes
 are specifically aimed at securing commercial energy at competitive rates. It
 would not be feasible to purchase commercial energy on a large scale at
 rates higher than those provided to customers.
 We do wish to note that NERSA is looking at various renewables options
 and a policy is expected to be developed to addresses those issues
 separately.


Can I change my PPA depending on the nature of PCP?
 Eskom is looking at policies to introduce a Power Conservation Programme
 (PCP) which may impact Bidders. To address this matter, provisions relating
 to the PCP will be inserted to PNCP and MTPPP agreements once the
 Programme details have been finalized (however it is not anticipated that
 there will be such provisions for the Baseload IPP).
 Broadly, under the PNCP and MTPPP the provisions will state that the
 implementation of a PCP will trigger an option for the Seller to (i) terminate


                                                                               17
                                      Bidders‟ Guide to Power Purchase Programmes




the PPA within 2 months (without penalties) or (ii) elect to lower the Net
Capacity contracted for, and the Seller will be free to “self-supply” or on-sell
the remaining capacity (that is no longer subject to the PPA) without any
restrictions or limitations for the remainder of the Term.
We again note that these provisions are not anticipated to be applied to the
Baseload IPP Programme.


Can overseas investors apply?
Yes - but the generation facilities will need to be located in the RSA.


Will renewables and other low carbon technologies be given
preferences?
These three Programmes do not cater specifically for renewables or low
carbon technologies.        NERSA is currently developing policies on
renewables, and it is anticipated that they will develop such programmes as
that policy is finalized.


Will there be any other power procurement programmes in the future?
Eskom is keenly focused on the successful completion of the three
programmes at hand, but there is always the possibility that in the future
there could be additional programmes depending on power generation
needs going forward.


Why is Eskom doing this instead of Government?
Government has directed that Eskom secure 30% of new power generation
from the private sector. The three Programmes here are in line with that
directive. We also note that the Baseload IPP Programe is a joint intitiative
between Eskom and Government.


Will end use customers be charged for the additional costs of these
power purchases?
The aim of all of these Programmes is to procure power on a commercial
basis so as to benefit end use customers. With this in mind, the cost of
these Programmes will be ultimately charged to customers much in the
same manner as the cost of Eskom self generation is charged to customers.
We also note that as a regulated utility, NERSA oversees Eskom‟s charges
to customers.




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