The World Bank South Africa - Eskom Renewables Support Project (P122329) REPORT NO.: RES34776 RESTRUCTURING PAPER ON A PROPOSED PROJECT RESTRUCTURING OF SOUTH AFRICA - ESKOM RENEWABLES SUPPORT PROJECT APPROVED ON OCTOBER 27, 2011 TO ESKOM HOLDINGS SOC LIMITED GUARANTEED BY THE REPUBLIC OF SOUTH AFRICA ENERGY AND EXTRACTIVES GLOBAL PRACTICE AFRICA REGION This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. The World Bank South Africa - Eskom Renewables Support Project (P122329) ABBREVIATIONS AND ACRONYMS AfDB African Development Bank BSP Battery Storage Program CSP Concentrating Solar Power CTF Clean Technology Fund DEA Department of Environmental Affairs DPE Department of Public Enterprises EA Environmental Assessment EESP Eskom Energy Storage Program EIA Environmental Impact Assessment EISP Eskom Investment Support Project ERR Economic Rate of Return ERSP Eskom Renewables Support Project GHG Greenhouse Gas GoRSA Government of Republic of South Africa GWh Gigawatt Hours IBRD International Bank for Reconstruction and Development IFC International Finance Corporation IP Implementation Progress IPP Indigenous Peoples Plan IRP Integrated Resource Planning KZN Kwa-Zulu Natal MoF Ministry of Finance MW Megawatt MWh Megawatt Hour NERSA National Energy Regulator of South Africa OCGT Open Cycle Gas Turbine OP Operational Policy PPA Power Purchase Agreement PPPFA Preferential Procurement Policy Framework Act PPSD Project Procurement Strategy for Development PV Photovoltaic RE Renewable Energy REIPPP Renewable Energy Independent Power Producers Program SDR Safeguards Diagnostic Review SIA Social Impact Assessment SSA Sub-Saharan Africa TFC Trust Fund Committee U Unsatisfactory US$ United Stated Dollar US$c United States Cent VRE Variable Renewable Energy WC Western Cape ZAR South African Rand The World Bank South Africa - Eskom Renewables Support Project (P122329) Regional Vice President: Hafez M. H. Ghanem Country Director: Paul Noumba Um Senior Global Practice Director: Riccardo Puliti Practice Manager/Manager: Wendy E. Hughes Task Team Leader: Frederic Verdol, Arsh Sharma The World Bank South Africa - Eskom Renewables Support Project (P122329) CURRENCY EQUIVALENTS Currency Unit = South African Rand (ZAR) Exchange Rate effective as of October 31, 2018 US$1.0 = ZAR 14.77 The World Bank South Africa - Eskom Renewables Support Project (P122329) TABLE OF CONTENT I- PROJECT STATUS AND RATIONALE FOR RESTRUCTURING…………………………………………………………………………… 9 Project Status………………………………………………………………………………………………………………………………………….….. 9 Rationale for Restructuring…………………………………………………………………………………………………………………..…….. 9 II- DESCRIPTION OF PROPOSED CHANGES…………………………………………………………………………………………………….… 10 Change in Sub-Component………………………………………………………………………………………………………………………….. 10 Change in Closing Date………………………………………………………………………………………………………………………………… 11 Change in Result Framework………………………………………………………………………………………………………………………… 11 Change in Project Financing Plan and Disbursement Estimates……………………………………………………………………. 11 Additional Covenant……………………………………………………………………………………………………………………………………… 11 Safeguard Policies Triggered…………………………………………………………………………………………………………………………... 11 III- DUE DILIGENCE AND APPRAISAL………………………………………………………………………………………………………………….. 12 Technical Appraisal……………………………………………………………………………………………………………………………………..… 12 Economic Appraisal……………………………………………………………………………………………………………………………………….. 13 Fiduciary Appraisal…………………………………………………………………………………………………………………………………………. 14 Safeguards Appraisal………………………………………………………………………………………………………………………………………. 15 IV- RISKS……………………………………………………………………………………………………………………………………………………………. 15 V- SUMMARY OF CHANGES………………………………………………………………………………………………………………………………. 16 VI- DETAILED CHANGES………………………………………………………………………………………………………………………………………. 17 Results Framework………………………………………………………………………………………………………………………………………….. 21 The World Bank South Africa - Eskom Renewables Support Project (P122329) BASIC DATA Product Information Project ID Financing Instrument P122329 Investment Project Financing Original EA Category Current EA Category Full Assessment (A) Full Assessment (A) Approval Date Current Closing Date 27-Oct-2011 30-Nov-2018 Organizations Borrower Responsible Agency Eskom Holdings SOC Limited ESKOM Holdings SOC Limited Project Development Objective (PDO) Original PDO To facilitate accelerated development of large scale renewable energy capacity in support of the long-term carbon mitigation strategy of South Africa. OPS_TABLE_PDO_CURRENTPDO Summary Status of Financing Net Ln/Cr/Tf Approval Signing Effectiveness Closing Commitment Disbursed Undisbursed TF-10690 27-Oct-2011 14-Nov-2011 25-Jul-2012 30-Nov-2018 250.00 34.93 215.07 Policy Waiver(s) Does this restructuring trigger the need for any policy waiver(s)? No The World Bank South Africa - Eskom Renewables Support Project (P122329) I. PROJECT STATUS AND RATIONALE FOR RESTRUCTURING Project Status 1. To achieve the project development objective (PDO) of ‘facilitating the accelerated development of large scale renewable energy capacity in support of the long-term carbon mitigation strategy of South Africa’, the original project scope consisted of a 100 MW pilot wind farm (Sere wind farm) and a 100 MW pilot CSP plant (Kiwano CSP) to diversify Eskom’s sources of electricity generation. Sere Wind has been in commercial operation since March 2015 and is performing beyond expectations. The project was however at a stand-still over most of the past two years due to issues related to Kiwano CSP. Eskom decided not to continue with the component and requested termination of the procurement process, after the two bids received were found to be non-responsive. As a result, since the completion of the highly competitive Sere wind component, the project disbursement has stalled at 14%, which is still the disbursement rate as of November 28, 2018. -2- The World Bank South Africa - Eskom Renewables Support Project (P122329) 2. The estimated allocation from all financing sources for the original scope of Component 2 (Kiwano CSP) amounted to US$1.197 billion to deliver 100 MW generation capacity and 525 GWh of clean energy per annum. The estimated joint financing mobilized for BSP is US$661 million – of which US$195 million from IBRD and US$273 million from CTF - for delivery of at least 525 GWh (1440 MWh storage per day) of energy through at least 360 MW of storage capacity -- 60 MW of cumulative new solar PV capacity (Eskom-owned) and enabling optimal use of 300 MW of Variable Renewable Energy (VRE) from the Renewable Energy Independent Power Producers (REIPP) program. Of this amount, at least US$468 million will be for battery storage and the balance for Eskom-owned solar PV plants and technical assistance, financed by Eskom and the African Development Bank (AfDB). Table 2: Funding Available for Eskom BSP by Financing Source Financing Source Amount (US$ million) IBRD 195 CTF (IBRD) 215 CTF (AfDB) 41 AfDB 210 3. The proposed restructuring involves a change in component, to grid-connected battery storage, more details of which are provided under “Description of Proposed Changes”. The project’s current PDO and implementation progress (IP) ratings are both Unsatisfactory (U), essentially due to the absence of implementation of the CSP component (no outstanding covenants or specific project management issues affected the project implementation). Rationale for Restructuring 4. The main rationale for the restructuring is to substitute Kiwano CSP with a Battery Storage Program (BSP), which would install batteries at some existing Eskom-owned and fully fenced-out substations close to locations where wind and solar photovoltaic (PV) feed into the Eskom grid. This would enable the PDO to be achieved. Battery storage is important for the key objectives of promotion of a low-carbon economic growth because it facilitates the integration of wind and solar PV plants into the grid. The project has been in problem status for the last two years, particularly due to lack of progress of the component subject to the restructuring. If not addressed the ratings will remain unsatisfactory until the project closes. 5. BSP is a suitable replacement for Kiwano CSP as it is a transformational technology that would enhance utilization of energy produced from fast-increasing Variable Renewable Energy (VRE) sources from the Renewable Energy Independent Power Producers (REIPP) program. Kiwano CSP was designed to be implemented by Eskom because at the time of project appraisal (in 2010), Eskom had already been working on preparing this project for over nine years and there was no private sector involvement in renewable energy, including CSP. However, due to delays in the procurement process and receipt of non-responsive bids for Kiwano CSP, the private sector (through the REIPP program) has now overtaken Eskom and is about to commence implementation of a CSP project of the same design as Kiwano. Thus, the learning experience on CSP will now be through the experience of the private sector. Battery storage of energy from VRE is a promising technology that is yet to be implemented commercially or for demonstration at the envisaged scale in South Africa and sub-Saharan Africa, so applying CTF and IBRD resources to this alternative is considered a better utilization of these scarce resources. -3- The World Bank South Africa - Eskom Renewables Support Project (P122329) 6. The proposed restructuring does not entail any (i) change in scope or nature of project objectives; (ii) change in implementation arrangements; or (iii) other amendments to the legal agreements. With the extension of the closing date the project’s PDO will be achievable, and the performance of the Borrowers become satisfactory. The World Bank has agreed upon actions with the Borrowers that will be undertaken to complete the project. II. DESCRIPTION OF PROPOSED CHANGES 7. The following six changes are proposed: (1) a change of activity in the project component 2, from CSP to BSP; (2) change in implementation schedule and closing date; (3) change in disbursement estimates; (4) change in the results framework to reflect the revised scope and project timeline; (5) change in legal covenants; and (6) updated appraisal to reflect the new activity in component 2. The project would also trigger the policy OP 4.10 on Indigenous Peoples. 8. . The proposed changes would not require any amendment to the PDO and environmental assessment (EA) category. Change in Sub-component 9. The BSP is a demonstration program that would be led and financed by Eskom. Source of funds would be IBRD (EISP project), CTF (ERSP project and CTF funds managed by AfDB) and AfDB (ZAR 3,000 million new loan to be approved on November 29, 2018). 10. BSP would consist of grid-connected electrochemical batteries at (a) Eskom-owned 100-Megawatt (MW) Sere wind farm, financed under the project); (b) 60 MW (cumulative) solar PV plant implemented by Eskom at the 42 sub- project sites; and (c) Eskom substations close to 300 MW of REIPP program plants in Northern Cape. The cumulative storage will be at least 1,440 Megawatt Hour (MWh), the size of energy storage capacity needed to meet the same targets (MW and greenhouse gas (GHG) offset in tCO2). A technical assistance sub-component would be added to (i) support the final design, procurement and supervision of energy storage infrastructure to be supplied through the project; (ii) strengthen Eskom technical capacity in sustainable operation and maintenance of large scale batteries; and (iii) prepare the enabling environment for further private investment in VRE capacity using storage. Change in Closing Date 11. The proposed restructuring would require an extension from November 30, 2018 to December 31, 2021. This change would allow implementation of the envisaged activities to be completed. Lessons learned from ERSP’s passed implementation and analysis conducted by energy storage experts show that thirty-six months would be required to complete implementation of a program of this magnitude. This schedule includes proactive actions undertaken to prepare procurement and implementation strategy, to recruit the Borrower’s technical advisor and to coordinate project preparation with project stakeholders’ technical and safeguards teams. 12. The proposed new closing date is December 31, 2021. Change in Results Framework 13. This change to BSP would require the following adjustment to the Result Framework: (i) a core indicator measuring the storage capacity (in MW) installed under the project would be added; (ii) the intermediate indicator measuring percentage of achievement of Upington CSP plant would be removed; -4- The World Bank South Africa - Eskom Renewables Support Project (P122329) (iii) end target of core indicator ‘CTF leverage’ would be adjusted to reflect private investment the program would leverage. Change in Project Financing Plan and Disbursement Estimates 14. There would be no change to the financing instrument, which would remain a CTF concessional loan. The estimated allocation from all financing sources for the original scope of Component 2 (Kiwano CSP) amounted to US$1.197 billion to deliver 100 MW generation capacity and 525 Gigawatt hours (GWh) of clean energy per annum. The estimated joint financing (CTF, IBRD, AfDB) for BSP is US$655 million for delivery of at least 525 GWh (1,440 MWh storage per day) of energy through at least 360 MW of storage capacity -- 60 MW of cumulative new solar PV capacity (Eskom-owned) and enabling optimal use of 300 MW of VRE from the REIPP program. Of this amount, at least US$468 million will be for battery storage and the balance for Eskom-owned solar PV plants (Eskom and AfDB- financed) and technical assistance. The disbursement estimates for the CTF loan through World Bank are as follows: 2019 (US$10 million), 2020 (US$80 million), 2021(US$80 million), 2022 (US$45 million). Additional Covenant 15. Two covenants will be added requiring (a) the Borrower to prepare, submit and disclose, in form and substance satisfactory to the World Bank, IPP and any environmental and social assessment in accordance with the Terms of Reference satisfactory to the World Bank for each activity under the Battery Storage Program for which the IPP is required prior to carrying out any Battery Storage installation activity on the site, and (b) the Borrower to refrain from carrying out any Battery Storage Program installation activity in a site which may be subject of an existing or outstanding land claim. 16. These covenants have been inserted as an Amendment to the Schedule 2 to the CTF Loan Agreement. Safeguard Policies Triggered 17. The Indigenous Peoples policy (OP 4.10) would be triggered with this restructuring, to take in account and manage accordingly issues related to Indigenous peoples for one site of the new project geographical scope. III. DUE DILIGENCE AND APPRAISAL Technical Appraisal 18. Based on the various reviews of proposals and discussions with Eskom teams, the World Bank and AfDB teams assess that Eskom’s battery program is technically feasible and supports an important step towards increasing the value and penetration of wind and solar energy into the grid, through demonstrating an approach to managing the variability of these energy sources and making VRE dispatchable1. It is in line with Eskom’s Corporate Plan, demonstrating ownership of this strategic direction. Eskom has hired a Technical Advisor to assist in more detailed feasibility work, planning, design, procurement and contact management. 1 Dispatchable generation refers to sources of electricity that can be made available at the request of power grid operators or of the plant owner according to needs of the power market. -5- The World Bank South Africa - Eskom Renewables Support Project (P122329) 19. Eskom has demonstrated substantial commitment towards the battery storage project as evidenced by its internal approval processes (as shown below): Table 2: Eskom BSP Internal Approval process Item Date Eskom Committee Government Depart. Status no. 1. February 19, 2018 Eskom Executive National Treasury Submitted letter to Minister of Committee (EXCO) (NT) NT requesting exemption of PPPFA. 2. February 28, 2018 Eskom EXCO - Supported the project 3. March 8, 2018 Eskom Board - (i) Approved the battery storage project as a replacement for CSP. - ii) Approved the signing of the power purchase agreement’s (PPA) of bid windows 4.0. 4 March 21, 2018 Eskom Group Capital - Designed Release Approval for and Investment further development to Committee (GCIMC) complete business case (released funding to proceed to project preparation). 5. April 30, 2018 Eskom Department of Public Draft pre-PFMA notification; Enterprises (DPE) submitted end May 2018. Approved. 6 October 23, 2018 Eskom GCIMC - Supported Execution Release Approval - business case. 7. November 5, 2018 Eskom CAPCOM - Supported Execution Release Approval - business case. 8. November 15, 2018 Eskom Investment - Supported Execution Release and Finance Approval – business case. Committee Economic Appraisal 20. The rationale for implementing BSP is dual -- to enable an increase of the share of VRE into the power mix and to improve the local and overall system reliability, thereby enabling more customers to be connected to the grid. As the proportion of VRE2 (wind and solar PV) in the South African power system increases, the need to quickly ramp 2 Variable Renewable Energy is an energy source that is non-dispatchable because it generates electricity only when the sun is shining or wind blowing – factors which cannot be controlled. To mitigate the problem this causes in power system operation, more flexible generation capacity is needed to be on standby, to be used when the renewable resource (solar and wind) is low. This is provided through sources like fossil-fueled gas turbines and hydropower. Storing some of the energy from the variable sources at times when not all of it is needed, through storage in batteries, ensures that the ramping up (see following footnote) is from the same renewable source, thereby replacing the fossil fuel alternative. -6- The World Bank South Africa - Eskom Renewables Support Project (P122329) up supply3 will also increase. Coal power plants cannot ramp up or down quickly, and battery storage could offer a sustainable solution. In addition, the increasing number of grid-related constraints (bottlenecks at distribution level, aging infrastructure) decreases the quality and reliabilty of supply, which could be addressed by introducing VRE with battery storage in close proximity to demand. The usual ways through which utilities address the two problems are installation of fossil-fueled peaking plant at such locations, installation of reactive compensation (capacitors) or increasing the size of distribution or transmission line conductors. The rationale for implementing BSP is dual -- to enable an increase in the share of VRE into the power mix and to improve the local and overall system reliability, thereby enabling more customers to be connected to the grid. 21. An economic analysis has been carried out for the ‘battery storage’ component only, as the Sere wind pilot has already been implemented and no economic analysis is needed for the technical assistance sub-components. From a baseline scenario comprising the current power system with the clean energy projects from REIPPP Round 4, the analysis estimates the benefits from adding the battery storage systems, assuming that these batteries displace energy at the evening peak for an average of 4 hours (4 MWh of daily energy displaced per MW of battery installed). Alternative to the batteries in the base case would be a greater use of the existing open cycle gas turbines (OCGT) to cope with peak demand ramp up and localized grid bottlenecks. The analysis estimates the viability of investing in the battery systems, against the economic cost of running OCGTs to cope with VRE variability and keep similar system reliability level. 22. The following assumptions were made to simplify the number of possible scenarios : a. the batteries would store and dispatch four hours of daily generation from VRE (ratio wind/solar in VRE mix and estimated generation costs deduced from the REIPPP data on VRE); b. only one use of the battery is represented, energy displaced to peak period (other uses like offset intermittency or grid frequency modulation would imply several cycles of charge/discharge per day); c. the alternative to new renewable energy (RE) injected through battery is OCGT4 as its energy would be displaced at daily evening peak; d. the social cost of carbon (avoided cost due to displacement of CO2 emissions) used for this analysis is US$35/tCO2 (based on World Bank Guidance Note for Social Value of Carbon in Projects, base value, 2020); e. battery load factor of 90 percent (reducing to 80 percent after 7,000 cycles and 70 percent after 10,000 cycles) and a battery replacement after ten years (based on technology with shortest life time, Lithium- ion battery). 23. The economic rate of return calculated from the project data - and using battery capital costs from the World Bank storage consultancy Electricite de France - Store and Forecast (EDF S&F) – provides a economic rate of return (ERR) at 1.2 percent. If we consider load factor decreases in time, and a fixed cost of VRE generation in the RE project life cycle, the net present value of the battery program appears to be negative (- US$139 million). When we factor in the cost of carbon offset, the ERR moves slightly to 3.1 percent, the amount of energy stored – hence CO2 offset - being relatively small compared to the investment cost. 24. As the main purpose of the battery is to maintain / increase system reliability by managing VRE intermittency and making VRE a dispatcheable resource, the system cost of failure (and then savings from avoided failure) should also 3 To quickly restore demand/supply balance, especially at times when the transition to peak demand is fast. For South Africa, Open Cycle Gas Turbine (OCGT) and pumped hydro plant are used for this purpose. Battery storage has a faster response time than OCGT and when the batteries are charged by VRE they provide a cleaner ramp-up option. 4 OCGT generation marginal cost estimated from Eskom annual report 2017at 97US$c/kWh. -7- The World Bank South Africa - Eskom Renewables Support Project (P122329) be included in the evaluation; this analysis would require a much more precise least cost dispatch approach and some robust assumptions on the impact of the grid. This more complex analysis is worth doing (ex post, through the technical assistance sub-component), as it would show the real transformational impact of battery storage into the South African grid. 25. Because of the pioneering role of this battery storage project, its assessment should not be limited to the amount of clean energy enabled and CO2 offset but the impact that the demonstration would have on maturing the technology, lowering costs and enabling scale-up. Concessional funding is needed at this stage to support maturity of the technology. Fiduciary appraisal 26. Procurement (National Treasury-‘Preferential Procurement Policy Framework Act’ exemption): Eskom required this exemption to apply the World Bank Procurement Guidelines/ Framework, which Eskom obtained in May 2018. Eskom is also working on a Project Procurement Strategy for Development (PPSD) to decide on the most appropriate procurement method for the project and avoid the issues experienced with Kiwano CSP. The following is an outline of the procurement plan for the first set of batteries to be installed by end-2020: f. Appoint of Technical Advisor: November 9, 2018 {completed} g. Complete PPSD: December 10, 2018 {in progress] h. Complete feasibility analysis: January 17, 219 {in progress] i. Finalize technical designs: February 14, 2019 {in progress] j. Finalize bidding documents: March 15, 2019 {in progress] k. Receipt of bids: April 30, 2019 {not started] l. Complete bid evaluation: June 2, 2019 {not started] m. Contract award approvals: August 21, 2019 {not started] n. Construction Completion: October 2021 {not started] 27. Eskom and Word Bank teams conducted technology and market reviews (visiting battery storage manufacturers in United States of America and China for both Solid State and Flow technologies) to assist them in deciding on the most appropriate procurement process. Eskom has prepared a Procurement Strategy, which is in the process of being revised to follow the PPSD template. Safeguards appraisal 28. Environmental: The project follows Operational Policy (OP) 4.00 (Piloting the Use of Borrower Systems to Address Environmental and Social Safeguard Issues). All the sites selected in the proposal would require a basic Environmental Impact Assessment (EIA) that takes about 197 days. There is an Eskom environmental representative for each of the four Distribution Operating Units: Western Cape, Eastern Cape, Northern Cape and Kwa-Zulu Natal (KZN). Eskom teams requested for proposals in July 2018 from independent EIA consultants as per Department of Environmental Affairs (DEA) requirements. As most of the sites are in the Western Cape (WC), there are six EIA consultants per group of sites in the WC. Two EIA consultants have been appointed for Eastern Cape, four for Northern Cape and four will be appointed for KZN where there are twelve sites. The basic EIAs will be -8- The World Bank South Africa - Eskom Renewables Support Project (P122329) conducted for each individual site such that each will have its own EIA approval (Environmental Authorization). Currently, indications are that a full EIA approval is required if the hazardous material volume increases above 500 cubic meters (5000 liters). Based on the high-level analysis the team conducted, indications are that there will not be hazardous materials volume of 500 cubic meters or more. Overall, Eskom anticipates that the entire environmental approvals process timeframe is six months per site (which will be carried out in parallel). A full EIA will also be carried out for Eskom financed and operated distributed solar PV sites which will include a battery storage component. The EIA process for this could take up to 18 months to finalize5. 29. Social: One of the project sites will involve acquisition of land from the Khomani-San community. This will require application of OP 4.10 (Indigenous Peoples Policy) since its equivalence to Country Systems was not considered in the Safeguards Diagnostic Review (SDR). Eskom has submitted terms of reference acceptable to the World Bank for the Social Impact Assessment (SIA) and Indigenous Peoples’ Plan (IPP). Until a SIA and an IPP acceptable to the World Bank are completed there will be no disbursement of the IBRD or CTF loan for this sub-project. A World Bank-appointed consultant will also conduct due diligence on the other sites to ascertain there are no legacy claims, prior to disbursement for these sites. 30. Regulatory (National Energy Regulator of South Africa NERSA): NERSA has decided that generation licenses will be required for Battery Storage systems. It will be a four-month license process. Eskom has engaged with NERSA and will submit a license application for each site in December 2018. Implementation of Eskom’s PV takes account of the licensing requirement. IV. RISKS 31. The overall risk rating of the project remains high. Current risk ratings are not being revised but below is a summary of the specific risks associated with the proposed restructuring and the key risks facing the project. 32. Eskom may not progress as planned on measures it is taking to address the issues of governance and internal controls: With appointment of a new board and management, and Government’s renewed focus on Eskom performance and enhanced oversight, such as ensuring that Eskom obtains Government approval of contracts and contract amendments above prescribed limits, the risk is considered low. In addition, Eskom financiers’ oversight has also increased, and Eskom meets with its main financiers to inform them on the progress made in addressing the issues and on Eskom’s financial performance. 33. Eskom’s poor financial position may continue: Eskom’s current assets in FY18 did not cover its current liabilities and Eskom had to service its debt through additional borrowing. The main factors were a lower than requested tariff adjustment, reduced demand and increased municipality arrears. While measures are being taken to address these issues, the situation is unlikely to affect the project since it is fully financed. In addition, Eskom’s large investment program is coming to an end and the financial projections show significant improvement in the next three years. 34. Technology risk may delay implementation: The risk is low since Eskom has been implementing a small battery storage pilot for the past three years and use of the technology worldwide is already being mainstreamed. The risk may be in integrating battery storage to the power grid and ensuring optimal dispatch. Eskom will ensure that this 5 These sites would come under CTF-only project financing, proposed to close in 2021. -9- The World Bank South Africa - Eskom Renewables Support Project (P122329) requirement is appropriately reflected in the bidding documents. Eskom has made and will continue to make study tours to learn from manufactures and developers and has appointed a technical advisor to support design and implementation. 35. Eskom’s lack of commitment may result in in BSP not proceeding: Refer to the table in paragraph 20. The proposed alternative has been approved at varies stages by Eskom’s Board and in Government. Before the change from Kiwano CSP the technology was part of Eskom’s Corporate Plan. Eskom considers the technology more important than CSP as it has the dual purposed of addressing low voltage and capacity issues at remote distribution terminals and enabling VRE to be dispatchable. The risk is therefore considered low. 36. The sheer number of Battery Storage sites could be a challenge in meeting the already tight timeline. The locations of the more than 40 sub-project sites are spread over four provinces of South Africa, which if not managed well could pose implementation difficulties. To address this issue Eskom plans to consolidate the sites into 3 or 4 large contract packages and has also put in place separate project teams to manage these packages. 37. Eskom’s lack of familiarity with OP4.10 could delay preparation of the IPP. To mitigate this risk the World Bank team is working closely with Eskom to ensure that Eskom and the consultant fully understand the Policy, the requirements and content of the IPP as well as its implementation requirements. 38. Ministerial Determination (DoE allocation/amendment) may be delayed: for Eskom to commence the development of 60MW of solar PV, under the Law the Minister of Energy must approve an allocation to Eskom (other than private sector). Currently, Eskom has an allocation of 100MW for CSP in Integrated Resource Planning (IRP) 2010, which will need to be changed to 100 MW solar PV. Eskom is currently engaging Department of Energy (DoE) and NERSA to amend the allocation. Government policy allows such amendment. The risk of this negatively impacting the project timeline is minimal since implementation of Eskom financed PV is expected to be completed by December 2021 and since Eskom has already commenced the process to amend the allocation. V. SUMMARY OF CHANGES Changed Not Changed Results Framework ✔ Components and Cost ✔ Loan Closing Date(s) ✔ Disbursement Estimates ✔ Safeguard Policies Triggered ✔ Legal Covenants ✔ Procurement ✔ Implementation Schedule ✔ Economic and Financial Analysis ✔ - 10 - The World Bank South Africa - Eskom Renewables Support Project (P122329) Technical Analysis ✔ Social Analysis ✔ Environmental Analysis ✔ Implementing Agency ✔ DDO Status ✔ Project's Development Objectives ✔ Cancellations Proposed ✔ Reallocation between Disbursement Categories ✔ Disbursements Arrangements ✔ Overall Risk Rating ✔ EA category ✔ Institutional Arrangements ✔ Financial Management ✔ APA Reliance ✔ Other Change(s) ✔ IV. DETAILED CHANGE(S) OPS_DETAILEDCHANGES_COMPONENTS_TABLE COMPONENTS Current Current Proposed Proposed Cost Action Component Name Component Name Cost (US$M) (US$M) 1. Sere Wind Power Plant (100 1. Sere Wind Power Plant (100 0.00 No Change 0.00 MW) MW) 2. Upington Concentrating Solar Marked for 2. Upington Concentrating 0.00 0.00 Plant (100 MW) Deletion Solar Plant (100 MW) 0.00 New Battery Storage Program 655.00 TOTAL 0.00 655.00 OPS_DETAILEDCHANGES_LOANCLOSING_TABLE - 11 - The World Bank South Africa - Eskom Renewables Support Project (P122329) LOAN CLOSING DATE(S) Original Revised Proposed Proposed Deadline Ln/Cr/Tf Status Closing Closing(s) Closing for Withdrawal Applications 30-Jun-2017, 30- TF-10690 31-Dec-2016 Mar-2018, 31-Jul- 31-Dec-2021 30-Apr-2022 2018, 30-Nov-2018 OPS_DETAILEDCHANGES_DISBURSEMENT_TABLE DISBURSEMENT ESTIMATES Change in Disbursement Estimates Yes Year Current Proposed 2012 0.00 0.00 2013 0.00 12,000,000.00 2014 0.00 10,000,000.00 2015 0.00 12,930,000.00 2016 0.00 0.00 2017 0.00 0.00 OPS_DETAILEDCHANGES_COMPLIANCE_TABLE COMPLIANCE Safeguard Policies Safeguard Policies Triggered Current Proposed Environmental Assessment (OP) (BP 4.01) Yes No Performance Standards for Private Sector No No Activities OP/BP 4.03 Natural Habitats (OP) (BP 4.04) Yes No Forests (OP) (BP 4.36) No No Pest Management (OP 4.09) No No Physical Cultural Resources (OP) (BP 4.11) Yes No Indigenous Peoples (OP) (BP 4.10) No Yes - 12 - The World Bank South Africa - Eskom Renewables Support Project (P122329) Involuntary Resettlement (OP) (BP 4.12) Yes No Safety of Dams (OP) (BP 4.37) No No Projects on International Waterways (OP) (BP No No 7.50) Projects in Disputed Areas (OP) (BP 7.60) No No OPS_DETAILEDCHANGES_LEGCOV_TABLE LEGAL COVENANTS Loan/Credit/TF Description Status Action Finance Agreement: LA: Schedule 2, Section 1.B | Description: The Borrower shall ensure that the Project TF-10690 Complied with No Change is carried out in accordance with the provisions of the Anti Corruption Guidelines. | Due Date :31-Dec-2016 Finance Agreement: LA: Schedule 2, Section 1.C.1. | Description: The Borrower shall implement the Project in accordance with the provisions of the Environmental TF-10690 Legislation, the Social Legislation, the EIA, the EMP, the Complied with No Change RPF, the RAPs, if any RAPs are required in accordance with the RPF, and the provisions of the Loan Agreement. | Due Date :31-Dec-2016 Finance Agreement: LA: Schedule 2, Section 1.C.2. | Description: The Borrower shall refrain from carrying out activities under the Project that would result in the involuntary resettlement of person or group of persons TF-10690 residing in the selected site for the CSP and Sere Wind Complied with No Change Power projects; provided, however, that if involuntary resettlement would be unavoidable, then the Borrower shall implement such activities in accordance with the RPF, incl. prep. of RAPs. | Due Date :31-Dec-2016 Finance Agreement: LA: Schedule 2, Section 1.C.3. | Description: Not later than one year after completion of Partially complied TF-10690 the implementation of a RAP, the Borrower shall cause No Change with an audit to be conducted by an independent qualified resettlement expert to monitor the outcomes of the - 13 - The World Bank South Africa - Eskom Renewables Support Project (P122329) RAP, including a survey and consultation with Displaced Persons, and which audit shall also define any necessary action to address any shortcomings in the implementation of said RAP. | Due Date :31-Dec-2016 Finance Agreement: GU: Article III, Section 3.01 (c). | Description: Guarantor to inform the Bank of any proposal to modify the Environmental Legislation and/or Social Legislation; and if in the opinion of the Bank, any aspects of the proposal would result in TF-10690 Complied with No Change adverse environmental or social impacts under the Project, to cause the Borrower to carry out the Project in line with the provisions of SDR or other environmental and social guidelines as agreed with WB. | Due Date :31-Dec-2016 ) the Borrower to prepare, submit and disclose, in form and substance satisfactory to the World Bank, IPP and any environmental and social assessment in accordance TF-10690 with the Terms of Reference satisfactory to the World Not complied with New Bank for each activity under the Battery Storage Program for which the IPP is required prior to carrying out any BS installation activity on the site. the Borrower to refrain from carrying out any BSP TF-10690 installation activity in a site which may be subject of an Not complied with New . existing or outstanding land claim. - 14 - The World Bank South Africa - Eskom Renewables Support Project (P122329) . Results framework COUNTRY: South Africa South Africa - Eskom Renewables Support Project Project Development Objectives(s) To facilitate accelerated development of large scale renewable energy capacity in support of the long-term carbon mitigation strategy of South Africa. Project Development Objective Indicators by Objectives/ Outcomes RESULT_FRAME_TBL_PDO Indicator Name DLI Baseline End Target Mitigating Carbon Footprint (Action: This Objective is New) GHG emissions avoided (Tones/year) 0.00 199,000.00 Action: This indicator has been Revised Enhancing Renewable Energy Capacity (Action: This Objective is New) Generation Capacity of Renewable Energy (other than 0.00 460.00 hydropower) constructed (Megawatt) Action: This indicator has been Revised Generation Capacity of Renewable Energy constructed – Wind 0.00 100.00 (Megawatt) Battery Storage Capacity Constructed (Megawatt) 0.00 360.00 Action: This indicator has been Revised Financing Leveraged (Action: This Objective is New) CTF leverage (Amount(USD)) 0.00 1,200,000,000.00 PDO Table SPACE The World Bank South Africa - Eskom Renewables Support Project (P122329) Intermediate Results Indicators by Components RESULT_FRAME_TBL_IO Indicator Name DLI Baseline End Target Sere Wind Power Plant (100 MW) (Action: This Component is New) Component 1: Sere Wind Farm construction progress 0.00 100.00 (Percentage) Battery Storage Program (Action: This Component is New) Battery storage capacity (Megawatt) 1.00 360.00 Action: This indicator is New Upington Solar (Action: This Component is New) Component 2: Upington Solar construction progress (Percentage) 0.00 100.00 Leveraging and Jobs (Action: This Component is New) Investments in clean generation as % of investments in electricity 0.00 17.00 generation (CTF Catalytic Replication Outcome) (Percentage) % of clean energy supply in the overall electricity consumption 0.00 3.00 (CTF Catalytic Replication Outcome) (Percentage) Investments in clean energy generation (CTF Catalytic Replication 0.00 1,900,000,000.00 Outcome) (Amount(USD)) Number of jobs created (Number) 0.00 800.00 IO Table SPACE