Mozambique Regional Transmission Backbone Project (“CESUL”): Technical & Economic Feasibility Study Presentation of Feasibility Study Report CESUL Launch Workshop Centro de Conferências Joaquim Chissano Maputo, 24 November 2011 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Presentation outline          Feasibility study objective & goals Feasibility study highlights Power market assessment Mozambique generation options considered CESUL technical feasibility Economic & financial feasibility CESUL project timelines Institutional and operational arrangements Conclusions & Recommendations © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Feasibility Study objective & goals Objective: • Provide technical and economic determination of least cost option for transfer of 3,100 MW north-south in Klicka här för att ändra format på underrubrik i bakgrunden Mozambique CESUL Project Goals: • Contribute to Mozambique’s economic and social development through facilitating improved access to electricity by: – Interconnecting the Mozambique power systems north-south, i.e creating a Backbone Transmission System – Supply electricity at affordable prices to load centres and consumers along the transmission system corridor • Facilitate realisation of Mozambique’s large power development potential, with particular focus on hydropower, for domestic and industrial use and bulk export of cost-competitive renewable energy to South Africa and Southern Africa © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Feasibility Study scope of work Review and update all information in previous studies and undertake: •Load forecasts (Mozambique / Southern Africa region) •Regional generation scenarios (for Mozambique Klicka här förexpansion att ändra format på underrubrik i bakgrunden candidate projects) •Power system studies – Minimum one (1) AC link north-south as a premise for acceptability of any alternative •Determination of substation locations •Line routes – HVAC and HVDC (incl electrode locations) •Preliminary engineering designs (lines & substations) and costing •Project packaging and implementation programme •Operational and control centre requirements, including organisation & training •Economic and financial feasibility analysis •Liaise with CESUL ESIA/RPF Consultant (separately appointed) The CESUL Feasibility Study builds on previous pre-feasibility study (2008) by Vattenfall Power Consultants and subsequent technical Optimisation Study (2009) © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Feasibility Study deliverables The Technical and Economic Feasibility Study report consists of the following documents: •Volume Klicka för attReport ändra format på underrubrik i bakgrunden I-A: härMain •Volume I-B: Appendices to Main Report •Volume II: Economic Impact Study (still being completed) •Volume III-A: Preliminary Design Report – HVAC and HVDC Transmission Lines •Volume III-B: Preliminary Design Report – HVAC and HVDC Substations •Volume IV: Line Route Report – HVDC Line •Volume V: Line Route Report – HVAC Line © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Key challenges encountered • Challenges to successful realisation of CESUL and the associated large (hydropower) generation developments include: – Project size and remoteness / distances involved Klicka här för att ändra format på underrubrik i bakgrunden – Technical requirements (to ensure high availability & reliability) – Cost competitiveness compared to alternative regional options – Amount of financing and commercial frameworks required – Integrated nature of generation and transmission developments, requiring alignment of stakeholder interests and high degree of coordination • Other key considerations include: – Devising transmission solutions in support of initial generation developments while facilitating long-term expansion to tap Mozambique’s energy potential – Ensuring sustainability and tangible benefits to local (Mozambican) economy from recommended technical and economic solutions – Minimising environmental & social impacts through line route selection – Dynamic and iterative nature of planning, analysis, structuring and financing © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Findings and Conclusions • Feasibility Study confirms technical viability of combined HVAC and HVDC transmission backbone solution for 3,100 MW (and more) power transfer capability • CESUL Phase investment costs (excl financing costs and IDC) are estimated at US$ 2,119Klicka million US$ 1,800 for Stage 1) här(of för which att ändra format på million underrubrik i bakgrunden – Phase financing requirement of ~US$2,780 million incl IDC & price contingency • Economic viability of combined hydropower and transmission backbone is robust • Financial viability and competitiveness of delivering electricity at Mozambique / South Africa border in southern Mozambique appears promising – Timely realisation of Mphanda Nkuwa project is key to commence CESUL development – Realising Cahora Bassa North Bank will allow complete CESUL Phase development – Cost of debt financing to be tested with market participants • HVAC solution will ensure interconnection of Mozambique’s national transmission grid, with increased access to electricity along line route • HVDC portion of transmission backbone is scalable – for initial CESUL Phase solution and beyond • Due to magnitude of project costs, a staged Phase realisation should be considered • CESUL development needs to continue without delay from early 2012 to align with planned timeframe for commissioning of hydropower project(s) © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Recommended CESUL Phase solution • CESUL Phase includes combined HVAC & HVDC solution • HVAC solution includes: • • 1,340 km 400 kV AC line for 900 MW continuous power transferKlicka at 400här kV,för butattwith 550format kV design of equipment ändra på underrubrik i bakgrunden 50% series compensation of AC line • HVDC solution (Phase 1) includes: • 1,275 km ±500 kV DC bipolar transmission line and converter stations with 2,650 MW capacity • 90 km transmission lines to Cataxa and Maputo electrodes • Implementation of HVDC solution is proposed staged: • Stage 1: ±500 kV DC line with 1,325 MW converter capacity • Stage 2: Additional 1,325 MW converter capacity • Project is proposed packaged and tendered as a limited number of contracts (indicatively 7) • Timeframe to implement Phase / Stage is 59 months: © Vattenfall AB • Design, tendering and contracting period: 17 months • Construction period: 42 months Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) CESUL Feasibility Study – Power Market Assessment © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Mozambique demand forecast - recent electricity demand growth trajectory (excluding Mozal) Klicka här för att ändra format på underrubrik i bakgrunden 10 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Financial viability – objective & approach • Objective of financial analysis: – Takes the view of prospective investors in CESUL – Establishes whether can be expected to achieve a Klicka här för att ändrainvestors format på underrubrik i bakgrunden satisfactory equity return • Approach: – Project financial income and costs are compared to situation without the Project – Analysis is based on discounted cash flow (“DCF”) modelling – Required USD based equity IRR of 16% after tax in nominal terms for CESUL, 17% for generation investments – Calculation of Project and Equity IRR, NPV and Financial Unit Energy Cost (“FUEC”) of electricity generated and transported – Same Generation scenarios as in Economic Analysis, i.e Scenarios to 3, including alternative with Scenario Stage only © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 42 Financial viability – assumptions • Main assumptions: – 30 years concession period – Electricity selling at på 10.5 USc/kWh at SA border Klicka här för attprice ändraset format underrubrik i bakgrunden • Based on estimated alternative cost of base-load supply (assuming Combined Cycle Gas-Fired plant using imported LNG) • 10% of MPNK (and CBNB) energy sold with 40% discount to EdM (as per term of Concession for MPNK) – 70/30% debt/equity ratio assumed – 8.0% - 8.5% interest rate on USD loans (including margin) • Debt financing assumptions to be tested and confirmed by CESUL Financial Adviser – VAT and excise duty exemptions assumed for Generation and CESUL – No income tax incentives assumed for CESUL – Tax regime for Generation projects assumed as per MPNK Concession 43 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Financial viability - results MUSD NPV Scenario Scenario Scenario Phase Klicka här för att ändra format på underrubrik i bakgrunden Total Financial NPV -39 293 389 Total Government take 200 793 897 826 Scenario Scenario Scenario Phase Scenario Phase Stage only Project IRR 13.0% 13.0% 13.1% 13.0% Equity IRR 16.0% 16.0% 16.0% 16.0% 5.78 2.95 3.26 3.64 CESUL Project Financial Results Break-even transmission tariff (USc/kWh) 216 Scenario Phase Stage only 44 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Financial viability – results (cont.) • MPNK + CESUL is a Sensitivities Scenario Scenario Scenario financially viable and robust Financial Unit costs Phase Phase solution (USc/kWh) – MPNK Stage only Construction cost + 20% 9.74 9.94 10.31 • Cost ‘penalty’ of CESUL Klicka här för att ändra format på underrubrik Construction cost + 10% 9.25 9.45 9.82i bakgrunden with combined HVAC and Base case 8.75 8.96 9.33 HVDC solution has (Unit cost at SA border) marginal impact only Construction cost - 10% 8.25 8.47 8.85 • Staged CESUL Phase Construction cost - 20% 7.75 7.98 8.36 development is viable • CBNB financial viability uncertain based on CESUL HVAC solution • CBNB viability improves when developed with MPNK and ‘complete’ CESUL solution with HVAC + HVDC • CBNB financial viability appears robust in combination with MPNK, based on recommended CESUL Phase solution © Vattenfall AB Sensitivities Financial Unit costs (USc/kWh) – CBNB Scenario Scenario 12.34 12.05 11.76 11.47 9.46 9.17 8.89 8.60 11.18 8.32 10.89 10.60 8.03 7.75 Construction cost + 40% Construction cost + 30% Construction cost + 20% Construction cost + 10% Base case (Unit cost at SA border) Construction cost - 10% Construction cost - 20% Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 45 CESUL Feasibility Study – Project Timelines 46 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Implementing CESUL – key steps • Key Project development activities – – – – – Appoint Consultant for Design, Specifications & Tender documents - Feb 2012 Commencement of Procurement process - Mar 2012 Klicka här för att ändra format på underrubrik i bakgrunden Approved tender evaluation - Mid Apr 2013 Approved contracts - Jun 2013 Financial Close of Project – Jul 2013 • Construction of Project Facilities – – – – Commencement of OHTL Construction Contracts – Mid Jul 2013 Commencement of Converter Stations Construction Contract – Mid Jul 2013 Commencement of Substation Construction Contracts – Nov 2013 Taking-Over of Project Facilities – Jan 2017 • Assumed timeline for associated IPP projects – Financial close MPNK – Mid-2013 – Commissioning of MPNK – 2nd half of 2017 – Commissioning CBNB ~ earliest mid-2017 (but could be later) © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 47 CESUL Phase – Indicative Project Programme Klicka här för att ändra format på underrubrik i bakgrunden 48 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) CESUL Feasibility Study – Institutional & Operational Aspects 49 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) Envisaged organisation of CESUL • CESUL Project size, technical nature and complexity, as well as the very large financing requirements, are all factors indicating that CESUL should be established as a Special Purpose Vehicle (“SPV”) härand för att ändra format på underrubrik bakgrunden – SPVKlicka model recommended structure willi be developed by CESUL Financial & Legal Advisors – EDM is expected to be lead Sponsor – Additional equity participation may be sought from credible international investors with relevant skills, experience and financial strength • Organisation structure, staffing and training programme for CESUL SPV should be clarified early to mitigate against operational risks • CESUL SPV will be granted long-term Concession under Mozambique law – Terms and conditions of the Concession need to be confirmed, including a Transmission / Wheeling charge methodology supportive of limited recourse project financing structures (part of mandate of Financial & Legal Adviser) – Relationships to EDM (as National Power Transmission Grid Manager), HCB, Motraco and other stakeholders must be clarified and formalised to ensure timely implementation of CESUL © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 50 Skills and training requirements Management of CESUL Transmission Company • Maintenance Management System Training Staff of new Dispatch Centres Klicka här för att ändra format på underrubrik i bakgrunden • Operator training • Maintenance engineers and technicians: hardware, software and communication equipment training HVDC and SVC Staff • • • • Project engineers, operation managers, control and protection specialists Engineers responsible for HVDC and SVC control and protection Technicians maintaining HVDC and SVC equipment Operators for HVDC link, remote and local control Maintenance staff of CESUL Transmission Company • Maintenance engineers and technicians: fault tracing and preventive maintenance of HVAC substations, as well as live-line maintenance Key staff should be in place and be trained during Project construction phase Complementary external maintenance support by suppliers is recommended © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 51 Control centre requirements New Control Centres • Generation and load growth in North/Central area • System expansion, load growth and interface with SAPP in South area Klicka här för att ändra format på underrubrik i bakgrunden • Hence, two (2) new National Control Centres are proposed Location • New NCC in (or near) Maputo SS • New SNCC in (or near) Matambo SS • Each CC equally equipped to be able to act as full back-up for the other • Existing Maputo RCC gradually transformed to Distribution CC for Maputo area Manning • Operation, each centre continuously manned with: − One chief operator and two assistant operators • Maintenance, each centre manned with: − One chief and two assistant SCADA maintenance engineers (in SNCC two assistant only) plus two telecom technicians © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 52 CESUL Feasibility Study – Conclusions & Recommendations 53 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) CESUL Feasibility Study – Conclusions CESUL is found to be technically and economically viable Recommended Phase design is a combined HVAC (400 kV) and HVDC (500 kV bi-pole) solution with high reliability, at a total cost of US$2,119m (funding requirement of ~US$2,780m), providing a transmission capacity >3,000 MW Klicka här för att ändra format på underrubrik i bakgrunden HVAC solution will ensure interconnection of central and southern parts of national grid, allowing for economic & social development along line route Phase solution is considered economically and financially robust, based on large-scale export of hydropower to South Africa, with significant revenue to GoM Phase facilitates implementation of MPNK and CBNB, with both projects found to be economically and financially viable in combination with CESUL solution HVDC portion of CESUL Phase can be implemented in two stages, allowing for staggered realisation of MPNK and CBNB if required (with MPNK assumed to be the first major hydropower development) Phase implementation is expected to take 59 months (of which 42 months construction time) Financing requirements for CESUL Phase are significant, with need for close coordination of generation and transmission developments to manage commercial and timing risks CESUL can be expanded by adding 2nd bi-pole with capacity of 2,650 MW © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 54 CESUL – Recommendations and Next Steps i Based on a targeted commercial operations date for MPNK by 2017, CESUL project preparation work has to commence early 2012 by progressing design, procurement and contracting arrangements Klicka här för att ändra format på underrubrik i bakgrunden ii In parallel, recommended legal, financial and commercial structures and arrangements need to be finalised iii Financial close of CESUL should be targeted for mid-2013 (to align with generation project timeframes) iv Early confirmation of CESUL equity sponsors (in addition to EDM) will be key to successful development v Timely and coordinated engagement with South Africa (Government and Eskom) will also be essential vi Consideration may be given to creation of a Mozambique Joint Coordination Committee for CESUL and associated hydropower projects © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 55 Obrigado / Thank you for your attention! com energia construimos futuro……… 56 © Vattenfall AB Technical & Economic Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) ... Feasibility Study builds on previous pre-feasibility study (2008) by Vattenfall Power Consultants and subsequent technical Optimisation Study (2009) © Vattenfall AB Technical & Economic Feasibility Study. .. Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) CESUL Feasibility Study – Power Market Assessment © Vattenfall AB Technical & Economic Feasibility Study for Mozambique... Feasibility Study for Mozambique Regional Transmission Backbone Project (“CESUL”) 19 CESUL Feasibility Study – Technical Feasibility Assessment 20 © Vattenfall AB Technical & Economic Feasibility Study