h2 business plan v- 1st sept 2011

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© H2 Worldwide Limited, Nigeria

Solar power generation in Nigeria

Business plan

H2 Worldwide Limited, Nigeria

DIRECTORS

PROF DAVID MBA BEng PhD CEng FIMechE FBINDT FISEAM;MR UZOMA NWAKUCHE LL.B MBA

Table of Contents

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Section 1 Executive SummarySection 2 IntroductionSection 3 The technology – power generation from solar energySection 4 Need for the ProjectSection 5 H2 strategic roll-out programmeSection 6 The Technical partnerSection 7 Project ManagementSection 8 Project Management and Delivery ArrangementsSection 9 Marketing and PublicitySection 10 Financial profileSection 11 ConclusionSection 12 References

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List of Appendices

Appendix A - CVs of Project Team MembersAppendix B - Support letter from National Energy Commission (NEC)Appendix C - Technical partner support informationAppendix D - Organisation chartAppendix E - Solar radiation breakdown at ‘Wudil’Appendix F - Projects costs and capital expenditureAppendix G - Operations and Maintenance costs (annual)

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1. Executive Summary

H2 Worldwide Limited (H2), Nigeria, is a newly formed company that aims todevelop power generation plants based solely on solar energy. A ten-year planto develop 1GW of solar Photovoltaic (PV) energy across northern Nigeriaforms the basis of H2’s strategic growth programme. The first stage of itsrollout plan involves the development of 50MW PV solar power plants at anestimated capital cost of $225m. Funding is sought from government grants,private investors and financial institutions.

H2’s technical partner, Titan Energy Systems, India, has proven expertise in PVmanufacture and turnkey solar PV power generation plants with amanufacturing capacity of several hundred mega-watts and an installed PVpower generating capacity of several Mega-watts in India.

H2’s strategic aims will contribute to economic, environmental and socialdevelopment for the population in northern Nigeria by improving energysupply, enhancing security of energy supply, reduction of green house gases,creation of jobs and improvement of social welfare.

H2 Worldwide Limited, Nigeria, (company no: 04135447) was incorporated in2011 and has two shareholders, Professor David Mba (50%) and Mr UzomaNwakuche (50%).

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2. Introduction

Infrastructure development for power supply is a key factor for poverty reduction andcontributes significantly to economic and social development. In Sub-Sahara Africathe access rate to electricity is generally very low [1]. This implies consumption levelsfar below levels in the developed world with West African consumption known to beextremely low (155 kWh/habitant/year) [1]. In comparison with other regions such asLatin America, Middle East, Europe, and North America, Africa has one of the lowestper capita consumption rates that are very heavily reliant on traditional biomass [2]. Ithas also been stated that the key challenge facing Africa is not to increase energyconsumption but to ensure access to cleaner energy services, preferably throughenergy efficiency and renewable energy thus promoting sustainable consumption.Unlike most industrialized countries which progressed from traditional energy tounsustainable conventional energy consumption patterns and which are nowstruggling to move to a sustainable energy path, Africa could, in a number of sectors,leapfrog directly from current traditional energy consumption patterns to sustainableenergy options [2].

Energy access is a key to poverty alleviation, the astonishing fact is that only 36% ofthe African population has electricity and more than 80% of its rural population hasnone [4]. This disquieting situation has not been improving, the rate of access tomodern energy in rural areas in some African countries has dropped to as low as 1%.Reaching the un-electrified rural population is often only possible throughdecentralised energy systems, due to low potential electricity demand and economicdevelopment in these areas and sometimes also for political reasons, grid extensionis not a feasible option. This is an exact reflection of the current electricity distributionin the Federal republic of Nigeria.

The high cost of energy transport and transmission infrastructure, such as highvoltage power lines, oil and gas pipelines, is one of the factors responsible for the lowprogress in expanding power generation plants and electricity distribution grids [4].Under these circumstances, Renewable Energy Technologies (RET’s), offer a cost-effective alternative solution to the extension of the national grid. Such technologiesinclude solutions for extracting power from wind, sun (solar), rivers and oceans (tidaland wave). It is the usage of sunlight to generate electrical power that forms thebasis of the business plan for H2. Indeed, the use of renewable sources of energy forimproving the nations electrical power output will contribute to the realisation ofimportant economic, environmental, and social objectives by the enhancement ofsecurity of energy supply, the reduction of greenhouse gases and other pollutantsand by the creation of employment, which leads to the improvement of social welfareand living conditions. These benefits cannot be understated.

The amount of increase in generating capacity required for Nigeria can bequalitatively assessed by consideration of the current population, typical power

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consumption per habitant and a comparison with other populous nations. Given apopulation of approximately 150 million and comparing this population to othercountries of similar populations, an approximate increase in generating power of upto 100GW is required to match other developing and developed countries, see figure5 [3]. The need for a large increase in generating capacity for Nigeria isunquestionable.

An additional 100GW of power is required in Nigeria over the next 20-years to meetthe nation’s economic development milestones, and, the anticipated energyconsumption demands. H2 plans to be part of the growth market and its contributionwill be based fundamentally on utilising the natural solar resource in northern Nigeria.The market will be targeted to townships, industrial clusters and local off-gridcommunities. Income will be guaranteed via a mixture of tools such as long termPower Purchase Agreements (PPA) and pay-on-demand arrangements with eitherthe national power generation company (PHCN), a power distribution company, astate government or individual users (industrial and/or domestic).

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3. The technology – power generation from solar energy

It is now widely accepted that for many rural locations an alternative to grid-connected power is required. Stand-alone Photovoltaic (PV) systems have beenconfirmed as an appropriate option for bringing electricity to rural communities andmodern townships. Moreover, this can be achieved with a centralized PV power plantthat may be classed as a mini-grid. A World Bank/UNDP study on rural electrificationprogrammes placed the average cost of grid extension at between $8,000 – $10,000per km, rising to around $22,000 in difficult terrains [4]. Whilst there are clearadvantages to off-grid rural communities, the availability of this source of power totownships and cities cannot be underestimated given today’s need for urgentincrease in power generation in Nigeria. Renewable options are becoming morepopular due to the steady increase of fuel prices, the elevated operating costs andthe high needs of maintenance of diesel generators, and their acoustic andenvironmental polluted nature. Although capital costs of renewable energy projectsare much higher than conventional generator-sets, there is a significant reduction inoperation and maintenance costs for PV plants in comparison to other conventionalpower producing system. This is in addition to all advantages associated with‘greener’ powers sources such as no emissions of carbon dioxide (CO2), nitrogenoxides (NOx) and sulphur dioxide (SO2).

Photovoltaics (PV) are best known as a method for generating electric power byusing solar cells to convert energy from the sun into a flow of electrons. Thephotovoltaic effect refers to photons of light exciting electrons into a higher state ofenergy, allowing them to act as charge carriers for an electric current. PV solar cellsproduce direct current electricity from sun light, which can be used to powerequipment or to recharge a battery. The first practical application of photovoltaicswas to power orbiting satellites and other spacecraft, but today the majority ofphotovoltaic modules are used for grid connected power generation.

Two approaches have been developed to capture the sun’s energy and convert it intoelectricity – solar thermal and solar PV. H2 have opted for the Solar Photovoltaicsystem that converts the sun’s light directly into electricity based on semiconductortechnology. The key components of a PV solar power plant are the solar panels,trackers, inverters and transformers as illustrated in figure 1. The solar PV plantmodel, as presented in figure 1, is that which H2 has adopted for its powergeneration scheme in Nigeria.

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Figure 1 Solar plant components

Key components of the proposed PV power plant include:

x Solar modulesx Module supporting structurex Invertersx Transformersx Control systems (SCADA)x Balance of systems (BoS)

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4. The Need for the Project

The key areas of need for this proposal fall into the following headings:-x The need for sustainable power generation within Nigeriax The need to reduce carbon emissions to combat climate changex The need to progress the development of a portfolio of renewable energytechnologies as a key part of the strategy to reduce carbon emissions

x The need to progress the development of a portfolio of local renewabledevelopments to secure local energy supply.

The need for sustainable power generation in Nigeria

The absence of an adequate electrification policy and weak commitment ofgovernments to allocate sufficient means for increasing the access to electricity hasbeen major causes in the past. There is now a clear awareness of the problem andan aggressive electrification programs have started in Nigeria. Whilst significantefforts are underway to expand the power generating capacity, all efforts inincreasing the access of electricity to population are useless without adequaterelated measures to increase the power distribution that can satisfy the demand. Thecurrent Nigeria government has acknowledged this and an extract from the‘Roadmap for Power’ [3] reiterates the urgent need for improved electrification inNigeria:

Energy access is a key to poverty alleviation, the astonishing fact is that only 36% ofthe African population has electricity and more than 80% of its rural population hasnone [4]. This disquieting situation has not been improving, the rate of access tomodern energy in rural areas in some African countries has dropped to as low as 1%.Reaching the un-electrified rural population is often only possible throughdecentralised energy systems, due to low potential electricity demand and economicdevelopment in these areas and sometimes also for political reasons, grid extensionis not a feasible option. The high cost of energy transport and transmissioninfrastructure, such as high voltage power lines, oil and gas pipelines, is one of thefactors responsible for the low progress in expanding national distribution electricitygrids [4]. A 2000 World Bank/UNDP study on rural electrification programmes placedthe average cost of grid extension at between $8,000 – $10,000 per km, rising to

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around $22,000 in difficult terrains [4]. Under these circumstances, RenewableEnergy Technologies (RET’s), offer a cost-effective alternative solution to theextension of the grid. It is this philosophy that forms the basis of the business plan forH2 Ltd. Indeed, the use of renewable source of energy for enhancing the nationspower requirements will contribute to the realisation of important economic,environmental, and social objectives by the enhancement of security of energysupply, the reduction of greenhouse gases and other pollutants and by the creationof employment, which leads to the improvement of social welfare and livingconditions.

Within Nigeria, the current grid generation capacity is put at approximately 3GWwhilst self generated power stands at over 6GW. This implies that twice the currentavailability from the grid is self-generated at a cost far in excess of the grid-regulatedtariff which stands at N8.5/kWh [3]. Self-generated electricity costs individualsapproximately:

- N80/kWh for candles and kerosene [3]- N60/kWh for diesel, petrol or LPFO [3]

A recent government review of tariff charges has recommended a new traffic for grid-generated power at N22/kWh [3].

It is now widely accepted that for many rural locations an alternative to grid-connected power is required. Stand-alone Photovoltaic (PV) systems have beenconfirmed as an appropriate option for bringing electricity to communities andtownships. Moreover, this can be achieved with a centralized PV power plant thatmay be classed as a mini-grid. In addition, when the location is far away from thegrid, grid extension is not an economically viable option and mini-grids are acompetitive alternative. Whilst there are clear advantages to off-grid ruralcommunities, the availability of this source of power to townships and cities cannotbe underestimated given today’s need for urgent increase in power generation inNigeria. Renewable options are becoming more popular due to the steady increaseof fuel prices, the elevated operating costs and the high needs of maintenance ofdiesel generators, and their acoustic and environmental polluted nature. Althoughcapital costs of renewable energy projects are much higher than conventionalgenerator-sets, there is a significant reduction in operation and maintenance costs forPV plants in comparison to other conventional power producing system. This is asignificant advantage that PV systems offer over more conventional methods ofpower generation.

The Evidence behind Climate Change and the Need to Reduce CarbonEmissions

Climate change is regarded by many as one of the most serious threats facing theworld's environment, economy and society. While there remain those who argue

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either that climate change is not happening to any significant extent, or who see it asno more than a natural stage in the cycle of the climatic system of the world, theconsensus of scientific opinion as presented to world governments by theIntergovernmental Panel on Climate Change (IPPC) is that there is a link betweenman's actions and a variety of climate-related issues such as rising sea and airtemperatures, rising sea-levels, melting ice caps and changes in the pattern andseverity of a range of meteorological conditions. The significance of climate changeeffects, linked to the fact that man has undoubted control over the way in which hemanages the environment (and in particular emissions of gases such as carbondioxide and methane), means that whatever doubts might be raised about theeffectiveness of taking measures to control greenhouse gas emissions, scientists andpolicymakers have concluded that these measures must be taken.

Even if the current level of greenhouse gas emissions is stabilised immediately, itmay take hundreds of years to clear the effects of the past 200 years. Climaticchanges will affect the whole planet and as can be seen in the Stern Review, theeffects are most likely to be felt (and are probably already being felt) by thosecountries whose populations are least able to help themselves.

The use of renewable sources as an increasing proportion of the total energyconsumption in Nigeria will seen by International community as a key part ofthe ultimate sustainable global solution.

The completion of phase-1 of the roll-out plan (50MW), see section 5, will providebenefits initially consisting of:

x Generation of renewable energy (up to 74 GWh/yr)x Contribution towards reduction in GHG emissions (estimated reduction inemissions of up to 14,000 tCO2 per year)

x Increase investment in emerging and innovative technologyx Opportunity to maximise the environmental, economic and employmentopportunities of the project’s local community

x The opportunity for increased revenue into the local supply chain through use oflocal contractors. Secondary tier benefits may be gained through contractingsupport service activities such as haulage requirements and overnight stays bycontractors/personnel working on the project.

x Knowledge transfer opportunities and enhanced awareness on energy relatedissues as well as climate change issues which will inform government policy.

The project will provide national benefit consisting of:-

x Enhanced awareness and understanding of climate change related energy issuesx Contribution to the Nigerian renewable energy targets

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x Contribution to the reduction in Carbon emissions targets

In addition the project will provide a research facility to the National EnergyCommission’s (NEC) centres of excellence for solar research, see letter of supportfrom NEC in Appendix B. Such centres will be able to have:-x An understanding of the efficiency and reliability of large scale PV units to enablefurther optimisation of such PV power plants to regional variation of irradiance.

x The opportunity for the national renewable industry, regulators, statutoryconsultees and public to better understand how the local environment in Nigeriacan benefit from solar energy.

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5. H2 strategic roll-out programme

H2’s rollout plans are based on developing PV solar power plant units rangingbetween 10MW to 100MW, up to a maximum capacity of 1GW, at various locationsthroughout the northern part of Nigeria; in regions of good solar irradiation, seehighlighted regions of yellow and red in figure 2. Solar irradiation refers to the totalenergy reaching the surface of a PV panel and consists of direct radiation and diffuseirradiance. Power utility units ranging between 10MW to 100MW will be installed inregions identified as offering the best balance between solar irradiation levels,availability of national and local grid networks, and, communities able to purchasepower from H2 limited. Each power plant must be financially viable as a standalonebusiness unit and with a defined customer base. As such each power plant will beself contained, secure, and manned by a plant manager and a small support team.The business plan of H2 involves rolling out its solar power plants in four stages overa period of 10-years, starting in March 2012, with each stage progression dependenton the success criteria of the previous stage. The solar PV power plant rollout stagesinclude:

o Stage 1 - 50MW total capacity Period: Months 1 to 18o Stage 2 - 250MW additional capacity Period: Months 18 to 48o Stage 3 – 300MW additional capacity Period: Months 48 to 82o Stage 4 – 400MW additional capacity Period: Months 82 to 120

Figure 2 Yearly global horizontal irradiation in Nigeria [5]

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Several PV power plants already exist around the world, even in areas of lowerirradiation than in the northern part of Nigeria. This is clear evidence of thepotential of employing such technology for generating electrical power innorthern Nigeria. Individual PV power plants in excess of 100MW are in existencetoday across Europe, America and Asia, whilst construction has started on muchlarger PV power plants. An example is the 80MW PV plant in Finsterwalde,Germany.

80MW PV plant in Finsterwalde, Germany

Other examples of PV solar plants across the world include:

1. Sarnia(Ontario), Canada 97MW 2. Montalto di Castro(Lazio), Italy 85MW 3. Turnow-Preilack, Germany, 72MW4. Olmedilla, Spain 60MW5. Boulder City, USA 50MW6. Gabardan, France 38MW7. Veprek, Czech Republic 35MW8. Geermu, China 20MW9. Seoul, Koera 20MW10. etc…….

It should be noted that all these sites are operational. In 2010 large scale PV plantswith cumulative power more that 3 GW were connected to the grid worldwide. Themarket leader was Germany with more than 1 GW new power capacity installedclosely followed by Italy and the Czech Republic.

H2’s roll-out strategy is based on the following:

� A simple and modular design� A staged and logical approach

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� Expert and highly experienced team� Robust management and financial processes and controls

Simple and modular design

In order to manage risk and in particular commercial risk the deployment of the PVtechnology will be in modular format that can be scaled up as and when required. Assuch H2 roll-out will be based on a minimum capacity of 10MW units. Thiswould imply a 100MW plant would consist of ten 10MW blocks. The start of anypower generation business, particularly in a very competitive market, is extremelychallenging, and as such the development and deployment strategy of H2 has beenfocussed to provide a low risk technical solution, to be as simple as possible inconcept and application. The PV technology that forms the basis of the powergenerating mechanism is based on proven technology, and the fundamental designphilosophy of the power plant is based on minimum technical risk, and minimalimpact on the environment. Much effort has been concentrated on operational cost,particularly the challenges faced in installation and deployment, and it is believed thata cost effective methodology has been developed.

The development, deployment and commissioning of the PV solar power plantproject will be carried out in the following stages:

x Selection of site for power plantx Design of power plant including solar panel requirements, mechanical andcivil design and site layout.

x Procurement of local services and equipments for undertaking civil andmechanical works

x Application for tax exemption on import goodsx Application for power generation licencex Importation of solar panels, transformers, inverters, etcx Civil and mechanical constructionx Commissioning and grid connectionx Monitoring and assessing the physical and environmental aspects of theproject

x Post decommissioning research and analysis with the National EnergyCommission (NEC), Nigeria, to explore and interpret the performance ofthe power plant so as to inform government policy on solar renewableenergy. See Appendix B for support letter from NEC.

The objectives associated with H2’s roll-out strategy are achievable because thedelivery of the project is assisted through:

x A project philosophy to keep the whole process as simple as possiblex Taking advantage of proven technical components for PV solar powergeneration systems

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x An experienced design and management team in H2 and its technical partner,TITAN, will oversee the project

x Project contractors will be appointed to capitalise on their specialist skills andareas of expertise in both the technical and environmental domains

In summary, measureable goals for this project are:

Outputs

x The primary measurable outcome of the first phase of this project is thegeneration of 50MW power.

Results

x The project will generate temporary permanent jobs in the local area.x Renewable energy generated – up to 74GWh/yearx Reduction in greenhouse gas emissions – up to 14,000 tonnes per year

Impacts

� Net reduction in greenhouse gas emissions� Net jobs created

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6. The Technical partner

The construction of a PV solar plant is a relatively simple and straightforwardexercise compared to the scope and complexity of construction arrangements forconventional thermal power projects. The components of a PV solar plant are usuallyprefabricated and their installation is a low complexity, assembly task that does notrequire highly skilled or specialist labour. Civil and electrical works for PV solar plantsare also relatively straightforward. Highly modular and repetitive nature of theconstruction and installation activities results in low interdependency between thesevarious activities, which may decrease the risk of delay in completion. Constructionrisk for a PV solar plant will typically be mitigated by a fixed-price turnkey contractand many panel manufacturers provide these services. Should the contractor or themanufacturer default; there may be replacement manufacturers available in themarket, which could be mobilised to complete the plant.

H2’s technical partner is TITAN Energy Systems, India. TITAN has an extremelyexperienced design team that has commissioned numerous solar plants. This worldleading research and development team with a track record of delivering projects of asimilar nature is available to support this project. Given the lack of manufacturingcapability and technical expertise in PV technology H2 limited have signed anagreement with TITAN, an internationally recognized company. Titan EnergySystems develops and manufactures high-quality solar photovoltaic modules. Theirstate-of-art manufacturing facility in Hyderabad, India is one of the largest productionfacilities in India. Titan also undertakes design, construction, operation andmaintenance of grid-connected and off-grid solar systems on ‘turnkey’ basis for endcustomers. Titan are developing 1GW of PV power units across India and developedthe first PV power utility in India (3-MW), see figures 3 and 4. TITAN ’s solar modulesfor international markets are certified by leading test centres, meeting stringentinternational test standards in TÜV Rheinland (Germany), Arsenal Research (Austria)and JRC (Italy). Appendix C presents further information on TITAN.

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Figure 3 Model of a 3MW utility plant developed by Titan in India

Figure 4 Titan’s solar modules

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7. Project Management

The Project Team will be comprised of the following:-x A team of highly experienced technical and managerial internal H2 staffx A team of expert contractors with proven record of manufacturing solar panelsand developing solar power generation plants.

x A team of local engineers and non-skilled staff

The management team will apply project management practice to monitor andevaluate project progress. The project plan, project programme, milestoneschedule and income and expenditure schedule (cash flow) will providenecessary monitoring tools. Project management will include careful integration ofall contractors to ensure equipment supplies and services are delivered in aholistic approach to the project. Risk management will be a key part of theprocess, with continuous risk review using a ‘live’ Risk Register.

Internal TeamThe management team at H2 has substantial experience with particular expertisein technical engineering, commercial management, project management anddevelopment management. CVs of key project team members including adescription of projects, dates, location clients and project size is provided inAppendix A.

Expert ContractorsH2’s business model for the execution of this project will bring together a team ofcontractors who collectively provide vast depths of expertise in their respectivefields. This team has been carefully selected based on proven technical capabilityand specific expertise in the fields of PV solar manufacture and deployment.Supporting information on TITAN Energy systems, India, can be viewed inAppendix C. Other contractors will be engaged as and when required to supportthe project.

The key management and staff functions considered necessary to deliver thisproject are illustrated in the Organisation Chart, see Appendix D, and a list of thekey management and staff functions is provided below:-

The Management Team for Phase-1 of the roll-out strategic plan will include:

1. Managing Directors (Mr U Nwakuche & Prof D Mba). To be the figureheads forH2 and to oversee the development of the company and its clean energytechnology at local, national and international level and be responsible for itspromotion in all spheres of the public and private sector.

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2. Technical and development Director (Prof D Mba). To oversee all keytechnical decisions in conjunction with H2’s partners, TITAN. Implement allconditional requirements of the operating consents for H2 includingaddressing issues on environmental impact.

3. Engineering Manager (to be appointed - To oversee all engineering andtechnical issues associated with the project and manage the technicalinterfaces between the designers, equipment suppliers and contractors. Toensure full compliance with all appropriate engineering standards adopted inthe design and manufacture of the device.

4. Finance and Contracts Director (Mr U Nwakuche). To manage the contractual,budgetary and programme related issues with all external designers,equipment suppliers and contractors.

5. Finance manager – to monitoring and account for all funds paid to contractors,received from customers, etc. This will be out-sourced to an accreditedaccounting firm.

6. Administration manager (to be appointed) – To offer provision of alladministrative support for H2 including IT support together with office facilities,heating, telephones etc.

Total staff of 22, which includes:

2 Directors4 Managers2 Administrative staff10 Operators and plant maintenance personnel (based on a 50MW plant site)4 Security personnel

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8. Project Management and Delivery Arrangements

Project plans and schedules are in place for the parallel activity streams associatedwith the procurement, manufacture, delivery, installation, testing and retrieval of thedevice. Budgets, cash flow profiles and milestone schedules are detailed in section10.

The H2 management team will apply project management practice to monitor andevaluate project progress. The project plan, project programme, milestone scheduleand income and expenditure schedule (cash flow) will provide necessary monitoringtools. A detailed project plan with all key milestones will be completed after thefeasibility and development stages. The team will have the following in place:

Project Managementx An organisational structure that clearly defines responsibility for managing anddelivering the project and demonstrates a clear separation of duties betweenthose responsible for receiving, checking and certifying invoices/other supportingdocumentation for eligible expenditure and those who authorise payment.

x A Microsoft Project Plan with key project tasks, milestones and critical paths.x A regular (monthly) review meeting led by the project manager to monitor andreview progress against the agreed objectives and targets.

x Progress monitoring reports detailing progress against milestones

Financial ManagementThe financial management will be outsourced to an accredited accountancy firm thatwill reported to the directors of H2. They will ensure protocols exist such that:x A finance system which ensures that claims only contain eligible expenditurewhich is supported by a full and clear audit trail.

x An audit trail runs from figures included in the claim forms through to supportinginvoices, bank statements and organisational ledgers

x A spreadsheet giving a complete list of transactions together with supportingaccounting documentation retained behind each copy claim.

x An adequate accounting code structure to segregate all transactions relating tothe approved project from other transactions.

x A project management system which distinguishes between eligible and ineligiblecosts for the project.

x For staff costs, there will be an audit trail from figures included in the claim formsthrough to supporting /payroll

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Application of project and financial management practices:-

A project plan, which identifies key milestones through the project period that arerelated to specific achievements and deliverables, will be developed during thedesign phase of the power plant. The milestone payment schedule will thereforeoptimise the relationship between costs and outputs, with project managementpractices applied accordingly.

Communication and Location Management Requirementsx The project will be led and project managed from the H2’s offices in Abuja,covering all aspects of the site development, technical development, build andinstallation of the power plant, and management of the test programme. Directoperational management of the device during installation, pre-deployment test,installation, commissioning and trials will be effected from site.

x A regular (at least) monthly project review meeting will be held, led by the projectmanager to monitor and review projects progress against the agreed objectivesand targets. Such meetings will be supplemented as required depending onprevailing circumstances and issues arising.

x Regular meetings will be held with all contractors to review progress againstagreed objectives and targets.

Throughout the project it will be possible to identify progress of delivery against theoutputs and results specific to the project.

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9. Marketing and Publicity

H2’s Administrative manager will be responsible for marketing the company’sproducts and attracting clients from both industrial and private customers. To supportthe Administrative manager, H2, will appoint a communications company to overseepublicity on local and national scales. Timely press releases and media interactionwill be managed, raising awareness of the technology solution and its contribution asa renewable energy source to the international quest for carbon reduction. Electronicinformation (e.g. websites, audio-visual material) will be developed as well asparticipation in Information Events such as Conferences, seminars, and/orexhibitions.

Management of the marketing and publicity will be the responsibility of theAdministration manager.

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10. Financial profile

Within Nigeria, the current grid generation capacity is put at approximately 3GWwhilst self generated power stands at over 6GW. This implies that twice the currentavailability from the grid is self-generated at a cost far in excess of the grid-regulatedtariff that stood at N8.5/kWh ($0.057/kWh) early in 2011 [3]. Self-generated electricitycosts individuals approximately:

- NGN80/kWh ($0.53/kWh) for candles and kerosene [3]- NGN60/kWh ($0.40/kWh) for diesel, petrol or LPFO [3]

H2 has set it unit selling price (tariff) at NGN30/kWh ($0.20/kWh). Target tariff forH2 is 50% less than the current biomass and diesel rates which are in excess ofNGN60/kWh ($0.40/kWh); offering significant costs savings to companies,government establishments and individuals in meeting their electricity demand. Inaddition, given that solar generation can only be achieved during day light hours, thepower produced by H2’s PV plants will be best suited to meeting peak demandswhich occur between the hours of 8am to 5pm.

At present the Nigerian government has set up a committee to ascertain tariffs forvarious forms of power generation sources and as such a fixed tariff is yet to bedetermined. Newspaper articles and commentators have suggested a fossil fueltariffs by January 2012 in the region of NGN22/kWh ($0.146/kWh); national levels forrenewable energy have yet to be set. However, given the anticipated tariff ofNGN22/kWh is 70% of H2’s target tariff, and the fact that tariffs for renewable energypower sources are higher than that for fossil fuels, it is very likely that the final tariff tobe set by the government will be in the region of NGN30/kWh.

H2’s market will be targeted at townships, industrial clusters and local off-gridcommunities. Income will be guaranteed via a mixture of solutions which include:

x Long term Power Purchase Agreement (PPA) with either the nationalpower generation company (PHCN), an electricity distribution company, orstate governments.

x Pay-on-demand – targeted at industrial clusters and local communities

Funding for Phase-1 of this project is sought to kick start the strategic objectives ofH2; it is anticipated that costs of PV solar systems will fall over the next few years toreach prices comparable to conventional fossil fuels making financing for the roll-outof other stages more attractive to investors. Financing for H2 is to be achieved withgrants from International and National ‘Renewable energy’ programmes; financialsupport from commercial banks, and, private and public investors. Approximately$225m of funding is ought for stage-1 rollout.

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Financial analysis

For this business/financial assessment a tariff was set at NGN30/kWh ($0.20/kWh).The site employed for analysis is located at Wudil (35 km from Kano). H2 will launchits first power plant in Kano state where there exists a large industrial sector andcustomer base. Appendix E details the analysis for a 50MW PV solar plant based inWudil, northern Nigeria and includes the amount of power generated annually duringperiods of sunlight and takes cognisance of seasonal variations. The output from thisanalysis is an export to the grid of 75GWh / yr.

Project capital costs

A summary of the project costs and capital expenditure for developing a 50MW PVplant is detailed in Appendix F and shows the average installation, capital andcommission costs is approximately $4.5/watt, which is in line with currentinternational rates for PV solar power plants. A total capitalisation of $225m forStage-1 of the rollout plan is required.

The initial capital costs will include a feasibility study, a development phase and anengineering design phase. The feasibility study includes:

- Site investigation- Resource assessment- Environmental assessment- Preliminary design- GHG baseline study- Assessment of solar irradiation levels- Travel & accommodation for engineers from technical partnersDuration – 8-weeks

The development and engineering phases include:- Complete detailed engineering design of solar plant (civil and

mechanical)- Environmental measurements on site for solar radiation, shadow

distribution, etc- Assessment of grid connection requirements- Solar panel manufacture program and selection- Project management programme- Travel & accommodation for engineers from technical partners

Duration – 12-weeks (concurrently undertaken part way through thefeasibility phase)

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Projected income

Annual income is based on power exported to the grid and the tariff set by H2, seetable 1.

Table 1 Annual income

Electricity exported to grid MWh 75,393Electricity export rate $/MWh 200.00Electricity export income $ 15,078,545

Operations and Maintenance (O&M) costs

Annual expenditure to cover salaries of directors, mangers and unskilled staff hasbeen included in the financial analysis. The total annual cost of O&M is $500K; abreakdown of individual costs associated is detailed in Appendix G.

Estimation of Net Present Value (NPV), cash flow and Internal Rate of Return(IRR)

The financial assessment undertaken is based on the following assumptions:

1. Project life of 25yrs2. Debt ratio of 80%3. Debt repayment duration of 8yrs4. Debt interest rate 7%5. Incentives/grants at $10million6. Tax free import duties7. Interest free period of 6-months8. All generated electricity is sold to customers9. Income tax 20%10. No income from ‘Clean generating energy’ incentives11. Fuel escalation rate 1%12. Inflation rate (tariff) 2%

A predicted yearly cash flow breakdown for 25yrs operation is presented in table 2whilst a cumulative plot of the cash flow is presented in figure 5.

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Table 2 Projected cash flow over 25yrs for 50MW plant

Yearly cash flowsYear Pre-tax After-tax Cumulative# $ $ $0 -35,040,000 -35,040,000 -35,040,0001 -15,451,662 -15,451,662 -50,491,6622 -15,309,568 -15,309,568 -65,801,2303 -15,166,156 -15,166,156 -80,967,3864 -15,021,414 -15,021,414 -95,988,8005 -14,875,330 -14,875,330 -110,864,1306 -14,727,894 -14,727,894 -125,592,0247 -14,579,094 -14,579,094 -140,171,1188 -14,428,918 -14,428,918 -154,600,0369 15,893,636 15,893,636 -138,706,40010 16,046,597 16,046,597 -122,659,80311 16,200,968 16,200,968 -106,458,83512 16,356,761 16,356,761 -90,102,07413 16,513,987 16,513,987 -73,588,08614 16,672,659 16,672,659 -56,915,42715 16,832,788 16,832,788 -40,082,63916 16,994,387 16,994,387 -23,088,25217 17,157,467 17,157,467 -5,930,78518 17,322,040 15,613,352 9,682,56719 17,488,120 14,864,902 24,547,46920 17,655,717 15,007,359 39,554,82821 17,824,844 15,151,117 54,705,94522 17,995,514 15,296,187 70,002,13223 18,167,739 15,442,579 85,444,71124 18,341,532 15,590,302 101,035,01325 18,516,905 15,739,370 116,774,38326 0 0 116,774,383

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Figure 5 Cumulative cash flow (Cumulative cash flow Vs number of yrs)

Investment output

A financial viability assessment is presented in table 3:

Table 3 Financial viability

Pre-tax IRR - equity % 4.9%After-tax IRR - equity % 4.4%Simple payback yr 14.8Equity payback yr 17.4

Net Present Value (NPV) $ 116,774,383Annual life cycle savings $/yr 4,670,975

This assessment shows a positive IRR of 4.9% before tax and a NPV of $117m;this implies a discount rate of 4.4% after tax. At detailed look at the sensitivityanalysis of the 50MW plant shows that an increase in the IRR and NPV could beachieved by any of the following: an increase in tariff, a reduction in debt interestand/or a reduction in capital costs; see tables 5 and 6.

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Table 5 Sensitivity financial analysis for Net Present Value (NPV)

Perform analysis on Net Present Value (NPV)

Initial costs $Electricity export rate 112,600,000 168,900,000 225,200,000 281,500,000 337,800,000

$/MWh -50% -25% 0% 25% 50%100.00 -50% 55,694,624 -6,078,897 -77,680,881 -149,282,865 -220,884,850150.00 -25% 147,096,190 86,234,504 25,372,817 -41,751,611 -113,353,595200.00 0% 238,497,756 177,636,070 116,774,383 55,912,696 -5,822,341250.00 25% 329,899,322 269,037,636 208,175,949 147,314,263 86,452,576300.00 50% 421,300,888 360,439,202 299,577,515 238,715,829 177,854,142

Electricity export rate $/MWhDebt interest rate 100.00 150.00 200.00 250.00 300.00

% -50% -25% 0% 25% 50%3.50% -50% -45,985,526 52,313,869 143,715,435 235,117,001 326,518,5675.25% -25% -61,569,410 39,067,568 130,469,134 221,870,700 313,272,2667.00% 0% -77,680,881 25,372,817 116,774,383 208,175,949 299,577,5158.75% 25% -94,300,705 11,245,967 102,647,533 194,049,099 285,450,66510.50% 50% -111,409,015 -3,877,761 88,105,469 179,507,035 270,908,601

Table 6 Sensitivity financial analysis for Internal Rate of Return (IRR)

Perform analysis on After-tax IRR - equity

Initial costs $Electricity export rate 112,600,000 168,900,000 225,200,000 281,500,000 337,800,000

$/MWh -50% -25% 0% 25% 50%100.00 -50% 4.5% -0.3% -3.2% -5.1% -6.5%150.00 -25% 12.2% 4.4% 1.0% -1.3% -3.0%200.00 0% 22.2% 9.2% 4.4% 1.7% -0.1%250.00 25% 37.9% 14.4% 7.8% 4.4% 2.1%300.00 50% 61.5% 20.6% 11.4% 7.1% 4.4%

Electricity export rate $/MWhDebt interest rate 100.00 150.00 200.00 250.00 300.00

% -50% -25% 0% 25% 50%3.50% -50% -2.0% 2.2% 6.0% 9.9% 14.1%5.25% -25% -2.6% 1.6% 5.2% 8.8% 12.7%7.00% 0% -3.2% 1.0% 4.4% 7.8% 11.4%8.75% 25% -3.7% 0.4% 3.7% 6.9% 10.3%10.50% 50% -4.2% -0.1% 3.0% 6.1% 9.2%

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11. Conclusion

o There is a huge requirement to increase the power generation capacity inNigeria to sustain and impact on economic and social development, in additionto reducing its emissions footprint.

o H2 propose a 10-yr program to install 1GW of PV solar power plants acrossthe north of Nigeria. The use of solar also ensures energy security and noemissions.

o Roll-out phase-1 involves the development of a 50MW plant in Kano state,Nigeria.

o An agreement between H2 and its technical partner, Titan, India, has beensigned.

o A 50MW PV solar plant would need 200 hectares of land – discussions are ongoing with Kano state government.

o Financing is sought from commercial banks, private investors and nationalgovernments for stage 1 rollout; capitalization is estimated at $225m for50MW.

o Income will be guaranteed by a long term Power Purchase Agreement andpay-on-demand schemes.

o Annual income from sale of power from a 50MW power plant, at NGN30/kWh,is $15m.

o The financial analysis shows a NPV of in excess of $115million and an IRR of4.9% before tax and 4.4% after tax.

o Grants from institutional bodies supportive of ‘Green technology’ would besought for up to a minimum $10m. Support financial support will be confirmedby Dec 2011.

o Project start date – March 2012

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12. References

1. UPDEA (Union of Producer, Transporters and Distributors of Electricity inAfrica) data of 2006.

2. African Energy Policy Research Network (AFREPREN/FWD).Nairobi,Kenya (Mr. Stephen Karakesi, Ms. Jennifer Wangeci and Mr.EzekielManyara in consultancy for the Division for Sustainable Development ,UNDESA

3. Roadmap for the power section, The Presidency, Federal Republic ofNigeria.

4. A New Scheme for the Promotion of Renewable Energies in DevelopingCountries:The Renewable Energy Regulated Purchase Tariff. EuropeanCommission Joint Research Centre Institute for Environment andSustainability, ISBN 978-92-79-08705-9 ISSN 1018-5593 DOI10.2790/11999; 2008

5. http://www.soda-is.com/eng/map/maps_for_free.html

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APPENDIX A CV’s

To be included

APPENDIX B SUPPORT LETTER FROM NATIONAL ENERGYCOMMISSION (NEC)

To be included

APPENDIX C (1/4) TECHNICAL PARTNER – TITAN

To be included

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APPENDIX D

ORGANISATION CHART

Total staff of 22, which includes:

2 Directors4 Managers2 Administrative staff10 Operators and plant maintenance personnel (based on a 50MW plant site)4 Security staff

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APPENDIX F

Capital costs for 50MW solar PV plant

Feasibility study $750,000.00

Development $750,000.00

Engineering $1,500,000.00

Sub-total $3,000,000.00Power system

PV modules $114,600,000.00

Inverters $16,000,000.00

Sub-stations $11,500,000.00

SCADA system $400,000.00

Sub-total $142,500,000.00Balance of system & misc.

BOS $13,500,000.00

Auxiliary power $2,000,000.00

Sub-total $15,500,000.00

Transportation costs

Ship freight $2,000,000.00

Land movement $1,500,000.00

Sub-total $3,500,000.00Construction costs

Module mounting $18,500,000.00

Land leveling $1,250,000.00

Module location dig $1,250,000.00

Civil materials $9,500,000.00

Civil construction $5,000,000.00

Installation $5,000,000.00

Commissioning $2,500,000.00

Sub-total $43,000,000.00Others

Insurance $2,500,000.00

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Contingencies $11,250,000.00

Temp storage $1,000,000.00

Road construction $0.00

Marketing $0.00

Spare parts $1,250,000.00

Accommodation $1,000,000.00

Training $500,000.00

Sub-total $17,500,000.00

Total capital cost $225,000,000.00

Average installation, capital and commission costs is $4.5/watt

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APPENDIX G

Operations & Maintenance costs (annual)

Annual income ($)

Directors

Mr Nwakuche $75,000.00

Prof Mba $75,000.00

Managers

Administration $40,000.00

Engineering $40,000.00

Operations $40,000.00

Staff

Administrators (2 off) $30,000.00

Plant operators (10 off) $100,000.00

Security (4 off) $10,000.00

Office rent / equipment $35,000.00

Pensions & medical

insurance $15,000.00

Contingency $20,000.00

Total $500,000.00

h2 business plan v- 1st sept 2011

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