Renewable Energy: Developing Large-Scale Projects

Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi 23 June 2011
Doug Peel Matthew Wood

Introduction
Background
100MW concentrating solar power project largest in the world Located 120km south-west of Abu Dhabi in the UAE Joint venture between government of Abu Dhabi and consortium

comprising Total and Abengoa

Overview
Government Perspective
Regulatory Framework Solar Sector Considerations Contractual Structure Financing Structures
Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi White & Case 2

Government Perspectives
Part of Masdar Initiative
To make Abu Dhabi the preeminent source of renewable energy

knowledge, development, implementation and the worlds benchmark for sustainable development
First of planned series of solar power plants Broader plans for a sustainable city development, clean technology

investments, equipment manufacturing and research

Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi

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Government Perspectives

Facilitating measures proposed by Government

Access to land allocation and usage rights (particularly relevant for

solar projects)
Straightforward, streamlined or waived permitting and authorizations

Tax incentives (more relevant in other jurisdictions)

Benefits for foreign / private sector developers from direct

Government involvement

Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi

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Regulatory Framework

Government opted for a PPA model

i.e. one-off, project specific package and contractual terms ADWEA (state power and water utility) as sole offtaker Supplemented by a Green Payment Agreement the means by

which the Government can supplement the tariff payments to the project (can differ from project to project)

Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi

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Regulatory Framework
Policy based alternatives deployed in many other

jurisdictions
feed-in tariffs applicable to all qualifying projects i.e. minimum price for a certain period across the board the means by which the Government can supplement the tariff payments to the project consistent policy, no variation from project to project) a common approach, transparent appraisal for interested

developers most developed financing/investing environments appear to favour the long-term certainty of feed-in tariffs over the PPA model e.g. USA and many European jurisdictions
Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi White & Case

Sector Specific Considerations

Unproven technology / scale (especially for CSP over PV)
Reliability of irradiation data Back-up fuel supply (arrangements, reliability, stability of

pricing)
Maintenance issues (dust, logistics, etc)

Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi

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Contractual Structure
Offtake arrangements
PPA model (i.e. format in common with conventional ADWEA PPAs) Green Payments Agreement Termination Payment (i.e. borrowed from conventional ADWEA PPA

financings)

Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi

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Contractual Structures
Construction arrangements
Single lump-sum, turn-key EPC contract Completion risk / support No completion guarantee from Sponsors EPC Guarantee and Performance Bonds from EPC Contractor Performance testing (i.e. seasonal, untested, etc) Operational performance tests Associated payment milestones

O&M arrangements
Foreign Sponsor JV Maintenance reserve account to mitigate irregular maintenance

profile
Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi White & Case

Financing Structures
Debt/Equity mix
80:20 split (i.e. developers should be as aggressive as possible) Comparable to conventional IPP financings in Gulf region

Equity
Government involvement (i.e. Masdar/Mubadala) Bid process encourage competing consortia Industry players (i.e. Abengoa) Regional players with conventional / non-renewable leverage (i.e.

Total provides extra incentive for banks to participate due to existing relationships with Sponsors) Standby equity Acceleration of base equity upon Event of Default
Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi

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Financing Structures
Debt
Commercial Bank appetite Initial pioneer fears and reservations (i.e. absence of anything similar in the market, banks experience) Mixture of local and international relationship banks Prior exposure to conventional IPPs more likely than pure renewable expertise (i.e. tended not to view this as such) Oversubscribed in the end ECAs/IFIs would have been the natural alternative if such

Commercial Bank appetite had not been sufficient

Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi

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Conclusions
Commercial banks ARE prepared to finance large renewable

projects, even where technology or scale may be unproven

How? Well structured contractual framework Strong Government support / involvement OR regulatory framework Experienced, reputable Sponsors who each bring something to the table

Outlook is good Sources of funding are growing (i.e. ECAs, broader based of commercial banks) More jurisdictions are creating enabling regulations or policies Technology and industry players are developing and maturing

Shams 1: A Case Study of a Large Solar CSP Project in Abu Dhabi

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