Key Elements of a Wind / Solar PPP. Cathy Oxby Commercial Director Mob:

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Penelope Patterson
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1 Key Elements of a Wind / Solar PPP Cathy Oxby Commercial Director cathy.oxby@africagreenco.com Mob:

Global importance of wind and solar power Global investment in renewable energy broke a new record in 2014, reaching $270 billion up from $232 billion in 2015.

2 Global importance of wind and solar power Global investment in renewable energy broke a new record in 2014, reaching $270 billion up from $232 billion in Investment in developing countries was up 36% to USD billion, almost matching developed economies, which reached USD billion in 2014, up only 3% from Solar power and wind were the leading technologies by far in terms of dollars committed, with solar power (mostly solar PV) accounting for more than 55% of new investment in renewable power and fuels, and wind power taking 36.8%. Renewable technologies playing a growing role via household and mini- and micro-grids - largely because renewables are cheaper and more convenient than conventional options. Source: REN21, 2015 Global Status Report, Paris, REN21 Secretariat

3 The wind of change Wind energy is the least-cost option for new power generating capacity in an increasing number of locations, and new markets continued to emerge in Africa, Asia, and Latin America. Wind power met more than 20% of electricity demand in several countries, including Denmark, Nicaragua, Portugal, and Spain. Global wind power market resumed its advance in 2014, adding a record 51 GW the most of any renewable technology - for a year-end total of 370 GW. An estimated 1.7 GW of gridconnected capacity was added offshore for a world total exceeding 8.5 GW. Source: REN21, 2015 Global Status Report, Paris, REN21 Secretariat

4 Key requirements of successful wind & solar PPPs Long term reliable cashflows Transparent and stable regulatory framework Political and popular support Appropriate and bankable risk allocation Appropriate technology Grid suitability

Long term reliable cashflows Creditworthy offtaker Liquidity support Letter of credit / escrow account Credit enhancement through sovereign guarantees / Partial Risk Guarantees / Political Risk

5 Long term reliable cashflows Creditworthy offtaker Liquidity support Letter of credit / escrow account Credit enhancement through sovereign guarantees / Partial Risk Guarantees / Political Risk Insurance Innovative new structures (Africa GreenCo) Bankable Power Purchase Agreement and Implementation Agreement, including: Take or pay obligation Buyer to accept intermittent generation profile Protection against grid curtailment Compensation for buyer default Protection against change in law Conducive legal, regulatory and political enabling environment Certainty of long term tariff No retrospective legislation

6 Transparent and stable regulatory framework Publically available transparent PPP guidelines 73% (rated essential or extremely important ) Integration of PPPs into energy policy 69% Objective selection criteria 80% Adherence to timetable 80% Independent regulatory controls over tariffs 77% Political and popular support Strong political, public and institutional support 96% Consistent with national policy agenda, Paris Agreement INDCs Land and planning considerations Involvement of local communities Stimulus for national industry Morocco Source: UNECE Renewable Energy PPP Survey 2016

7 Countries with renewable energy policies and targets Source: REN21, 2015 Global Status Report, Paris, REN21 Secretariat

Appropriate and bankable risk allocation Risks allocated to the party most able to manage / mitigate Standardized, bankable transaction documents 83% Protection against political risks What?

8 Appropriate and bankable risk allocation Risks allocated to the party most able to manage / mitigate Standardized, bankable transaction documents 83% Protection against political risks What? Ø War Ø Riot Ø Expropriation Ø Currency convertibility / repatriation Ø Consents / authorisations Ø Change in law How? Ø Implementation Agreement Ø Sovereign guarantee Ø Partial Risk Guarantee Ø Political risk insurance

10 Risks the public sector should bear v Grid payment based on generation meter at delivery point within the project site / deemed energy payments for grid unavailability Right to resize project due to grid constraints 85% Right to undertake transmission interconnection works and recover cost 71% v Permitting Schedule extensions and cost recovery for permitting delays beyond project company control 85% Right to resize project due to permitting issues 85%

11 Risks the private sector should bear v Design and construction risks including cost v Technology v Performance (other than grid) v Wind / solar resource v Power price (usually backed off through long term PPA) v Financing cost (usually backed off through long term debt)

12 Compensation on termination IPP Default Offtaker Default (Natural & Political) Force Majeure Debt Usually Yes Yes Equity X Yes [Perhaps] Return on Equity X Yes X

Appropriate technology and scale v Importance of resource assessment wind / irradiation studies v Other practical considerations levels of dust, bird

13 Appropriate technology and scale v Importance of resource assessment wind / irradiation studies v Other practical considerations levels of dust, bird populations v tried and tested v predictable, maintainable, spare parts available v Availability of skilled maintenance contractors v Size reflects demand and location

14 Grid suitability v Grid able to accommodate intermittent generation v Impact of variable generation on baseload power stations v Ability of grid operators to balance v Development of storage / battery technologies

15 Plenty of appetite for the right opportunity In our experience, there are currently (2016) significant amounts of equity looking for investment opportunities in renewable energy IPPs/PPPs, but a limited number of bankable project opportunities in emerging markets such as Africa. In these markets deals take too long and the financing issues highlighted above are the key obstacles. There is a lot of equity looking for projects in Africa, but not enough bankable projects. Land rights are uncertain, credible local partners are few, there is a lack of capacity in governments and state utilities and difficulties putting in place long term financing. Source: UNECE Renewable Energy PPP Survey 2016

UNECE Global Standards for Renewable Energy Survey English: h<ps://www.research.net/r/nfryjld French: h<ps://www.research.net/r/5cc8x97 Russian: h<ps://www.

16 UNECE Global Standards for Renewable Energy Survey English: h<ps:// French: h<ps:// Russian: h<ps:// Spanish: h<ps:// Please complete by 15 th April. Thank you!

Trinity International LLP. Ana-Katarina Hajduka

Trinity International LLP. Ana-Katarina Hajduka Trinity International LLP Ana-Katarina Hajduka Renewable Energy PPPs Wind and Solar By Ana-Katarina Hajduka (anakatarina.hajduka@trinityllp.com) October 2013 Wind and Solar Power - some interesting facts