- Expert group meeting / Tunis 3-5 October 2012 - Innovative mechanisms for financing renewable...

- Expert group meeting / Tunis 3-5 October 2012 -

Innovative mechanisms for financing renewable energy projects in North Africa

MSP Project-pipeline and analysis of financing strategies

Martin Ehrlich (PWMSP)

The contents of this publication are the sole responsibility of the authors and can in no way be taken to reflect the views of the European Union

The views expressed in this publication do not necessarily reflect the views of the European Commission

1. MSP and PWMSP2. MSP Investment Pipeline3. RE financing4. RES-e economics5. Large scale RES-e financing – ongoing debate

Scope of the presentation


1- MSP and PWMSP

MSP projects and financing strategies


Project activities

Task 1 – Harmonised legislative and regulatory frameworkTask 2 – Transfer of knowledge and capacity buildingTask 3 – Support to the implementation of sustainable energy

policiesTask 4 – Support to investmentTask A – Mediterranean gridTask B – Support to MSP implementationTask C - Master Plan of the Mediterranean Electricity

Interconnection

Paving the way for the MSP


20 GW by 2020

BankableProjects

Private investors

The Challenge - Financing the MSP Centralised RES-e

Wind PV CSP without storage CSP with storage

Decentralised RES-e Energy efficicency

Energy saving Demand side manmagement

Rural Electrification Grid connected Off-grid

Electricity networks and connection

Each technology has different cost-benefit charaecteristics and framework requirements


Costs of the MSP – 20 GW RES-e

Source: Mission IGF-CGIET (2009) - Rapport sur le plan solaire méditerranéen


Extra cost burden

Source: Mission IGF-CGIET (2009) - Rapport sur le plan solaire méditerranéen


Reliance on private investors Public-private partnership (PPP) Financial feasibility Variety of technologies Subsidy-incentive requirements Energy efficiency (EE) investments should normally be cost

efficient Different country specific situations In MPCs three situations can be observed:

◦ Electricity supply prices are below the economic costs of supply◦ Electricity supply prices fully cover the costs of supply◦ Electricity supply conditions do not permit a reliable electricity supply

MSP investment prinicples


2 – MSP investment pipeline



MSP project pipeline 2010

FEMIP / EIB / EUROMED (2010): Study on the Financing of Renewable Energy Investment in the Southern and Eastern Mediterranean Region


Updating of MSP project pipeline (draft)


Updating of MSP project pipeline


3- RE financing



3- RE financing

RE & EE investment categories- 1 -

RE & EE Market Assessment Assessment of Potentials and Impediments

Category A: Projects with high replication

potential

Category B: Investors' own project

development

Category C: Large projects with special

financing arrangements

Development of Project Pipelines Tailor-Made Financing Strategies


3- RE financing

RES-e investment categories


3- RE financing

RES-e investment context

Classification of RES-e generation possibilities

Centralised RES-e Decentralised RES-e

Investment category C Investment category A & C

Large project with significant capacities and investment volumes Projects need investments in grid connection and back-up capacities Investment requirements beyond the possibilities of one private

investors Creation of special purpose companies Direct negotiation with electricity off-taker Special off-take contracts with the electricity companies

Minor capacities and lower investment volumes Investment by individual electricity consumers or investor Investment can be managed by the investor Determination of standard operation conditions Operation behind the meter

Preferred incentive instruments in MPCs

Project preparation in close contact with public authorities / electricity

companies Participation of the public sector Public tender Negotiated power purchase agreements (PPA) Government participation in project financing

Decentralised decision making without direct cooperation with the

public authorities / electricity companies Framework for all potential investors Investors take their own decisions and prepare their investments Limited effort in project preparation Individual projects to not affect electricity networks or reserve

capacity requirements


4 - RES-e economics



Economic analysis Point of view of the national economy Costs and benefits valued with social opportunity costs Use of accounting / shadow prices / border prices Neglecting of transfers between entities of the economy

Financial analysis Point of view of the project – investment Analysis with given market prices Transfers and taxes

Economic and financial analysis


4 - RES-e economics

Economic and financial considerations

Source: EMPower Programme – PV case studies for Egypt – Project information memorandum

Farafra Oasis /Egypt – PV Project


Economic and financial analysisRES-e impacts Financial analysis

Investor Economic analysis National economy

Electricity generation Market prices / feed-in-tariffs Value of avoided conventional generation

Avoided generation

Only considered if the point of view of the electricity supply company is assumed

Main benefit of RES-e investments

Back-up electricity requirements RES-e cost imposed upon the national electricity system – the back-up capacity costs have to be considered

Grid connection and expansion RES-e grid connection costs have to be considered

Import duties and taxes Important expenditure and revenues items affecting the project’s net profit

Not to be considered because these are transfers between different entities in the same country

Avoided future price increases Only the tariff-formulae of the power-purchase agreement PPA is considered

RES-e investment can reduce the country’s exposure to future price increases

Reduced imports / increased export potential

n.a. Important impact of RES-e investments

Avoided emissions Only if emission taxes are concerned Main benefit of RES-e investments

Avoided CO2 Only if emission taxes are concerned Main benefit of RES-e investments

Demand of goods and services n.a. This indirect RES-e impact is of importance for the economic development of country / creation of value added

Employment Only salaries and honoraria are considered / market honoraria have to be applied

Direct and indirect job creation are of importance / social opportunity costs of labour should be applied

Environmental impacts Only to the extent that taxes and levies have to be paid

All environmental impacts have to be taken into account

Use of natural resources (land, water, etc.)

Only to the extent that contracts lead to expenditures The benefits of the lost uses have to be determined

Technology transfer n.a. Indirect benefit of RES-e investments – contribution to the national development

Industrial transformation n.a. Indirect benefit of RES-e investments

Economic & financial impacts


RES-e costs and energy price level

Implications of grid parity upon incentive instruments

Grid parity at the retail level

Electricity consumers would invest directly in RES-e

Reverse metering could be applied No special feed-in tariff would be necessary

- Example: PV in EU MS / PV use in Lebanon

National generation cost parity

Electricity companies would invest directly in RES-e

RES-e operated as fuel-saves - Example: Not no many cased reported

Generation parity at full economic cost

RES-e investment of national interest Revision of the national energy subsidy

policy Special incentives necessary for the

electricity supply companies - Example: Wind energy in Egypt


Discounting – time preference

RES-e FOSSIL-e

Cost

High investment costs today Low operation cost in the future

Cost

Lower investment costs today High – and increasing – costs in the future

Benefit

Electricity generation in the future Additional benefits in the future

- Avoidance of FOSSIL fuels - Avoidance of CO2 emissions

Benefit

Electricity generation in the future


RES-e cost development

Projected evolution of the levelised electricity cost from CSP plants, in USD/MWh, under two DNI levels in kWh/m2/y

Source: IEA (2010) – CSP road map. Page 29

PV . Average technology module prices, 1991-2011

Source: Paula Mints Navigant Consulting


RES-e long-term transition- 1 -

The Energy [R]evolution in Europe – Steps of RES-e integration into the electricity generation supply mix

Step 1: Current supply system with low shares of fluctuating renewable energy

Step 2: Supply system with more than 25 percent fluctuating renewable energy – base load priority

Step 3: Supply system with more than 25 percent fluctuating renewable energy – renewable energy priority

Step 4: Optimised system with over 90% renewable energy supply

Greenpeace (2011) – Battle of the grids - How Europe can go 100 % renewable and phase out dirty energy, page 11


5 – Large scale RES-e financing



Risk !◦ Distorted energy prices◦ Absence of long-term

perspectives◦ Unreliable and

intransparent framework

◦ Uncertain contractual basis

◦ Long and unorganised procedures

RES-e framework

Thrust ! Economic and financial

viable energy sector Long-term perspective Reliable and

transparent framework Long-term contracts Efficient administration

and procedures Risk coverage options


Project risk◦ Technological choice and financing terms

Policy risk◦ Adverse changes in the policy context

Financial risk◦ Adverse changes in the economic and financial parameters

Legal and regulatory risk◦ Uncertainties and inconsistencies at regulatory, legal and

judicial level Country risk

◦ Possibility of economic and political disturbances Force majeur

◦ Natural disasters and other major incidents

Project Financing and Risk Management


Project Financing and Risk Management

Source: EMPower (2010) Steps towards bankability Documentation III – PV Business Model


24-09-2012Le consortium mené par Acwa Power International a donc été déclaré adjudicataire de cette première centrale Ozz 1, pour un prix heure de pointe évalué de 1,6187 dirhams ($0,19) par kWh, soit un différentiel de 21% avec l’offre suivante. http://www.masen.org.ma/($0,19 / €0,15 par kWh)

http://www.masen.org.ma/


UfM - MSP Masterplan process Build a coherent and comprehensive strategy; Develop and better use investment support tools; Develop and better use production support tools; Design and implement technical assistance tools; Improve the existing specific financial support for

energy efficiency and decentralized renewable energy; and, finally,

Create a structured pipe-line of MSP projects with the support of MSP specific tools.

http://www.eib.europa.eu/infocentre/publications/all/mediterranean-solar-plan-project-preparation-initiative.htm?lang=en


What types of technical assistance can the MSP-PPI support? Pre-feasibility and feasibility studies; TA for preparing projects’ technical specifications and tender

documents, grid connection studies, etc.; On-site RE resource assessments or audits; Environmental and social impact studies; Detailed analysis of the projects’ financial structure (including an

implicit analysis related to the tariffs and subsidies frameworks needed in the subsequent implementation of the project);

Analysis of the economic impacts of the project; TA for the implementation of the Project Implementation Units

(PIUs) related to RE or EE investments; TA / studies to speed up further project preparation and to

accompany the initial stages of the implementation until the start of disbursement of the MSP investment projects.


THANK YOU FOR YOUR ATTENTION

Martin Ehrlich

[email protected]

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