- expert group meeting / tunis 3-5 october 2012 - innovative mechanisms for financing renewable...
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- 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
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1- MSP and PWMSP
MSP projects and financing strategies
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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
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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
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Costs of the MSP – 20 GW RES-e
Source: Mission IGF-CGIET (2009) - Rapport sur le plan solaire méditerranéen
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Extra cost burden
Source: Mission IGF-CGIET (2009) - Rapport sur le plan solaire méditerranéen
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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
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2 – MSP investment pipeline
MSP projects and financing strategies
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MSP project pipeline 2010
FEMIP / EIB / EUROMED (2010): Study on the Financing of Renewable Energy Investment in the Southern and Eastern Mediterranean Region
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Updating of MSP project pipeline (draft)
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Updating of MSP project pipeline
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Updating of MSP project pipeline
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3- RE financing
MSP projects and financing strategies
The views expressed in this publication do not necessarily reflect the views of the European Commission
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
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3- RE financing
RES-e investment categories
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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
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4 - RES-e economics
MSP projects and financing strategies
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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
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4 - RES-e economics
Economic and financial considerations
Source: EMPower Programme – PV case studies for Egypt – Project information memorandum
Farafra Oasis /Egypt – PV Project
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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
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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
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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
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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
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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
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5 – Large scale RES-e financing
MSP projects and financing strategies
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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
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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
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Project Financing and Risk Management
Source: EMPower (2010) Steps towards bankability Documentation III – PV Business Model
The views expressed in this publication do not necessarily reflect the views of the European Commission
Project Financing and Risk Management
Source: EMPower (2010) Steps towards bankability Documentation III – PV Business Model
The views expressed in this publication do not necessarily reflect the views of the European Commission
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)
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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
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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.
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THANK YOU FOR YOUR ATTENTION
Martin Ehrlich