The document discusses the stages involved in developing a solar power plant project in Zimbabwe. It outlines 4 key stages: 1) Initial project development which involves concept development and initial feasibility studies. 2) Pre-feasibility study to further assess technical, market and regulatory factors. 3) Execution of financing arrangements such as signing power purchase agreements and other contracts. 4) Financial close once financing terms are agreed upon. Key factors discussed include the need for funding at various stages, working with regulatory bodies, and sources of project finance for solar projects in Africa.
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Development and Implementation of a Solar Power Plant Project
The document discusses the stages involved in developing a solar power plant project in Zimbabwe. It outlines 4 key stages: 1) Initial project development which involves concept development and initial feasibility studies. 2) Pre-feasibility study to further assess technical, market and regulatory factors. 3) Execution of financing arrangements such as signing power purchase agreements and other contracts. 4) Financial close once financing terms are agreed upon. Key factors discussed include the need for funding at various stages, working with regulatory bodies, and sources of project finance for solar projects in Africa.
The document discusses the stages involved in developing a solar power plant project in Zimbabwe. It outlines 4 key stages: 1) Initial project development which involves concept development and initial feasibility studies. 2) Pre-feasibility study to further assess technical, market and regulatory factors. 3) Execution of financing arrangements such as signing power purchase agreements and other contracts. 4) Financial close once financing terms are agreed upon. Key factors discussed include the need for funding at various stages, working with regulatory bodies, and sources of project finance for solar projects in Africa.
Investment Banking Development and Implementation of a Solar Power Plant Project Stimulating sustainable economic growth and initial project development is also of interest to the vii. Grid Connection Agreement. social development; and, various advisors, as it determines capacity of the Developing the use of renewable energy promoter to fund the development stage of the project, It is also important to know and understand the different resources to complement conventional sources of including meeting initial engagement fees up to financial regulatory bodies that a project team is required to liaise energy and power supply. close. The promoter should also have the capacity to with in order to obtain the permits and licenses listed fund preliminary processes such as EIA and feasibility above. Despite an abundance of renewable energy resources studies for which debt financiers are not usually willing to in Zimbabwe (e.g. solar, biomass and hydro), most of provide funding. In circumstances where the promoters Stage 4: Execution of Financing and Contract these remain relatively untapped. There is therefore a have presented a convincing preliminary project Arrangements need to exploit these opportunities in a sustainable concept, negotiations with advisors for providing The submission of the BFS heralds the conclusion of manner, maximising far reaching benefits for the country, services at risk whereby settlement for services financing arrangements as well as drafting and ranging from socio-economic to environmental benefits. provided will be at financial closure, can be negotiated. executing various pertinent contracts. Power projects In an attempt to maximise on the countrys renewable are typically financed on a back-to-back basis, energy potential, the Government through the National In the development phase, substantial funding is meaning that all contracts eventually rely on a bankable Energy Policy, has mandated the Zimbabwe Energy required to finance Feasibility Studies and EIAs, which PPA. As such, a PPA with ZETDC or another off-taker Regulatory Authority (ZERA) to establish cost reflective private promoters in Africa may not have the capacity to should have sufficient security mechanisms that Renewable Energy Feed in Tariffs (REFiT), with fund. Some private financiers and DFIs do provide adequately cover the revenue risks of the project. Once appropriate mechanisms and other incentives to funding for the concept development phase up to terms and conditions of the debt or equity funding have promote grid and off-grid power generation using solar financial close. Funds such as the Sustainable Energy been agreed to, and the lenders are satisfied with the and other renewable energy resources. Fund for Africa (SEFA) administered by the African project development, financing agreements will be The availability of land at low prices, the high irradiation Development Bank, provide grants and technical executed, marking project financial close. rate and an environment promoting renewable energy assistance to private project promoters under the augurs well for Independent Power Producers (IPPs) to Project Preparation Financing Window, from feasibility Project finance for renewable energy projects in Africa enter the Zimbabwe market and the establishment PV up to financial close. The target projects should have a can be sourced from private equity or debt financiers. Solar projects in Zimbabwe. total capital investment range of USD30 million to There are also various DFIs that specifically target to USD200 million. fund renewable energy projects such as solar. A number of the renewable energy funding initiatives are a Framework for Solar Projects Development Stage 2: Pre-Feasibility Study combination of DFIs and private entities in partnership to
Introduction The figure below generally shows the stages in
developing a solar PV power plant in Zimbabwe. Once the preliminary project concept has been developed, the project team will proceed to assess various project development issues in a Pre-Feasibility give a total solution of concept development funding, technical and legal advice, and access to funding for solar PV equipment and components, usually through In our previous articles, we discussed various aspects Study. These assessments will involve the review of partner Original Equipment Manufacturer (OEM) and EPC relating to project finance which include the different aspects of the project such as technical design companies. structuring of project finance transactions, the parties options, markets, offtakers and all the requirements for and legal relationships as well as raising funding for obtaining relevant permits, licenses and control over the SEFA is an AFDB administered multi-donor trust fund project finance transactions. We have also discussed project site and the land. with an Equity Financing Window that supports access to the risks, the potential pitfalls as well as the possible early stage capital for small and medium-sized projects mitigation measures for these risks. In this weeks Market assessment under the prefeasibility study is often with low managerial and technical capability. It article, we will tie all these aspects together by paramount as it establishes uptake of electricity focuses on projects of between 5MW and 50 MW exploring the development of a typical solar produced. In circumstances where ZETDC is the offtaker independent power renewable projects including solar. Photovoltaic (PV) power plant project in the of electricity produced, discussion with ZETDC and Zimbabwean context. securing letters of undertaking to purchase the The African Renewable Energy Fund (AREF), is another electricity to be produced would best be secured at this renewable energy fund specifically dedicated to Due to a critical shortage of electricity, Zimbabwe has stage. Draft Power Purchase Agreement (PPA) can also Sub-Saharan Africa by targeting IPP projects of between been importing part of its power needs from member be secured if available. The market assessment will also USD10 million and USD30 million. It also sources further countries in the Southern African Power Pool include evaluating some technical components such as funding from co-investors where a larger investment is (SAPP). The countrys electricity generation mix grid connectivity and access to transmission required. currently consists of hydro power and coal based infrastructure. These assessments will inform the project thermal generation from Hwange Power Station and development team on whether there will be further In light of funding constraints for renewable projects in smaller thermal power stations in Bulawayo, Munyati investment required in constructing substations and grid Africa, the European Union established the Africa-EU and Harare. More recently the Dema Diesel Power connection infrastructure. Ideally, a solar PV power plant Renewable Cooperation Programme (RECP) aimed at Plant also came on stream in 2016. Independent located near an existing substation and transmission providing a platform to secure equity, loan and grant Power Producers (IPPs) are also operating small infrastructure, assists minimising additional project costs. facilities for private renewable energy projects. The hydro stations. Solar PV power plant projects are yet programme caters for projects with a funding range of to come on stream to assist in alleviating the power Once the pre-feasibility study is complete, the financial between USD0.1 million and USD50 million. shortages. advisor will at this stage carry out market canvassing to potential investors to determine appetite for a project of Initial capital requirements of the project can also be the target magnitude. Securing Letters of Interest from reduced by establishing special purpose vehicles in Scope for solar projects in development potential investors will assist in determining the level of which other investors can take equity shareholding Due to the global push towards greener energy and participation, cost of funds, and risk areas to the investor through participating in some aspects of the project. An power generation, African countries have seen a surge that require mitigation during the feasibility stage of the SPV that owns the land (LandCO) can be established, in the development of solar PV power plants. A solar PV project development. wherein the land owner takes a stake in LandCo in power plant is essentially a large scale electricity return for rental lease income over the life of the project. generating plant that uses solar to generate electricity. Stage 3: Bankable Feasibility Study The LandCo as a separate legal entity has its own rights, The plant uses solar panels and invertors to convert the Stage 1: Concept Development An independent Bankable Feasibility Study (BFS) is a separate from the solar operating company and does solar energy into electricity which is then fed onto the A solar PV power plant requires access to significant prerequisite for the financiers, equipment providers and not take direct risk in the solar project. national grid. amounts of land that will be used to lay the solar panels. O & M partners. The BFS stage will entail an A site survey is typically conducted to determine the independent evaluation of all aspects of the project Other contracts also come to fruiting at financial close. Technological improvements coupled with a surge in locations of the site property best suited for solar PV which were identified in the pre-feasibility study stage. These contracts include the EPC Contract and the demand for green energy has led to a significant decline arrays. Due to this significant land requirement, solar PV The technical designs of the project enters a detailed Operation and Maintenance (O&M) Agreements which in the cost of solar PV technology. The International power plants are also referred to as Solar Farms. The design stage. Irradiation data will at this stage be carried usually become effective when financial close is a Finance Corporation estimates that costs have gone World Bank generally estimates that approximately one out based on exact coordinates of the target project condition precedent to the effectiveness of the down substantially since 2008. hectare of land is required to generate one Megawatt of location. Usage of various softwares which incorporate agreements. solar PV energy. ten to thirty years historical weather data from the In Southern Africa, South Africa is leading in the specific locations are used to estimate the amount of Stage 5: Commercial Development implementation of solar PV power plant development. In addition to the need to get access to sizable land, solar irradiation received for a given site and the amount This stage will entail the actual construction by the EPC According to the National Energy Regulator of South determination of solar irradiance, which is the amount of of energy produced for a given target solar technology. contractor. During construction, ZERA and other Africa (NERSA) Renewable Energy Performance power received from the sun per unit area (watt/m2) in a concerned regulatory bodies such as EMA and ZPC will Assessment Report of July 2016, the phased Renewable particular geographical location, is important in this Utilising the actual data for the site, the preliminary continuously make inspections to ensure that the project Energy Independent Power Producer Procurement developmental stage of the project. Naturally, solar PV financial model will be adjusted accordingly to fully is being constructed to best practices. Programme which was introduced in 2013, has licensed power plants thrive better in locations that receive factor the actual data. Various assumptions relating to 31 solar PV power generation projects that achieved higher solar irradiance. Optimal PV array locations economic factors such as cost of funds, inflation and Once construction is complete, the EPC contractor as Commercial Dates of Operation (CDO) as of February maximize the available solar energy and minimize solar equipment assumptions such as PV cell performance well as the OEM will perform tests on the equipment to 2016. Zimbabwe has various solar PV power plants that obstructions to reduce shading on the PV arrays. degradation, inverter life, solar panels replacement time, ensure that it is functioning according to manufacturing are at different stages of development. are taken into account. specification. When these tests have been carried out, Zimbabwe is privileged by being located in the southern the plant staff will be trained prior to commissioning. The Solar power project development in Zimbabwe can hemisphere, where solar irradiance is generally higher An independent audit of these assumptions and plant will thereafter be handed over to the O&M either be public or private sector driven. The public than other places in the world. Although the general structure of the financial model is usually carried out contractor for operation. Continuous performance sector driven route entails Government initiated projects location of the country suggests that solar PV power often by an independent Advisor to the potential assessments will be made remotely by the OEM and which however due to inadequate capital, are usually plants can thrive, for optimum output, further solar financiers so as to ensure objectivity of the financial onsite by the O&M contractor. implemented with private funding partners or grants. irradiance investigations are required in a feasibility model. Projects of this nature normally follow a public tendering study of a particular project location. For purposes of the Conclusion process where public utilities are part of the process. For preliminary site identification, solar irradiance The BFS stage also ensures that all permits and licenses The development of a solar PV power plant requires instance ZPC invited tender bids for a Funding, estimations can be obtained from United States National often involving multiple government agencies, would be certain specific activities to be implemented for the Engineering, Procurement and Construction [FEPC] in Aeronautics and Space Administration (NASA). finalised or in the least, conditional confirmations are project to reach financial close. The project 2013. Private projects, on the other hand are driven by obtained subject usually to reaching financial close. development process highlighted in the article may IPPs who seek to generate power for on-selling the The preliminary stages of establishing the project up to differ from project to project but certain aspects are generated electricity to the national grid or private Bankable Feasibility stage are mainly the responsibility The following permits and licenses need to be secured inherent in solar projects. According to the National off-takers such as mines. of the project promoter. Costs associated with this phase and will form a major component of the BFS Renewable Energy Laboratory (NREL), one concept will usually make up the promoters sweat capital in the documentation: developed to summarise the requirement for a Policy Framework project. Sweat capital, in addition to any future capital i. Project land through land lease agreement or successful development of renewable solar energy In Zimbabwe, the National Energy Policy (NEP) provides contributions, often determines the promoter acquisition of title; projects is the SROPTTC" Framework. The framework the overall context for energy development planning, shareholding in the project. It is paramount that these ii. Development rights and site access permit of the is an acronym for Site, Resource, Offtake, Permits: with the National Energy Policy Implementation Strategy initial project development costs are well documented power plant from the relevant local authority; Technology, Team and Capital. As discussed above, a (NEPIS) detailing broad measures put in place to achieve as any future interested equity partners would want to iii. Environment Impact Assessment Certificate from successful project would require that project promoters set objectives and targets. audit them to verify the resultant shareholding accruing the Environmental Management Agency (EMA); of solar energy projects to ensure each aspects is dealt to the project promoters. iv. Independent Power Producer licence (IPP) often with supporting documentation to avoid losing The key objectives of the NEP include, but are not (power generation license) from Zimbabwe Energy time and capital. limited to: A solar PV power plant project, because of the high Regulatory Authority (ZERA); technical, financial and legal arrangements involved, will v. Tariff from ZERA through the Renewable Energy Richard Mangi is Deputy Divisional Director, Increasing access to affordable energy services to require a team of advisors which will include financial, Feed-in Tariff (REFiT) mechanism; Investment Banking, CBZ Holdings Limited. He all sectors of the economy; legal and technical advisors. Funding arrangements for vi. Power Purchase Agreement (PPA) with ZETDC or writes in his personal capacity and is reachable on another legible off-taker; and rmangi@cbz.co.cw 11811