Andasol 1: Cash eclipse

The Eu311 million 49.9MW Andasol 1 project sponsored by ACS subsidiary Cobra Instalaciones y Servicios (75%) and Solar Millenium (25%) – was the largest thermal solar project to date in Europe and the first to be project financed.

The project is sited on the plateau of Guadix in Granada, Spain. The deal was Phase 1 in a two-plant scheme, and was quickly followed by Andasol 2 (the 18-year Eu253 million financing for AndaSol 2 closed on 27 December 2006).

The technology on Andasol 1 and 2 is tried and tested – a parabolic trough solar generator combined with a salt tank storage facility giving 19 hours of output per day – and has been in use for 20 years in California. The parabolic trough plants produce 50MW and will feed 157GWh per year of solar electricity into the Spanish grid, corresponding to the annual energy demand of a large city with 45,000 households. Included in the project perimeter is a thermal storage facility enabling the projects to operate for several hours without solar radiation, and therefore to more adequately meet daytime power demand.

Due to their lower technology efficiency and higher costs, solar thermal plants are unable to compete in the power market on a merchant basis and need a regulatory framework with special incentives for such developments. In Spain, both Andasol deals, benefit from Real Decreto 436/2004 which includes tarrif incentives to encourage development of up to 400MW of solar power (200MW for solar thermal and 200MW for photovoltaic). Furthermore, the direct offtaker will not be a local incumbent but the national grid.

The key issue for the banks was the plant's ability to service debt, and over what period, given the construction cost per MW of solar is roughly Eu6 million – six times that of a wind project.

The financing includes a Eu243.5 million long-term facility, a Eu30 million VAT facility and an interest rate swap to hedge a portion of the credit facilities. BNP Paribas, Sabadel, WestLB and Dexia arranged the financing with EIB and ICO coming in as lead arrangers in primary syndication with the EIB taking Eu60 million – the first time the EIB has taken full project risk and provided a reduced margin if certain conditions are met.

This project is also to be noted contractually because, under the building agreement, the builder "UTE" (unincorporated joint venture), organized by Cobra and Sener, assumed many of the risks inherent in the building stage, restricting recourse to the partners' equity.

Now that both Andasol 1 and 2 are going ahead, the combination of the two projects will create the world's second biggest solar plant.

Andasol 1
Status: Financial close 31 May 2006
Sponsor: Cobra; Solar Millennium
Mandated lead arrangers: BNP Paribas; Banco Sabadell; WestLB; Dexia
Lead arrangers: EIB; ICO
Legal counsel to lenders: Garrigues
Technical consultant: Fichtner