Natural Energy Development’s (NED) Bt8.5 billion ($259 million) financing for the 73MW Lopburi solar photovoltaic project in Thailand demonstrates that even in a country where delays are normal, indeed often expected, some projects still get done relatively quickly. Furthermore, the sponsors, as well as lenders Bangkok Bank, Kasikornbank and Siam Commercial Bank, and the Asian Development Bank (ADB), closed the deal even as the country faced some of its worst political unrest in recent memory.

A joint venture made up of equal equity providers China Light and Power (CLP) Renewables, Mitsubishi subsidiary Diamond Generating and the Electricity Generation Public Company (EGPC), NED was created to develop and sell renewable energy to Thailand’s electric utilities as part of the country’s initiative to generate 20% of total power supply from renewable resources by 2022. CLP Renewables has interests in several biomass, hydro and wind facilities in Asia and Australia, while Mitsubishi has a strong independent power production franchise in developed and emerging markets and EGCO was Thailand’s first independent power producer.

The ADB – central to the financing – gave the project conceptual clearance on 26 October 2009, and sent officers to the project site to conduct due diligence in February 2010, before its board approved a loan for a quarter of the plant’s cost on 16 April 2010.

The ADB direct loan, which has a three-year grace period and an 18-year maturity, is in baht and equivalent to 25% of project costs, or the equivalent of $70 million, whichever is less. The ADB was able to provide a baht facility of this length by executing long-term dollar interest rate and foreign exchange swaps with Thai banks, though the two different swaps produced different costs of funds to the ADB, with the result that the fixed rate drops several years into the loan. The plant also benefits from a $2 million grant from the Clean Energy Financing Partnership Facility’s Clean Energy Fund, which the ADB manages.

Meetings between the sponsors, its financial advisers, Kasikornbank and Bualuang Securities, the necessary government authorities and the banks began in February. The first approval came when Thailand’s Board of Investment (BOI), which must clear all foreign investment in the country, allowed Lopburi to go forward at its 10 March board meeting. Then NED signed a five-year power purchase agreement with the Electricity Generating Authority of Thailand (Egat) for the project’s entire 55MW net capacity (73MW gross capacity minus the energy used at the site) at Bt8 per kWh, beginning when the first phase of the project comes online in the third quarter of 2011. The PPA features the new “adder” tariff, which replaces an earlier feed-in tariff, but gives a fixed total of renewable capacity an attractive power price until 2020.

By July, three local financial institutions, Bangkok Bank, Kasikornbank and Siam Commercial Bank, agreed to provide a 12-year Bt1.16 billion ($37.3 million) loan each to NED. While the exact interest rate has not been disclosed, the ADB reported that the loans would carry a fixed interest rate of 4%, equivalent to 275bp over where the overnight Bangkok Interbank Rate stood until July 2010. Overall, the project financing has a minimum debt service coverage ratio (DSCR) of 1.05x and an average of 1.63x, according to the bank. The project’s estimated annual return, again according to the ADB filing, will be 6.29%.

The sponsors broke ground on the plant on 28 July. Sharp and the Italian-Thai Development Public Company are the engineering, procurement and construction contractors for the project, with the former providing the facility’s 542,000 photovoltaic panels. The first phase, of roughly 8MW to 11MW of net capacity, is expected to come online in the fourth quarter of 2011 with the entire project operational by the middle of 2012.

But the most remarkable aspect of the Lopburi solar farm is the fact that it was approved and financed during one of the most tumultuous times in Thai politics. Since the September 2006 coup that overthrew then-prime minister Thaksin Shinawatra, Thailand has been politically unstable. The country has had five prime ministers in the ensuing four years and been beset by political protests, the most recent of which resulted in an almost month-long shut-down of Bangkok’s central shopping district and the deaths of 88 protesters.

Ed Koehler, a partner in the Bangkok office at Hunton and Williams, which acted as legal counsel to NED, said the Lopburi project was able to achieve financial close during such a tumultuous time because the sponsors had the support of both local investors and the government bureaucracy. He distinguished between institutionalised government officials, for example those working at regulatory agencies like BOI and Egat, and their elected counterparts, who continue to face repeated challenges in governing.

Whether NED’s closing of Lopburi spurs other renewables projects remains to be seen. Koehler says he expects most of the building of new energy capacity in Thailand, be it renewable or otherwise, will come from the small power producer programme for projects under 150MW and large IPPs such as Ratchaburi Energy, Glow Energy and EGCO.

On the renewable side, Bangchak Petroleum is building a 35MW solar facility in Ayutthaya and PTT is investigating renewable generation opportunities. Koehler’s firm is advising two 8MW solar projects in northeastern Thailand and a potential US-European wind farm joint venture. In addition to Lopburi, NED is pursuing a 13.5MW wind farm in the Issan region of northeastern Thailand. Both are due to begin generating power by 2011 though only the solar project’s financing has closed.

Natural Energy Development (NED)
Status: Closed July 2010
Size: Bt8.5 billion ($259 million)
Location: Lopburi Province, Thailand
Description: Developer of 73MW solar farm in central Thailand
Sponsors: CLP Renewables (33.3%), Diamond Generating (33.3%) and Electricity Generating Public Company (33.3%)
Equity: $75 million
Debt: $70 million ADB loan and $112 million baht equivalent commercial bank loan
Project lenders: Bangkok Bank, Kasikornbank and Siam Commercial Bank
Financial advisers: Kasikornbank and Bualuang Securities
Legal counsel to sponsor: Hunton & Williams
Legal counsel to lenders: Clifford Chance
Engineering, procurement and construction: Sharp and the Italian-Thai Development Public Company