Spain’s FCC and Japan’s Mitsui have closed the Eu226 million ($322.4 million) debt financing for the Eu272 million Guzman solar project in Cordoba, Spain. The debt, led by Mizuho and BBVA, benefits from insurance cover from NEXI, the Jap­an­ese export credit agency. The deal took place against the uncertainty in the Spanish solar market caused by retroactive tariff revisions, and then the aftermath of the Sendai earthquake, whose impact on corporate Japan is still hard to quantify.

FCC, which is building the plant, will have a 70% stake in project company Guzman Energia, while Mitsui will own 30%. The plant, located in Palma del Río, near Cordoba, Andalusia, has a planned capacity of 50MW, and is one of two that FCC has under construction in Spain. The other plant, called Enerstar, is located in Villena Alicante, and FCC bought 67% of that plant, developed by a group of US and Spanish managers, in 2009.

Both plants use parabolic trough concentrating solar technology. The Guzman plant uses a steam turbine generator set manufactured by MAN Diesel & Turbo in Oberhausen, Germany. It benefits from Palma del Rio’s high levels of insolation, not to mention high levels of power de­mand in Seville and Cordoba.

Under Spanish regulations for concentrating solar, the plant can run for 15% of its permitted hours on natural gas, allowing it a smoother and more reliable dispatch profile. The presence of natural gas pipeline interconnections nearby, then, also benefits the project.

As Alejandro Seco, FCC Energia’s strat­egy and development director, notes, concentrating solar offers one important advantage to a sponsor with a big construction business. Equipment suppliers capture a much smaller share of the value of a plant. “In wind, turbine suppliers capture about 75% of the value of power projects, whereas in concentrating solar, the civil works and other project management activities account for nearer 50% of a plant’s value.”

For Guzman, FCC has formed a joint venture with IDOM and Avantia to build the plant under a turnkey engineering, pro­curement and construction contract. The plant must be online by the end of December 2012, according to the plant’s governmental designation. Like all solar thermal plants, the project will benefit from a preferential tariff of Eu0.269 per kWh.

Solar thermal, partly as a result of the financial crisis, partly because of its relative novelty, and partly because it requires higher levels of technical know-how, has not added capacity at the same rate as its peers in the photovoltaic segment, and is not yet at its target installed capacity cap. As such, the retroactive revisions to solar tariffs, first announced in November 2010 and ratified early in March, have had no effect on thermal.

The PV tariff changes do not directly change the eligible tariff, only the cap on the hours of production for which a plant can receive this tariff per year. It has still led to howls of protest from PV developers, several of which have sought legal advice or suggested that the changes have fatally wounded Spain’s reputation as a destination.

FCC Energia’s Seco is less anxious, noting that the extension of the PV tariffs by five years, combined with the reduction in eligible hours, has a limited effect on spon­sors’ long-term internal rates of return. Other observers have suggested that sponsors with a long enough time horizon and understanding enough lenders should be able to ride out the effects of the revision.

The alterations had little effect on the Mitsui equity investment. Japanese sponsors are eager to gain exposure to the Spanish concentrating solar sector, the most mature in the world. Even though they often have little pre-existing presence in Spain, building up a track record with the technology will be an important asset when bidding on deals in the Middle East and North Africa, where they have a strategic focus and where Japanese export credit agency financing is particularly useful.

In September, JGC signed a joint venture with Abengoa for two 50MW concentrating solar plants near Cordoba, and in De­cember Abengoa brought in Itochu as 30% equity investor in two further 50MW plants located near Logrosan, Extre­madura. Earlier in March, Mitsubishi bought a 15% stake in Acciona Termosolar, the holding company for 200MW of CSP capacity, pay­ing Eu38.1 million in equity and Eu7.7 million as a shareholder loan, and mobilising a Eu300 million NEXI-backed loan from Mizuho, BTMU and Development Bank of Japan.

NEXI and JBIC backing is one of the main reasons for Japanese equity’s success in the Spanish market. FCC Energia and Mitsui began negotiations in the second quarter of 2010 (helped by a shared business school background of their business development personnel), and reached an agreement in November.

The result is a loan arranged by BBVA and Mizuho with a 20-year tenor (including two years’ of construction), a debt service coverage ratio of 1.3x, and pricing that Seco describes as extremely competitive with a commercial bank club. Commercial lenders also insist upon soft mini­perms that compress sponsor returns beyond a fixed period. And NEXI, an arm of the government of Japan, treats the potential for retroactive revisions to the tariff as a political risk, making further retroactive modifications by Spain’s government much less worrisome.

The deal between Mitsui and FCC covers Guzman alone, though it grew out of discussions for a broader solar cooperation effort. But sponsors have a huge num­ber of choices today, unlike two years ago, when they struggled to get lenders comfortable with CSP technology. Germany supplies many of the components for CSP plants, so Hermes cover is possibility. Indeed Seco says that a Hermes equity loan for Guzman is possible.

For Enerstar, FCC is evaluating a number of options, including a club of commercial and international lenders, which would be fast, if nothing else, and has also approached the European Investment Bank to cover 50% of the plant’s costs with debt. It may also turn again to Japanese debt and equity, and for lenders the only bar to jump on a NEXI deal is having a branch in Tokyo. 

Guzman Energia
Status: Closed 31 March 2011
Size: Eu272 million
Location: Palma del Río, Cordoba, Spain
Description: 50MW parabolic trough concentrating solar plant
Sponsors: FCC (70%), Mitsui (30%)
Debt: Eu226 million
Lead arrangers: BBVA, Mizuho
Export credit agency cover: NEXI (100% political, 95% commercial)
Tenor: 20 years (including two-year grace period)
Sponsor legal: Cuatrecasas
Lender legal: Jones Day
Independent engineer: Fichtner
Construction contractors: FCC, IDOM, Avantia