Natural Energy Development’s Lopburi solar photovoltaic pro­ject is the largest solar financing to close in Thailand to date, and at Bt8.5 billion ($259 million), was one of the largest renewables deals in the Asia-Pacific region, and one of the largest solar deals anywhere in 2010.

The financing demonstrates the strength of Thailand’s renewables framework, and the increasing comfort of the country’s banks with renewables assets. Given that Thailand’s non-fossil-fired capacity con­sists almost entirely of hydroelectric plants, many of them environmentally conten­tious and located across the border in Laos, such an impressive start bodes well for further additions.

The sponsors of Natural Energy Devel­op­ment are CLP Renewables (part of Hong Kong’s China Light & Power 33.3%), Diamond Generating (part of Mitsubishi Corporation, 33.3%) and Electricity Gen­er­ating Public Company (EGCO, a Thai independent power producer, 33.3%). The purchaser of the Lopburi project’s first 73MW phase’s output is the Electricity Generating Authority of Thailand, which owns 25% of EGCO, alongside Mitsu­bishi, with 22%.

Unlike the Hongsa power project in Laos, which saw Thai institutions displace international lenders on a cross-border financing, The financing for Lopburi had a substantial role for the Asian Development Bank, which has been the mainstay of renewable energy financing in the region. The ADB, using complex back-to-back swap arrangements, was able to provide long-term Baht debt to the project.

The plant’s first phase of 73MW (gross, 55MW net of internal consumption) will consist of Sharp thin-film solar panels that work better in hot climates than crystal­line equipment. The construction contrac­tor is a joint venture of Sharp and Italian-Thai Development Public Company, with the latter having considerable experience constructing power plants in the region.

The financing consists of a Bht3.48 billion 12-year loan from Bangkok Bank, Kasikornbank and Siam Commercial Bank, with each lender providing a third of the total, and a Baht-denominated loan from the ADB equivalent to 25% of the project costs or $70 million, whichever is lower. The ADB funds its 18-year (inclusive of a three-year grace period) local currency commitment by signing foreign exchange and interest rate swaps with Thai banks. The ADB-managed Clean Energy Financing Partnership Facility’s Clean Energy Fund is providing the project with a $2 million grant.

The plant has a 25-year power purchase agreement with EGAT at Bht8 per kWh, but under Thailand’s renewables regime solar plants receive an additional tariff, or adder tariff, on top of the regulated rate for power producers. The tariff is designed to take renewables’ share of Thailand’s generating mix to 20%. The goal is ambitious, but Thailand, alone among its peers in the region, has a long history of procurement from independent producers, a reputation that will attract developers in large numbers.

The financing has already encouraged NED to expand the Lopburi solar project, by adding another 11MW of capacity. This second phase will enter construction later in 2011, follow­ing completion of the first phase, and sell power to the Provincial Electricity Authority. The same set of lenders is ready to fund the Bht1.2 billion expansion, according to the developer.

The financing process moved quickly, although it benefited from the early-stage due diligence of the ADB and the work of financial advisers Kasikornbank and Bualuang Securities. The Thai Board of Investment approved the financing in March 2010, the ADB ap­prov­ed the financing in April 2010, and the deal signed in June 2010.

The Lopburi financing demonstrates some of the difficulties inherent in financ­ing renewables projects in emerging mar­kets, in particular their use of local currency-denominated power purchase agreements. Governments have tended to shy away from offering dollar indexation, because renewables projects do not use dollar-denominated fossil fuels. In Thai­land’s case, local banks are more than cap­able of lending in large amounts, though they lack a substantial track record in renewables. They may make up for this in knowledge of the offtaker, EGAT, and in their willingness to overlook short-term political instability.

In the case of Lopburi, then, the Asian Development Bank, by accessing Baht fund­ing from local banks, is able to marry its in-house renewables specialisation to the Thai banks’ ability to fund a local off­taker. It is also able to offer some exper­tise to, and comfort with, the sale of cer­tified emissions reductions, though the Japanese sponsor should also be able to assist in this process.

The deal should spur additional financings in the Thai market, and some larger names, chief among the Thailand’s nation­al oil company, PTT, are thought to be examining solar capacity additions, while NED has a 13.5MW wind farm in the offering. It is unlikely that Thai lenders will take long to fund renewables assets on their own, and their mentoring period is set to be short.

Natural Energy Development (NED)
Status: Closed July 2010
Size: Bt8.5 billion ($259 million)
Location: Lopburi Province, Thailand
Description: 73MW solar PV plant
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
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
Independent engineer: Mott MacDonald