South Africa’s renewable energy independent power project programme mobilised impressive quantities of private capital on the 28 deals in its first phase that closed during November. The bulk of the programme focused on established technologies, which proved comparatively easy for the country’s banks to digest.

Few jurisdictions could have achieved this result from a standing start, and the programme benefited from the experience that the country’s banks have acquired overseas. The programme single-handedly justified a split in Project Finance’s renewables award category into wind and solar.

Alongside a slew of photovoltaic deals of varying sizes and ownership structures, the Khi Solar One concentrating solar financing stood out, though it closed with the support of a large group of development finance institutions. The Abengoa-led financing for the 50MW plant shows that CSP technology can get a foothold outside developed markets.

The first phase of the REIPP programme was relatively generous to sponsors, as the South African government decided to take decisive action to breathe life into a renewables initiative that had made little progress. Lenders have not yet been forced to put pressure on margins and debt terms, and the most interesting deals are those with interesting ownership structures – or new technology.

Khi uses solar tower technology, with an array of heliostats around the tower tracking the movement of the sun and reflecting it into a receiver towards the top of the tower. This heats water running up the tower, and converts it to steam, which in turn drives a turbine. The plant also includes a storage element, though despite the plant’s ability to dispatch power in a more flexible fashion, the project only receives per kWh energy payments.

The project even included some tweaks to existing CSP technology. The project is the first to use both subcritical and supercritical steam, and uses thinner heliostats (mirrors) than most CSP plants. The steam storage element has one precursor – a pilot project in Spain.

While CSP technology is moving towards the mainstream in developed markets, sponsor and contractor support is still crucial to making deals palatable to lenders. According to Javier Albarracín, the chief financial officer of Abengoa Solar, “We negotiated a fair guarantee scheme combining EPC and O&M guarantees with certain sponsor support. We have similar structures in other projects, so we were not inventing anything new, but working around something which was already tested in the market.”

Abengoa is contributing 51% of the project’s R1.4 billion ($158 million) in equity, with the Industrial Development Corporation holding 49%. The senior lending group on Khi consists of the European Investment Bank (R546 million), Development Bank of South Africa (R500 million), International Finance Corporation (R500 million), FMO (R312 million), Proparco (R264 million) and IDC (R300 million). Rounding out the financing is a R73 million IFC subordinated C loan, and R130 million in sub-debt from the IFC’s Clean Technology Fund.

The lending group has a long history of supporting African independent power projects, though less experience with CSP. The education process with the potential lenders (making them feel comfortable with the technology) took a little longer than in other geographies which already have CSP plants under operation,” notes Albarracín. Abengoa owns 92% of the engineering, procurement and construction and operations and maintenance contractors for the plant, with local communities owning the rest, but lenders will have been comfortable with Abengoa’s track record.

Some of the challenges with the financing were similar to those facing developers using more established technologies. Winning government approvals and overcoming potential land use issues took if anything longer than on other deals, and Abengoa’s willingness to start that process early may explain its position as round one’s only successful CSP developer.

For all the struggles to implement the new technology in South Africa, Albarracín speaks highly about the framework, which covers a 20-year PPA with state-owned utility Eskom. “I’d highlight a generally good PPA and implementation agreement, the support that the Department of Energy provides to Eskom, and the unquestionable determination of the National Treasury REIPPP team to make it happen.”

Subsequent rounds in the REIPP programme will have room for CSP, and Eskom appears to be enthusiastic about the technology. Abengoa says it sees South African as a strategic market. But in time lenders will be asked to accept a wider range of technological risks. 

Khi Solar One (Pty) Ltd
Status
Signed 5 November 2012, closed 15 November
Size
R4 billion
Description
50MW concentrating solar power plant located in Northern Cape province, South Africa
Offtaker
Eskom
Sponsors
Abengoa (51%) and the Industrial Development Corporation (49%)
Equity
R1.4 billion
Senior debt
R2.4 billion
Subordinated debt
R73 million IFC C loan, R130 million from IFC’s Clean Technology Fund
Senior lenders
European Investment Bank (R546 million), Development Bank of South Africa (R500 million), International Finance Corporation (R500 million), FMO (R312 million), Proparco (R264 million) and IDC (R300 million)
EPC contractor
Khi CSP EPC (Abengoa 92%, local communities 8%)
O&M contractor
Khi CSP O&M (Abengoa 92%, local communities 8%)
Sponsor legal counsel
Norton Rose
Lender legal counsel
Linklaters (international), Webber Wentzel (local)
Lender technical, environmental and social consultant
Mott MacDonald
Lender insurance adviser
Marsh