Dumat al Jandal, Saudi Arabia

EDF and Masdar have reached financial close on what will be Saudi Arabia’s first ever utility-scale wind farm - part of the country's first round of renewables procurement.

The 400MW Dumat al Jandal will be debt funded by a 20-year soft mini-perm from a club of six lenders, with a seventh bank providing interest rate swaps.

The tariff is protected by an indexation mechanism to adjust the PPA in the event of a devaluing or unpegging of the Saudi riyal.

Saudi Arabia’s Renewable Energy Project Development Office (REPDO) successfully brought round one of its renewables programme to a close after just two and a half years, though questions may arise over its procurement process that seemingly rebuffed smaller and non-Saudi developers along the way.

The launch of NREP

The Ministry of Energy established REPDO in February 2017 to kick-start long-stalled renewable energy procurement plans and reduce the country’s reliance on burning oil for electricity.

A total of 700MW of solar and wind was outlined under the first round of REPDO’s National Renewable Energy Programme (NREP) in that same month via two projects:

Midyan was however replaced by a project of the same dimensions located at Dumat al Jandal six months later (July 2017), though a REPDO spokesperson told IJGlobal at the time that the authority still intended to put a wind farm on the Midyan site out to tender.

REPDO was left with four RFP bids for Dumat al Jandal wind by April 2018 and opened these on a per megawatt hour basis on 23 July 2018, thus:

  • EDF, Masdar – SR79.97/MWh ($21.3253)
  • Engie, Saudi Services for Electro Mechanic Works – SR88.70/MWh
  • ACWA Power, Martifer Renewables – SR101.13/MWh
  • Enel Green Power, Al Babtain Contracting Company – SR127.14/MWh

Engie was second lowest with SR88.70/MWh but there was some confusion over the official reserve bidder status when REPDO evaluated the bids on 12 November 2018.

A source close to the procurement process said at the time that Engie was overlooked for the back-up role and judged as “non-compliant” by the awarding authority. However the French firm told IJGlobal that it was still in contention and denied being ruled out of the bidding stage by REPDO, while the third lowest bidding group – the ACWA Power-led team – was claiming to be the reserve bidder.

The bidding group led by EDF was eventually awarded the project in January (2019).

At the same time the EDF-led consortium had also turned up as the lowest bidder on Sakaka – with an offer of $0.01786063/kWh – once again putting in a record-breaking bid for solar tariffs.

Its bid was passed over however for the second lowest bid of $0.023417/kWh from regional rival ACWA Power – which while higher than the EDF bid still set a record for solar tariff bids.

The EDF team therefore had reason to be unsure about the potential for success with Dumat al Jandal, as NREP’s higher-than-average local content requirements appeared to show REPDO’s preference for a local, Saudi sponsor for Sakaka. For Dumat al Jandal, there was a 30% local content requirement, a source confirmed.

All top three bids for the wind farm were understood have used the same technology, but in the end REPDO did award the wind farm to EDF and Masdar.

Financing

EDF and Masdar provided $105 million in equity for the wind farm, and signed on 30 June (2019) a $270 million 20-year soft mini-perm debt package with pricing starting in the low 100bps above Libor and rising in step-ups to high 200bps. The sponsor interests are:

  • EDF Renouvables – 51%
  • Masdar – 49%

Both the sponsors are the renewables arms of their parent companies – France's power company EDF and Abu Dhabi's state-owned Mubadala respectively. 

The lenders on the Dumat al Jandal debt package are:

  • Korea Development Bank
  • Natixis
  • NCB
  • Norinchukin
  • SMBC
  • Société Générale

The step-ups kick will in after three years of the project being operational. Construction is expected to take roughly 2.5 years.

Commercial Bank of Dubai signed the interest rate swaps on 8 July (2019). The debt is dollar-denominated and the tariff paid in local currency – if the Saudi riyal is unpegged or devalued during the 20-year term of the offtake agreement, then there is an indexation mechanism to adjust the tariff of the PPA.

Interest rate swaps led to a lowering of the tariff, from the November 2018 winning bid of around $0.0213/kWh down to $0.0199/kWh, a source told IJGlobal. Saudi Power Procurement Company (SPPC) is the offtaker under a 20-year PPA – the project contract is also for a 20-year term, which may be renewed.

NREP's questionable first round

The EDF and Masdar team was the leading bidder on both the wind and solar components of the 700MW first round of NREP, even though they missed out to a more expensive ACWA Power bid for Sakaka PV.

The success of these major developers follows a similar pattern to other recent renewables tenders in the Gulf states. Regional authorities such as REPDO have been asking consortia to have debt committed during the bid stage which may be excluding other potential developers ahead of the RFP evaluation.

As such the only remaining bidders for DEWA V stage of Dubai’s MBR solar park are the usual suspects, but with Jinko joining the EDF/Masdar team. A source said that DEWA’s tendency to chop and change its projects during procurement was an additional factor in repelling other potential developers – ACWA Power’s DEWA IV for example went from 200MW at RFP issuance to 950MW by the time it reached financial close on 31 January (2019). 

On NREP, ACWA Power brought the $320 million Sakaka project to financial close on 15 November 2018 – similar to Dumat al Jandal the debt was also structured as a soft mini-perm. Its debt started at 130bp rising to 260bp over Libor after year six. 

REPDO meanwhile has moved on swiftly with round two of NREP, by prequalifying 60 firms for Categories A and B for up to 1,515MW of solar projects on 26 June (2019). The RFPs are to be issued on 18 July (2019).

Saudi Arabia’s first utility-scale wind

The deal for Dumat al Jandal also featured what may be Saudi Arabia’s first ever VAT facility for an IPP – value added tax was introduced in the kingdom last year. The additional costing from the VAT will be funded by a short term facility that is repaid from VAT reimbursements by the Saudi tax authority.

Dumat al Jandal will displace 885,500 tonnes of CO2 per year, and the rotor blades – with a diameter of two A380s passenger jets – will be affixed nearly a quarter of a kilometre into the air. The total area of the wind farm foundations is the equivalent of 50 football pitches. The turbines are being supplied by Vestas.

First wind is expected to take place with the beginning of commercial operations by Q2 2022.

Advisers

REPDO was advised on the round one tenders by:

  • SMBC – financial
  • DLA Piper – legal
  • Fichtner – technical

SPPC was being advised by:

  • HSBC – financial
  • Baker McKenzie – legal

The sponsors were advised by:

  • Cranmore Partners – financial
  • King & Spalding – legal

Asset SnapshotDumat Al Jandal Wind Farm (400MW)

Est. Value:
USD 375.00m
Full Details

Transaction SnapshotDumat Al Jandal Wind Farm (400MW) IPP

Financial Close:
09/07/2019
SPV:
Dumat al Jandal Wind Co for Energy LLC
Value:
$428.31m USD
Equity:
$161.40m
Debt:
$266.91m
Debt/Equity Ratio:
62:38
Full Details