The €400 million (US$523.5m) 50MW Khi Solar one project will harness South Africa's abundant sunlight using a groundbreaking solar 'tower'. The project represents a number of firsts, besides the technology: it's part of South Africa's first state renewables procurement programme and was one of the first renewables projects in South Africa to be entirely project financed using private debt.

Background

The groundbreaking Renewables Independent Power Producer Procurement Programme (REIPPP) is a South African government initiative launched in August 2011. The ambitious programme is part of an attempt by the South African government to close a looming 10,000GW energy deficit, which is stifling business and infrastructure development in the country. At the moment, South Africa is reliant on coal-fired power plants, and the government is keen to harness the country’s huge wind and solar potential to support and eventually replace these.

The competitive bid process for the targeted 3,725MW of capacity – an unprecedented amount of renewables procurement – that underpins the programme is organised by the South African Department of Energy. It is split into five rounds. IPPs submit bids for each round, with the rounds taking place at roughly six-monthly intervals which are to be completed by 2013. The cost of the projects, calculated in MWh, is, as ever, a key factor in the decision-making. Caps were imposed on the prices per MWh that developers can submit, with bids automatically disqualified if they exceeded this ceiling and different caps for different technologies. The Khi Solar consortium – which consists of Spanish developer Abengoa (51 per cent) and the Industrial Development Corporation (IDC,49 per cent) – was selected as a preferred bidder under the first round.

The project

The Khi Solar Project is a €400 million (US$523.5m), 50 MW Concentrated Solar Power (CSP) Project in Upington, in the Northern Cape Province in South Africa. It utilises a highly innovative Concentrated Solar Power (CSP) tower technology in which an array of heliostats (mirrors) positioned around a central tower track the sun's movement and reflect the sunlight onto a central single receiver located near the top of the tower. Heat is transmitted to the water flowing through the receiver, converting it to steam which is used to drive the turbine.

The project includes steam storage to be able to extend the period where the CSP project can deliver electricity to the grid. The CSP technology has two additional technology innovations, as it is the first project that uses both subcritical and supercritical steam and it will also use thinner mirrors than in previous incarnations of the technology. Khi Solar One will be able to store solar-generated energy and generate power after sunset, as well as employ advanced dry cooling technology to significantly reduce water consumption.

The supercritical steam has only been tested so far in a pilot project in Spain, and successful deployment of the technology on the Khi project will go a long way to furthering commercial development of the technology.

Khi is the first Concentrated Solar Power project in Sub-Saharan Africa. The project is fully owned by the private sector and financed by DFI's on market conditions. So the project represents a number of firsts: as a part of the first round of the REIPPP programme, as part of a new raft of CSP technology, and as one of the first renewables projects to be privately financed in South Africa.

The project will be built under a fixed price EPC contract. The contractor is Khi CSP EPC Company. The EPC contractor is 8 per cent owned by local communities and 92 per cent by Abengoa through Abeinsa, its wholly owned subsidiary dedicated to EPC contract implementation. Operations and maintenance contractor Khi CSP O&M Company Ltd will be in charge of the operation and maintenance of the plant. The operator is again owned 8 per cent by the local communities and 92 per cent by Abengoa. Local ownership is a prerequisite of the bidding process for the REIPP programme.

Financing the project

The senior lenders were IFC R600 million (US$65.4m, Mandated Lead Arranger), IDC, Proparco (R264 million), European Investment Bank (€90 million), Development Bank of South Africa (DBSA) and FMO (R312 million). Subordinated lenders were the IFC (R125 million) and Clean Technology Fund (US$41.5 million). Once construction is complete, energy will be sold to South Africa’s national electricity company Eskom for 20 years.

DBSA lent its portion of the debt as part of a massive R9.6 billion loan which was split amongst the 28 Round One projects. The amount lent to Khi was undisclosed.

All of the 28 renewable energy projects that won the South African government’s first round of contracts were expected to meet the state-imposed deadline for financial close of 19 June.

However, that deadline was extended to 30 June, after it became clear that developers would not meet this cut-off date. It was then extended again to the weeks of 9 July 2012 and 16 July.

The Khi project eventually signed on 15 November 2012. In hindsight, closing 28 complex financings on a wide range of renewables projects was an incredibly tall order, especially in a country with no prior experience of procuring and closing these types of energy projects. Round Two is now underway, with the projects currently approaching financial close.

Who advised on the deal?

Owner’s legal advisor was Norton Rose. LinkLaters provided international counsel to the lenders, while Webber Wentzel Johannesburg acted as local counsel. Mott MacDonald provided technical, environmental and social consultancy services. South African insurance advice came from Marsh.