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Financing utility scale solar PV projects in MENA

The money is there for bankable projects, Mesia event hears

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Solar PV is no longer the new kid on the block
Solar PV is no longer the new kid on the block

Global solar photovoltaic (PV) installation last year surpassed wind for the first time, and about $100 billion of funds flooded in to finance the 38 GW of PV installed last year alone.

With a global installed capacity of over 150 GW, solar PV is no longer the new kid to the power generation mix, and is forecasted to reach terawatt level capacities by 2030.

However, year to date solar PV installation in the Middle East and North Africa (MENA), a region where PV technology makes the most economic sense compared to other established markets, has so far seen a very modest installation of about 200 MW.

Most of this capacity uses concentrated solar power (CSP), a very capital intensive solar technology.

However there is encouraging news coming from a number of MENA countries which arelaunching solar PV programmes, and by some estimates the Middle East could see $50 billion invested in these solar projects by 2020.

Whereas most of the PV projects worldwide are dominated by roof top and feed in structures (FIT), in MENA utility scale PV projects with tender base mechanism (bid) are set to prevail in the coming years.

As financing and related costs constitute the key component of the competitive offering – project sponsors in MENA need to structure their project with the right combination of bid optimisation strategy and financing mechanisms in a local environment that lacks a robust capital market and lending volume and expertise in financing renewable energy projects.

To that end, the Middle East Solar Industry Association (Mesia) organised a half day seminar in Dubai on June 23, titled ‘Best practices in financing large scale PV projects in MENA’.

The event, sponsored and moderated by Eversheds LLP, Chardborne & Parke LLC and Synergy Consulting Inc, was well attended by over 150 solar industry professionals.

The highlight was the key note presentation by Waleed Salman, EVP Strategy & Business Development, sharing DEWA’s vision on the deployment of solar in Dubai.

The panellists included representatives of groups that comprise a bidding consortium - sponsors and lenders. It also included a financial consultant, which is another key participant in a successful bid.

The seminar took a holistic look at bid optimisation strategies while two specific panels focused on improving bankability of solar projects as well as available financing mechanisms to reduce the overall cost of projects competing in the MENA region.

Bid optimisation strategies could be structured across EPC, operations and financing parameters, and the incremental improvement opportunities that typically go unnoticed - if well-structured from the outset - can provide a competitive advantage to the bidder.

The panelists were of the view that there is sufficient liquidity in the market to finance solar PV projects. However, as these projects will tend to be smaller in size ($50 - $200 million), a deal pipeline is needed in order to attract lender interest.
Options for financing include conventional debt, ECA financing, Sukuk and potentially even bonds.

There is a healthy appetite among local banks to fund these projects. However, one of the key success factors to financing these PV projects will remain strong government support in the form of long-term commitment and policy stability that lenders and sponsors will rely on.

An issue in the past tended to be the mixed signals given by procurers to the market; therefore clear signals are needed to ensure success of solar PV programmes in this very promising market where capacity can be added very quickly, easing energy, environment and job related concerns.

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