WBGx: EMDE01x Final Projet Unlocking Investment and Finance in Emerging Markets and Developing Economies (EMDEs)

1. Finance Strategy for a 202 MWp Solar Power Plant
Executive Summary
Main Project Features
 Project Location: Republic Of Trinidad and Tobago.
 Solar Power Plant Ownership and Operation: wholly owned and operated by Neoen, France’s
leading independent producer of renewable energy (IPP).
 Total investment: US$224 million, including borrowing costs.
 Annual Electricity Exported to Grid: 254,718 MWh.
 Power Purchase Agreement (PPA): Electricity will be sold to Trinidad and Tobago Electricity
Commission (T&TEC) via 20 year PPA. T&TEC is a state-owned, vertically integrated electricity
company, responsible for all levels of power generation and supply. T&TEC is the sole transmission
and distribution company serving Trinidad and Tobago.
Project Local Environment
Trinidad and Tobago (T&T) has significant oil and natural gas reserves and is a net exporter of these fuels. In
T&T all electricity is produced using natural gas making this twin island state the second nation in the world
to achieve this feat (the first being Qatar).
Electricity rates in much of the Caribbean typically lies in the range of 300 - 400 $/MWh and fluctuates with
prevailing oil prices. In comparison the electricity rate in Trinidad & Tobago is steady at around 50 $/MWh.
Many attribute this large discrepancy to T&T having cheap and abundant gas resources, and to an extent this
is true. However, the bulk of the benefit comes in the form of a subsidy on electricity.1
Electricity subsidy have created a fiscal burden on the government and is considered one of the major barriers
to the uptake of renewable energy penetration in T&T.2
The Government of the Republic of Trinidad and Tobago (GoRTT) is looking at introducing Renewables Energy
generation technologies, which could potentially provide 16% of the electricity generated by 2032. The
measures introduced in this scenario require an average of 101,000 MWh per year of solar photovoltaic
generation capacity to be installed during the next 10 years.3
A key and innovative concept in the base of the present finance strategy is the low social and political impact
Renewable Energy Subsidy Reduction (RESR), which demonstrates that the electricity subsidy could be one of
the major drivers to the uptake of renewable energy penetration in T&T.
Financial Viability
It is assumed that the "hurdle rate," or minimum acceptable post-tax Modified Internal Rate of Return (MIRR)
on equity, should be at least 14.5% in order to provide sufficient incentive to private developers, investors
and financial entities, to engage in the process. To comply with this imposed restriction the main parameter
to be negotiated is the price of electricity $/MWh sold by NEON to T&TEC.
From our simulation the required rate to comply the minimum acceptable MIRR is: 105 $/MWh.
Renewable Energy Subsidy Reduction (RESR)
While the citizens of the country benefit from low cost electricity, they are also foregoing an opportunity to
generate additional revenues from increased gas sales from higher valued natural gas based derivatives. While

2. low cost electricity is a benefit to any population, the extremely low cost of electricity in Trinidad and Tobago
results in wasteful practices and a nonchalant attitude to energy efficiency.1
There are essentially two main ways to reduce the level of the electricity subsidy. Naturally the first is to raise
the cost of electricity, but as we all know this presents many social and political challenges. The second is to
increase the level of energy efficiency at existing power plants and/or reduce the amount of gas that is used
for power generation through the implementation of renewable energy technologies. The value of the
electricity subsidy can be estimated as follows:4
Fully loaded cost of electricity = Cost of natural gas (unsubsidized) + Cost of conversion + Cost of distribution
Fully loaded cost of electricity = 55 $/MWh + 45 $/MWh + 20 $/MWh
Fully loaded cost of electricity = 120 $/kWh
Subsidized T&T electricity rate: 50 $/kWh
T&T electricity subsidy: 65 $/kWh
Financing Scheme
The 202 MWp power plant wholly-owned by Neoen will be funded by two tranches of non-recourse senior
debt, one provided by development banks Proparco, DEG and ICCF and the other by Société Générale and
KfW
The tranche made available by Société Générale and KfW, which accounts for over half of the financing, carries
a buyer credit guarantee from Bpifrance Assurance Export (“BPIAE”). In addition, the project will be covered
by a US$73 million guarantee from the World Bank. It is one of the first solar power plants in the world to
qualify for the benefit of this type of financing, and the first with BPIAE.
The power plant will be built under a turnkey agreement with T&T Solar GenSun TSK, a Franco-Spanish
consortium formed by GenSun and TSK. The cables and high-voltage equipment for the power plant will be
supplied by French partners. The power plant will also make use of components and services supplied by T&T’s
companies.
References
1. https://energynow.tt/blog/understanding-the-electricity-subsidy-in-tt
2. https://www.nrel.gov/docs/fy15osti/64117.pdf
3. http://www.energy.gov.tt/wp-content/uploads/2016/08/A-Unique-Approach-for-Sustainable-
Energy-in-Trinidad-and-Tobago.pdf
4. https://energynow.tt/blog/pt-2-how-much-do-we-lose-on-the-electricity-subsidy