Funding, tariff threaten solar power purchase agreement

The fate of the 14 Power Purchase Agreements (PPAs) – commercial terms for power contracts – solar energy developers signed with government-owned Nigerian Bulk Electricity Trader (NBET) on July 20 this year, hangs in the balance as the non-availability of the $2.5bn required to build the solar plants is stalling the take-off of the project.

Developers who are obligated to handle upfront costs of sizing, procuring and installing the solar PV system, now have to contend with rising foreign exchange and inflation, which have pushed the cost of solar infrastructure above initial projections.

Since July, when the agreement was signed, the naira has taken a beating, having slumped to N460/$ in November from around $305/$.

“Capital to build these plants is what is holding it,” said Segun Adaju, CEO of BlueOcean Nigeria and a renewable energy Consultant/ Financial Advisor with ties to the developers. “They are still in the process of raising capital, that is the issue.”

The PPA also provides a fixed, predictable cost of electricity for the duration of the agreement. The implication is that the price a customer pays rises at a predetermined rate, raising concern that the agreed tariff may be impractical.

NBET had reached an agreement with solar developers, endorsing 11.5 cents, which is half of MYTO II, down from 23 cents per kWh for solar energy sale price, first muted in 2015 when negotiations began.

Dolapo Oni, head of energy research at Eco Bank, said that although the PPAs represent a good deal, the power companies may struggle on the tariff they agreed.

  Oni said although only a handful of the power companies have commenced work on their sites, “I see them struggling on the tariff they agreed on. Not quite sure of how it happened, but there is no way they can meet completion deadline”.

Oni is of the view that due to current economic realities, the developers may require higher tariff which the government would have no option but to give them.

“I believe it is a good deal though and it will boost our power supply but that would be from 2017,” he said.

As a result of this situation, 1,125 megawatts of solar power that would be added to the national grid, beginning from the third quarter of 2017 is no longer feasible, as none of the 14 firms has started building its infrastructure.

They have 12 months to get their financing in order, after the projects received the blessing of the Nigerian Electricity Regulatory Commission. Construction work is meant to be completed within 12 to 18 months after  financial close, but five months later, no tangible result is being reported.

Fourteen companies that signed the agreement with NBET include: Pan Africa Solar, which is developing a 75mw solar plant in Katsina State; Nigerian Solar Capital Partners (100mw) in Bauchi State; Afrinergia Power Limited (50mw) in Nasarawa State and Motir Dusable Limited (100MW) in Nasarawa State.

Others are Nova Solar 5 Farm Limited (100mw) in Katsina State; Kvk Power Limited (100mw) in Sokoto State; Middle Band Solar One Limited (100mw) in Kogi State; LR Aaron Power Limited (100mw) in the FCT and Nova Scotia Power Development Limited (80mw) in Jigawa State.

Others are CT Cosmos (70mw) in Plateau State; En Africa (50mw) in Kaduna State; Oriental Renewable Solutions (50mw) in Jigawa State; Quaint Abiba Power Limited (50mw) in Kaduan State and Anjeed Innova Group (100mw) also in Kaduna State.

BusinessDay gathered that some of the developers are affiliating with Phanes Group, a Dubai-headquartered solar energy developer and investment manager to build a 300mw solar farm in Sokoto and Kaduna states which is proposed to be completed in 2018.

ISAAC ANYAOGU & KELECHI EWUZIE