2016/61 Supported by k nKonw A A weldegdeg e ol n oNtoet e s eSrei r e ise s f ofro r p r&a c t hteh e nEenregryg y Etx itcrea c t i v e s G l o b a l P r a c t i c e The bottom line Rooftop Solar in Maldives: A World Bank Guarantee and SREP Expensive diesel-fired generators operated by two state-owned Facilitate Private Investment in Clean and Affordable Energy utilities keep the lights on in Maldives, an archipelago of 200 inhabited islands spread over 900 How do you power an archipelago? Figure 1. Map of Maldives kilometers of the Indian Ocean. Maldives is betting that electricity from rooftop solar But with the advent of affordable can lower its reliance on imported diesel fuel solar technology, the islands’ abundant sunshine can be Access to electricity in Maldives is nearly universal. But because the harnessed for clean generation archipelago (figure 1) lacks indigenous conventional energy sources, through private rooftop solar power generation is based almost exclusively on imported diesel systems. With World Bank fuel. Installed capacity on the 194 inhabited islands, home to 350,000 support, an innovative guarantee people, is about 140 megawatts (MW), while an additional 100 resort structure has been designed to islands have a generation capacity of about 105 MW, operated attract private developers. The independently. Maldives is a middle-income country that remains program is expected to produce highly dependent on imported goods and is increasingly vulnerable savings of $28 to $84 million to the effects of climate change. for 20 MW of installations and As a result of its dispersed geography, the fuel cost for electricity to mobilize about $42 million in generation alone ranges from 20–30 U.S. cents per kilowatt-hour private investment. (kWh) in the larger and more efficient island grids. It is even higher on smaller and more remote islands. Despite significant subsidies (averaging 5 U.S. cents per kWh), the end-user tariff remains high (20 to 56 U.S. cents per kWh with fuel surcharge), constituting about 9 percent of spending in the poorest households. Sandeep Kohli is a Providing around-the-clock energy to the dispersed population is senior energy specialist at a large undertaking and a burden on public expenditure (1.4 percent the World Bank. of GDP in 2012). In response, national policies, including Maldives Vision 2020 and the 2010 National Energy Policy and Strategy, have focused on creating a reliable, resilient, and sustainable energy sec- Arnaud Braud is an infrastructure finance tor. Use of renewable energy, such as rooftop solar power, is a central specialist at the World element of the nation’s strategies. Other countries have shown the Bank. promise of rooftop solar; India’s experience is described in box 1. 2 R oo f to p S o l a r i n M a l d i v es creating a bankable project structure attractive to the private sector. Box 1. Successful rooftop solar power in India For 20 MW of installations, the estimated savings over an approach based on the status quo would be $28 to $84 million over a 20-year Recent experience in India shows the potential of rooftop solar period.1 photovoltaic power. In three years, the country has developed about The first phase of ASPIRE is building 4 MW of solar PV systems on 300 MW of solar rooftop capacity. “ASPIRE’s goal is to scale public buildings in Malé, the capital, and Hulhumalé, a large residen- In 2012, the government of the state of Gujarat, with support from the up solar PV generation International Finance Corporation, launched a project to build a 5 MW tial island nearby. The key features of this program are as follows: grid-connected rooftop solar generation facility in Gandhinagar to be • A private firm (“the Seller”) designs, finances, builds, owns, from the present level operated by an independent power producer. The project included two operates, and transfers (or decommissions) the solar rooftop of ~1.5 MW to between lots of 2.5 MW, with government-owned roofs producing 80 percent project (DFBOOT model) (figure 2). of the power and privately owned roofs accounting for the remaining 20–40 MW over the next 20 percent. The bidding generated wide interest—38 firms submitted • The Seller is selected through an international competitive five years by creating a expressions of interest. The winning bidders offered tariffs of Rs 11.21/ process, with selection based on the lowest offered tariff. Bidders kWh and Rs 11.79/kWh (about 18 U.S. cents per kWh). One of the must prequalify by meeting minimum technical and financial bankable project structure winning bidders is a special-purpose vehicle formed by SunEdison, a large international solar developer. requirements. attractive to the private • The Seller supplies power to the utility (in this case, STELCO, a Building on this success, the Gujarat Electricity Regulatory Commission sector.” determined a rooftop solar benchmark tariff. In 2015, the city of state-owned utility serving Malé and adjacent islands) at a fixed Vadodara awarded another 5MW project. The tariff obtained from the tariff denominated in U.S. dollars and payable in Maldivian rufíyaa bidding was even lower (Rs 10.76/kWh; about 17 U.S. cents per kWh) under a 20-year power purchase agreement. despite higher risk stemming from the requirement that the developer secure most of the roofs from private owners. Figure 2. Structure of the ASPIRE project Who will build the needed solar capacity? GoM Escrow bank SREP funding Maldives created a project structure to attract the Implementation Escrow World Bank private sector agreement agreement guarantee The Maldives Ministry of Environment and Energy, with support Roof lease Project Power purchase Off-taker from the World Bank and from the Scaling Up Renewable Energy agreements company agreement (STELCO) Program (SREP), a funding window of the Climate Investment Fund, DBFOOT Roof has designed a program centered on solar photovoltaic (PV) rooftop rent installations to take advantage of the nation’s high insolation while Energy transmitted Rooftop via utility network also coping with the scarcity of land. The “daily average global owners horizontal irradiation” in Maldives is 5.4–6.4 KWh/m2, with 280–300 sunny days per year. Known as ASPIRE (Accelerating Sustainable Private Investments in Renewable Energy), the program is funded with $11.7 million in SREP funds, the equivalent of $16 million in IDA guarantees, and DBFOOT = design, finance, build, own, operate, and transfer. support from the Asia Sustainable and Alternative Energy Program. 1. The estimates assume an off-take power price for PV of 21 U.S. cents per kWh, fuel consumption of 0.29 liters of diesel ASPIRE’s goal is to scale up solar PV generation from the present per kWh, and a diesel price of 71 to 104 U.S. cents per liter (based on prices observed during the second half of 2015). For level of ~1.5 MW to between 20–40 MW over the next five years by reference, Maldives’ GDP in 2014 was about $3 billion. 3 R oo f to p S o l a r i n M a l d i v es • The Seller and the government enter into an implementation Because the Maldives government had limited experience agreement defining the obligations of the government vis-à-vis with independent power producers, financial, technical, and legal the Seller. advisors were engaged with support from the World Bank to develop • The Seller also enters into lease agreements with roof owners for standardized project documents that met international standards. PV installations. Two investor conferences—one before the bidding and another at its “To make the contracts • The Seller, STELCO, the government, and a selected escrow bank announcement—were held to solicit investor interest. The confer- bankable, the government, enter into an escrow agreement. ences ensured wide outreach to solar developers and generated useful feedback. its advisors, and the What have been the challenges? To cope with the size and remoteness of the market, ASPIRE World Bank worked to has a phased strategy, one that will unfold to 20–40 MW of solar PV ensure a fair and attractive A mix of features common to developing markets— over five years from the present ~1.5 MW, effectively enlarging the allocation of risk.” plus some unique to Maldives—required creative market for potential developers. Aggregating investments in large solutions enough bids and focusing on developing local expertise is a part of this strategy. Finally, part of the SREP grant will be used to buy down The project has been designed to overcome numerous obstacles— the tariff in remote islands, where more extensive PV penetration will among them investor concerns about the risk of nonpayment by the likely require additional storage capacity. publicly owned utility, political risk, currency convertibility issues, and the utility’s unfamiliarity with public-private partnerships. The small size of the market, the lack of a national grid, the remoteness of most Is ASPIRE working? islands, and the scarcity of land and rooftop space have complicated Progress has been challenging, but early returns are the process of aggregating investments. Project documents meeting promising, and much has been learned international financing standards, including the power purchase agreement, also had to be developed. The turnout for the first 4 MW bid package was good, considering To mitigate the utility’s payment risk, the government is funding a the risks and market size. About 25 firms, mostly international, six-month escrow account using an SREP grant. The Seller is empow- purchased the bid documents; four bids were received. (Two ered to draw on the account if a payment is delayed, thus mitigating additional bids were disqualified for late submission.) The package liquidity risk for the investor. STELCO and the government then have was split in two—1.5 MW in Hulhumalé and 2.5MW in Malé. In the an obligation to replenish the account during a “cure period,” failing latter segment, bidders did not meet all technical criteria, so another which a guarantee from the International Development Association, round of bidding will be held. The Hulhumalé segment was awarded the concessional lending arm of the World Bank Group, will partially to a Chinese–Swiss consortium (China Machinery Engineering cover the government’s termination obligations. In this manner risk is Corporation in association with Grass Solartek Schweiz) that signed shared between the private investor and the government. the power purchase agreement and implementation agreement on To make the contracts bankable, the government, its advisors, October 15, 2015. The tariff is 21 U.S. cents per kWh—which seems and the World Bank worked to ensure a fair and attractive allocation reasonable considering that a recent winning bid in a much larger of risk—in particular regarding deemed generation, force majeure, and more developed market in India came in at 18 U.S. cents per events of default, and termination clauses. The government also gave kWh (see box 1). bidders the option to bid with or without requiring currency-con- Applying the experience gained thus far, the government will vertibility protection from the government; bidders not seeking this launch the second round in the coming months and then move to risk-hedging facility benefited from an advantage in the evaluation. the outer islands, working toward its policy goal of a reliable, resilient, and sustainable energy sector. In December 2015, the government 4 R oo f to p S o l a r i n M a l d i v es enacted a net metering regulation that should boost the participation • Fostering competition is critical. The confidence of private firms Make further of local entrepreneurs and residents in roof-top based PV generation. is gained through investor conferences, timely answers to connections World Bank support provided important benefits. In addition to questions, modification of the transaction structure as the need adding credibility to the entire transaction, the Bank’s experts began arises, and a fair allocation of risk. Live Wire 2014/12. working with the government far upstream of the bidding, identi- • Finalizing the documents during the bid period allows for fast “Promoting Renewable fying problems, tailoring solutions to the country’s circumstances, closing following the award. In the Maldives’ case, bidders Energy through Auctions,” classifying the islands, and piloting a solar project in Thinadhoo. The were invited to propose changes during the bid period, and the by Gabriela Elizondo Azuela Bank assisted ministry staff in contracting reputable advisors and government responded to all queries and made some changes. and Luiz Barroso. This Live providing advice for developing project documents, risk allocation, The documents then became final, with no material changes Wire is followed by case and procurement processes, all in conformity with international made after the award. studies on Brazil (LW13), China standards. • Teams can build on existing experience. For example, existing (LW14), and India (LW15). Help in mitigating payment risk (through the SREP-funded templates for rooftop solar power purchase agreements, escrow account and the IDA guarantee for termination) was critical. implementation agreements, and roof lease agreements can be Live Wire 2015/38. Historically, projects with IDA’s involvement rarely encounter defaults, used for similar projects. “Integrating Variable but it was important to ensure that payment delays did not trigger Renewable Energy into immediate recourse to the guarantee. The SREP-funded escrow The Asia Sustainable and Alternative Energy Program at the World Bank Power System Operations,” facility provides that buffer, giving comfort to both the investor and supported the development of the ASPIRE concept. The authors thank other by Thomas Nikolakakis and core members of the ASPIRE team—Robert Schlotterer, Gunjan Gautam, the government. Debabrata Chattopadhyay. Ximena Talero, and Shingira Masanzu—and peer reviewers Abdulaziz Faghi The major lessons learned to date are these: and Richard MacGeorge. Live Wire 2015/49. • Governments and utilities having limited experience with pub- “Promoting Solar Energy lic-private partnerships need a clear governmental commitment, through Auctions: The Case motivated staff, and strong technical, financial, and legal support of Uganda,” by René Meyer, to prepare transactions. It can take considerable time to build Bernard Tenenbaum, and understanding of the issues and to devise solutions, such as a Richard Hosier. fair and attractive allocation of risk and a workable approach to currency convertibility. Small-scale pilots can reduce technology Live Wire 2015/50. risk and build confidence among stakeholders. “Implementing Rooftop Solar Projects: Public-Private Partnerships in India,” by Pankaj Sinha and Shaina Sethi.