Financial innovation enables Scatec Solar to launch projects worth nearly USD one billion

The approach to project financing adopted by the company differs, with uniquely designed solutions appropriate for the specific local conditions in Malaysia, Brazil and Egypt. ‘’Getting cost efficient capital is essential to deploy renewable energy to meet climate goals. I am very proud of our organization’s ability to innovate and deliver high value projects in new and different markets’’, says Raymond Carlsen, CEO of Scatec Solar.

With six projects totaling 400 MW, Scatec Solar is a leading solar energy player in Egypt, where the Benban solar installation upon completion will be the largest in the world with a planned total capacity of 1.8 GW. ‘’The range and number of financing parties adds to the complexity of the Egypt deal’’, says Mikkel Tørud, Scatec Solar’s CFO. Innovation lies in the inclusion of conventional, multilateral, public, private, Islamic and climate financing. The DFI consortium that is providing a debt package of USD 335 million, which is 75% of the capex of USD 450 million, includes the EBRD, the Dutch development bank FMO, the Islamic Development Bank and the Islamic Corporation for the Development of the Private Sector. Says EBRD’s Head of Power and Energy Utilities, Harry Boyd-Carpenter: ”We are delighted to support the largest solar portfolio in Egypt’s feed-in-tariff scheme and to work again with Scatec Solar.” The Egypt finance package also includes USD 48 million from the UN’s Green Climate Fund. This is the first time Scatec Solar is accessing climate finance. ‘’It shows the potential for public and private climate finance’’ says Ayaan Adam, Private Sector Facility Director at GCF. The GCF loan is not concessional, but contributes to the liquidity needed to implement the 400 MW projects. Equity is provided by Scatec Solar, Norwegian DFI Norfund and Africa50, the infrastructure fund for Africa.

Scatec Solar’s strong and long-standing financial partnerships with DFIs and multilateral financial institutions enable the successful raising of capital. In addition, Norway’s export credit agency, GIEK, which is mandated by the Norwegian Government to facilitate export financing to mitigate host country political and economic risks, has provided support through guarantees across Scatec Solar’s project portfolio. These are repeat partnerships, having efficiently implemented projects together earlier in different countries by harnessing their core competencies.  Says CEO Carlsen “We know what is expected of each other so we don’t play in the center field, we aim straight for the goal.”

In Malaysia, financial innovation involves the issuance of the world’s largest Islamic Green (Sukuk) Bond of USD 237 million, providing 80% of the capex for Scatec Solar’s 197 MW photovoltaic projects. The projects constitute the largest Renewable Energy portfolio in South East Asia. This is the first time the company is raising money through a project bond.

The Islamic Green Bond is an innovative financial instrument in Malaysia that has established frameworks for issuing islamic bonds for infrastructure projects as well as the ambition to strengthen its position as a global hub for Islamic financing. “We want to explore and utilize financial structures that are optimal for each situation” explains Terje Pilskog EVP of Project Development & Project Finance. The Islamic Bond was given an AA rating by the Malaysian Rating Corporation Berhard and a ‘’Dark Green’’ rating by the Oslo-based Cicero (Center for International Climate and Environmental Research).

With low and even negative interest rates on treasury bonds, Institutional investors who want long-term, stable investment see renewable energy projects as an attractive option. Green Bonds are suitable financial instruments in view of Scatec Solar’s 20-year Power Purchasing Agreements and proven track record to rapidly design, build, own and operate state-of-the-art solar plants in emerging markets. Solar projects require upfront high capex with stable and highly predictable future cash flow as fuel is free, not dependent on variable future import costs as are fossil fuel-run electricity plants and do not pose stranded asset risks.  Scatec Solar’s world-wide operating plants have an uptime of over 99%.

The demand for green instruments has increased substantially since Scatec Solar issued its first Green Bond two years ago. Recently, the company successfully issued an unsecured corporate bond of NOK 750 million. ‘’Our green bond is this time with more attractive terms and investors subscribed for a significant volume’’ says Tørud.

In Brazil, Scatec Solar’s financial strategies included signing its first ever JV with the Norwegian energy giant, Statoil, for its 162 MW Apodi Project. ‘’Statoil’s solid balance sheet and local presence and our competence in developing and building solar plants makes us a strong team to realize more projects,” says Pilskog. Additionally, Scatec Solar signed an agreement with the Banco do Nordeste, BNB, Brazil’s regional development bank, to provide 20-year loan of 477.4 million Brazilian Real, meeting 65% of the capex of USD 215 million. BNB provides loans at competitive rates as part of the initiative to promote local industry and Scatec Solar will be sourcing inverters, steel and other equipment locally. ’Strengthening local supply networks is part of our company vision’’ says Carlsen.

The solar projects in Brazil, Malaysia and Egypt involving a total investment of USD 958 million will together generate 1,500 GWh of electricity per year avoiding more than 700,000 tons of carbon emissions annually. Construction work has begun and this will generate thousands of local jobs.