Scatec Solar, the Norwegian solar developer specializing in emerging markets, has launched a lease finance product to foster sub 25-megawatt installations, CEO Raymond Carlsen said.
The product, called Release, will allow offtakers to enter into lease agreements for the supply of smaller-scale solar power on more flexible terms than those currently available in most emerging markets, which Scatec expects will unlock “numerous opportunities” for growth.
“There’s a huge appetite for 1- to 25-megawatt plants, which are hard to do with non-recourse financing,” Carlsen told GTM.
Traditionally, Scatec Solar has sought non-recourse debt to finance up to 75 percent of the cost of power plants, typically relying on governments, commercial banks and development finance institutions for lending.
Such plants were usually built for state-owned utilities not interested in owning the assets, so Scatec Solar remained the lead equity investor with partners including development institutions or other developers.
The company believes that targeting the sub 25-megawatt segment with a lease model in emerging markets will allow it to steal market share from diesel, which is used for more than 250 gigawatts of power generation in Africa alone. With solar, “we can deliver that at half the price,” Carlsen said.
To further speed up deployment, the company plans to design projects using 200-kilowatt, serially produced, containerized PV systems that can be shipped and installed in a fraction of the time required for standard plant construction.
Installation times would be further reduced by doing away with the need for debt finance, which can take up to six months to secure, Carlsen said.
The company said a small team should be able to install approximately a megawatt of capacity per week using the new systems, once site preparation had been completed.
The Release initiative will initially be financed by publicly listed Scatec Solar and its existing investment partners, although the company said it would also seek financing from entities that could contribute to business development.
The company has already piloted its new approach in South Sudan, where a combination of PV and Tesla batteries was used to cut diesel consumption by up to 90 percent.
This level is expected to result in power cost savings of between 30 percent and 50 percent depending on the configuration of the system, Carlsen said. Scatec Solar expects the concept to appeal to commercial and small industrial offtakers.
Ideally, the lease contracts would have a typical power-purchase agreement period of around 10 years, although this could go down to as little as two years in exchange for higher rates, said Carlsen.
Scatec's surging stock price
The foray into lease finance-backed projects is an important step for Scatec Solar, which already has a track record of leadership in emerging markets.
The company was founded in 2007 with an early focus on European markets such as Italy and the Czech Republic, which at the time were blessed with generous feed-in tariffs for solar.
As these markets started to wane, however, the company switched its focus to places where solar power was in its infancy. Its first solar plant in Africa, South Africa’s 75-megawatt Kalkbult project, came online in 2013, a year before Scatec Solar listed on the Oslo Stock Exchange.
Since then, Scatec Solar has gone on to become the largest operator of solar plants in Africa and to develop projects in 11 nations worldwide, from Argentina to Ukraine.
Last month, the company passed the gigawatt mark of solar power in operation after commissioning 65 megawatts at Egypt’s Benban complex.
Carlsen said Scatec Solar’s early presence in many nascent markets meant it was sometimes called upon to help develop renewable energy policy. “We’re not just a supplier of electricity, we’re a partner to government,” he said.
Scatec Solar has around 5 gigawatts of capacity in its development pipeline, said Carlsen, which gives it considerable buying power and helps it to cut project costs to the bone.
Another factor that helps the company reduce its risks in emerging markets is its relationships with development banks that provide access to financial instruments such as the political risk insurance provided by the World Bank’s Multilateral Investment Guarantee Agency.
Scatec Solar has found that the risks in many emerging markets may have been overblown, Carlsen said. In Africa, for example, the default rate is only about 3.5 percent because “they need electricity,” he said.
Bloomberg New Energy Finance's head of solar analysis, Jenny Chase, said Scatec Solar made a name for itself by bidding into early solar auctions around the world then using top-of-the-range technology to achieve eye-catching energy prices.
Although other players are pursuing a similar strategy, Scatec Solar’s listed status meant it was more open about its dealings than some rivals, she said. The company's share price is near an all-time high.
“Reading their company reports is a joy just because they have all these random snippets of information about markets that are not normally that transparent,” Chase said.