Expert Blog – June 6, 2023
StartGreen is financing the construction of a large solar park near Almelo. This financing is possible because, among other things, charging point manager Allego is guaranteed to purchase the generated power for the next ten years. In this blog, Investment Director Nienke Rijpstra describes the benefits of purchase contracts and other innovative financing structures.
Loan of 20 million euros
The construction of a very large solar park in Overijssel will start this summer. In an area of 62 hectares, 47 hectares of solar panels will be installed. The other 15 hectares will become green. The 70,000 panels together generate 43,000 Megawatt hours of sustainable energy annually, enough to provide 17,000 households with electricity. Zonnepark Aadijk II thus makes a significant contribution to the objective of the province of Overijssel to be completely energy neutral by 2050. Energiefonds Overijssel has therefore issued the largest loan in its existence to this project: 20 million euros.
Also see: Energiefonds Overijssel finances a large solar park near Almelo
Win win situation
What is special about this project is that the risk is partly covered by a so-called CPPA (Corporate Power Purchase Agreement): a purchase contract. In this case, the CPPA guarantees the purchase of the generated power at a fixed price by Allego for ten years. The CPPA enables Allego to purchase sustainable electricity directly from solar park Aadijk II, without the intervention of an energy supplier. Such a purchase contract therefore provides a win-win situation, in which both the entrepreneur and the solar park benefit from long-term security.
Challenging financing
Financing a solar park based on a (C)PPA is currently still a challenge. Banks are used to financing solar projects when there is hardly any risk, so only if the SDE subsidy is sufficient. StartGreen dared to take that risk. Even if the purchase party were to disappear, the solar park has sufficient options to sell the generated power and thus repay the loan.
Moreover, we thought it was a pleasant match: a growing Dutch company that supplies power to e-mobility. With the electricity from Aadijk II, Allego can fully charge approximately 2,000 cars every day. This fits in well with StartGreen's focus on the energy transition. The knife cuts both ways: we want to complete the financial picture and we want the sustainably generated power to be used properly. StartGreen is therefore very proud of this collaboration with Climate Fund Netherlands and Allego.
Attractive construction
Because interest and material costs have risen and the SDE subsidy is falling, it is more difficult for solar projects to complete their business case. A (C)PPA can be an important link in the financing of solar projects, but it is still relatively new. The advantages are that the purchasing party offers a higher price than the market price at the time the contract is concluded. Moreover, the project is guaranteed to be purchased for a longer period of time and the purchasing party has a certain power supply during that time.
The bottleneck, however, is that the supply and demand of electricity are not yet well matched. There is no Marktplaats for companies that purchase electricity. We cannot solve that problem. We can, however, shape the financing frameworks, so that the project knows which conditions such a customer must meet. StartGreen distinguishes itself by looking flexibly at possible, alternative sources of income for each project.
We increasingly speak to developers who are looking for regular customers and are interested in the financing option with a (C)PPA. Everyone who concludes a CCPA uses the same template. For this contract, an external consultant explained to us exactly how that contract works. I foresee that the CPPA will become an important element in project financing. We now know how to assess the agreements made therein, so that makes us even more attractive as a financier.'
Alternative sources of income
A (C)PPA is one possibility, but there are more possibilities. Another is the optimal marketing of the generated power. Normally, a project receives the average hourly price for the generated power at the end of the year. There are now a number of parties on the market who are constantly looking for the best sales price based on machine learning and big data. These parties also help to balance supply and demand on the grid. Dexter is a good example of that. We at StartGreen think that's such a good idea that we invest in it. We keep a close eye on innovations in the field of offtake, storage and alternative income, so that we can continue to play a pioneering role in financing the energy transition.'
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