Expert blog – June 6, 2023
StartGreen is financing the construction of a large solar park near Almelo. This financing is possible, in part, because charging station operator Allego has guaranteed to purchase the generated electricity for the next ten years. In this blog, Investment Director Nienke Rijpstra describes the benefits of purchase agreements and other innovative financing structures.
Loan of 20 million euros
Construction of a very large solar park in Overijssel will begin this summer. In an area of 62 hectares, 47 hectares will be covered with solar panels. The remaining 15 hectares will be green space. Together, the 70,000 panels will generate 43,000 megawatt-hours of sustainable energy annually, enough to power 17,000 households. Solar park Aadijk II thus makes a significant contribution to the province of Overijssel’s goal of being completely energy-neutral by 2050. Energiefonds Overijssel has therefore issued the largest loan in its history to this project: 20 million euros.
See also: Energiefonds Overijssel finances large solar park near Almelo
Win-win situation
A special feature of this project is that the risk is partly covered by a so-called CPPA (Corporate Power Purchase Agreement): an off-take contract. In this case, the CPPA guarantees the purchase of the generated electricity by Allego at a fixed price 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 agreement therefore creates a win-win situation, where both the entrepreneur and the solar park benefit from long-term certainty.
Challenging financing
Financing a solar park based on a (C)PPA is currently still a challenge. Banks are accustomed to financing solar projects when there is hardly any risk involved, essentially only when the SDE subsidy is sufficient. StartGreen was willing to take that risk. Even if the off-take party were to fall away, the solar park has sufficient options to sell the generated electricity and thereby repay the loan.
Furthermore, we found it to be a sympathetic match: a growing Dutch company providing power for e-mobility. With the power from Aadijk II, Allego can fully charge approximately 2,000 cars every day. This fits well with StartGreen’s focus on the energy transition. It is a double-edged sword: we want to get the financial picture right and we want the sustainably generated electricity to be put to good use. StartGreen is therefore very proud of this collaboration with Klimaatfonds Nederland and Allego.
Attractive construction
Because interest rates and material costs have risen and the SDE subsidy is decreasing, it is more difficult for solar projects to make their business case work. A (C)PPA can be an important link in the financing of solar projects, but it is still relatively new. Advantages include the fact that the off-take party offers a higher price than the market price at the time the contract is concluded. Furthermore, the project is guaranteed off-take for a longer period, and the off-take party has a secure power supply during that time.
The bottleneck, however, is that the supply and demand of electricity do not yet align well. There is no ‘Marketplace’ for companies that purchase power. We cannot solve that problem. We can, however, shape the financing frameworks so that the project knows which conditions such an off-take party must meet. StartGreen distinguishes itself by looking flexibly at possible alternative income sources for each project.
More and more often, we speak with developers who are looking for fixed off-takers and are interested in the financing possibility with a (C)PPA. Everyone who enters into a CPPA uses the same template. For this contract, an external advisor explained exactly how that contract is structured. I foresee that the CPPA will become an important element in project financing. We now know how to assess the agreements made within them, which makes us even more attractive as a financier.’
Alternative income sources
A (C)PPA is one possibility, but there are more options. Another is the optimal marketing of the generated electricity. Normally, a project receives the average hourly price for the generated electricity at the end of the year. There are now a number of parties on the market that continuously seek the best selling price based on machine learning and big data. These parties also help to keep supply and demand on the grid in balance. Dexter is a good example of this. At StartGreen, we think that is such a good idea that we invest in it. We keep a close eye on innovations in the field of off-take, storage, and alternative income, so that we can continue to fulfill a pioneering role in financing the energy transition.’
