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9.2.1 The recommended PPP structure The recommended PPP structure would allow the governments to use private sector knowledge, resources, and financing, as well as multilateral funding, to develop geothermal resources. Under the recommended PPP structure (Figure 9.1), the government and a qualified private developer (or a consortium of private companies) would establish an SPV. The SPV would be granted a concession for developing the geothermal resource and building, operating, and maintaining the geothermal power plant. The SPV would sell all electricity generated by the geothermal power plant to the vertically integrated utility in the country under a PPA. The geothermal project would be financed through a mix of debt and equity. The owners of the SPV would provide equity capital. Debt would be provided by commercial banks and multilateral development banks (the Fund). FIGURE 9.1 Recommended Project Structure for Geothermal Projects Multilateral Development Banks Grants Government Private Developer (Off-taker) Payment Support Mechanism PPA (20-30 years) Concession Agreement Contingent Grants and Loans (Debt) Equity Geothermal SPV Commercial debt Commercial Lenders Utility Customers The Fund would play a significant role in financing the projects and helping mitigate projects’ risks. The Fund would provide different types of support, tailored to the stage of development of each geothermal project. Support would take the form of technical assistance, grants, contingent grants, and concessionary loans. Grants and contingent grants should be directed towards the riskier, earlier stages of geothermal development. Concessionary loans (debt) would be directed towards the production drilling and construction phases, which present reduced resource risks to investors (see more details in Section 9.2.4). For some projects, lenders or equity investors might require an additional mechanism to enhance the quality of the cash flows of the geothermal projects. The enhancement mechanism could be a payment support mechanism that backs the utility’s payments for the PPA. That support mechanism would reduce the risk of the project’s revenues and, thus, make the project more bankable and appealing to investors. The payment support mechanism can be implemented in various ways. Some of the options include: • Establishing a liquidity facility, such as a trust fund or escrow account. This involves setting up a single-purpose account that is managed by a third party. The utility would make periodic contributions to the bank account, and these funds would be exclusively used to pay the SPV in the event that the utility does not meet its payments under the PPA. • Purchasing a third-party guarantee mechanism offered by a donor or financial institution. Examples of financial institutions that offer guarantees include the Multilateral Investment Guarantee Agency, which provides coverage for breach of contract. 57PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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