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11.3.1 Structure of the PPP The PPP structure proposed by the government in La Soufriere Geothermal Project would allow for the successful development of Saint Vincent’s geothermal resources.209 We recommend the government implement this PPP structure with two additions—including a payment support mechanism that backs VINLEC’s payments under the PPA, and concessional funding from multilateral development banks. The proposed PPP structure, which has been discussed and is outlined in a LOI, is described in depth in Section 11.2.210 Under this model, the geothermal resource in Saint Vincent would be developed by an SPV that is jointly owned by the government and its private partners. It would be financed through a mix of debt and equity contributions. The government has already been approved for a US$15 million loan to support this project.211 The SPV would have a 20-to-30-year concession to design, build, own, operate, and finance the geothermal generation plant and would sell electricity to VINLEC under a 20-to-30-year PPA. We recommend two additions to the PPP structure proposed by the government. First, we recommend that the government obtain additional concessionary funding. Multilateral development banks could provide contingent grants and concessional loans to the SPVs. The type of funding provided would differ based on the stage of the project’s development. Grants and contingent grants would support the early stages of geothermal development—surface exploration (including environmental and social impact studies) and exploratory drilling. At these stages, the resource is highly uncertain. Contingent grants would be converted to concessional loans if the resource is confirmed and a power plant is built on the site, and repaid from revenues from electricity tariffs. The later stages of geothermal development—production drilling and power plant construction—would be supported by concessional loans. This funding would support the project during the stages with the highest risk, and will help reduce the overall cost of the project. Secondly, since VINLEC is fully state-owned, it might be necessary to include a payment support mechanism that backs VINLEC’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, which would involve setting up a single purpose account that is managed by a third party. VINLEC would make periodic contributions to the bank account, and these funds would be exclusively used to pay the SPV in the event that VINLEC does not meet its payments under the PPA. • A third-party guarantee mechanism offered by a donor or financial institution could also be used to back VINLEC’s payments. Examples of financial institutions that offer guarantees include the Multilateral Investment Guarantee Agency, which provides coverage for breach of contract. 209. Government of Saint Vincent and the Grenadines, “The La Soufriere Geothermal Project” (Costa Rica Study Tour: March 2014). 210. Ibid. 211. “IRENA and ADFD Bring Renewable Power to 280,000 in Many Rural Communities,” IRENA.com, January 18, 2015, accessed April 27, 2015, http://www.irena.org/News/Description.aspx?NType=A&mnu=cat&PriMenuID=16&CatID=84&News_ID=388 ; Kenton Chance, “Saint Vincent’s Geothermal Project Gets US$15 Million Loan,” I-Witness News, January 18, 2015, accessed September 15, 2015, http://www.iwnsvg.com/2015/01/18/st-vincents-geothermal-project-gets-us15-million-loan/. 90PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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