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Some lenders may require additional mechanisms that enhance the quality of the cash flows of the project. In particular, it may be necessary to include a payment support mechanism that backs DOMLEC’s payments under the PPA. That support mechanism would reduce the risk of the project’s revenues and, thus, make the project more bankable. The mechanism could be implemented in various ways. Some of the options include establishing a liquidity facility (such as a trust fund or escrow account) or third-party guarantees (offered by donors or financial institutions); see the recommended structure in Section 9.2.1 for more details. This PPP structure would involve participation from the following key actors and relationships: • Private developers (potentially GDF) and the SPV—Private companies would develop the geothermal power plant by forming an SPV with the government. This SPV would have a concession from the government to use the production well and design, build, operate, and finance the geothermal power plant. The SPV would also have a PPA with DOMLEC for selling its electricity. The concession and the PPA should cover the same time period and last for 20–30 years—long enough for all debts to be repaid and for the project developers to earn the required return on equity. The planned project would be financed with both equity contributions from the owners of the SPV and with debt financing. • The government—The government should develop the geothermal power plant by forming an SPV with the private developers. The government would also be responsible for providing the SPV with the right to use the 11 MW production well and signing a concession agreement with the SPV to build, operate, and finance the power plant. • DOMLEC—DOMLEC would purchase the electricity produced by the geothermal power plant. DOMLEC should sign a PPA with the SPV, which should have a duration that matches the duration of the concession agreement. • The multilateral development banks— The multilateral development banks would play a key role in this project by providing funding to the SPV. The funding may be used for drilling additional production wells or it may be used to provide debt financing for the project. This funding will reduce the cost of the project and make it more attractive to project developers. One of the key entities that will likely provide funding for the project is AFD, which has said that it would fund a 15 MW plant.264 • Banks and other entities that provide debt financing—Banks and other entities would provide commercial debt for the project. It is likely that they would be unwilling to loan money to the project until a concession agreement is in place and a PPA has been signed with DOMLEC. The proposed project structure can be successful because the project developer will have few risks that can be mitigated. This is because there is a proven 11 MW production well in Dominica and the project will have a guaranteed revenue stream. The proven 11 MW production well in Dominica significantly reduces the resource risk faced by the developer. In addition to having a lower resource risk than many of the other projects in the OECS, the project is likely financeable and may be very attractive to potential investors because of the second phase of the project. The project would likely be bankable because the concession agreement and the PPA would ensure that the project has the revenue required to pay its debts and also to provide investors with the return on equity that they require. Also, the finance risk is reduced because both the AFD and World Bank have separately indicated interest in providing funding for a 15 MW plant.265 264. “French AFD Prepared to Finance 15MW Project in Dominica,” ThinkGeoEnergy, July 3, 2013, accessed December 3, 2015, http:// www.thinkgeoenergy.com/french-afd-prepared-to-finance-15-mw-project-in-dominica/. 265. “Work to Begin on Domestic Geothermal Plant This Fiscal Year,” Dominica News Online, August 4, 2015, accessed December 3, 2015, http://dominicanewsonline.com/news/homepage/news/economy-development/work-to-begin-on-domestic-geothermal- plant-this-fiscal-year/ 109PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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