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Figure 14.5 presents our recommended PPP structure for both phases of the project. Phase 1 of the project will provide electricity to NEVLEC and Phase 2 of the project to SKELEC. FIGURE 14.5 Recommended PPP Structure for Saint Kitts and Nevis Grants Multilateral Development Banks Nevis Island Administration Government of Saint Kitts and Nevis Nevis Energy Limited Concession Agreement (Exploration, production drilling, deisgn, build, operate, and finance) Tetra Tech Equity Geothermal SPV Commercial debt Commercial Leaders Alta Rock (Off-taker) Payment Support Mechanism PPA PHASE 1 NEVLEC Customers PHASE 2 SKELEC Customers Contingent Grants and Loans We recommend three additions to the project structure that is in place. First, we recommend that the NIA join Nevis International as a partner in developing the SPV. Under this project structure, the NIA would have two major responsibilities: it would have equity ownership in the SPV and it would grant a concession agreement that assigns the responsibility for exploration, production drilling, design, construction, operation, and finance of the geothermal power plant to the SPV. This partnership will allow the SPV to access funding from the multilateral banks. Multilateral development banks can provide funding in the form of grants, contingent grants, and concessionary loans that will be provided directly to the project.382 This would reduce the project’s cost of capital and that could be passed on to customers through reduced tariffs. Second, we recommend that the government and the NIA develop both phases of the project as one. If this were the case, then the government and the NIA could partner with Nevis International to develop both phases of the geothermal project. The main difference between the model that we recommend for Phase 2 and Phase 1 of the project is the off-taker. For Phase 1 of the project the off- taker is NELEC, the utility that serves Nevis, and for Phase 2 of the project the off-taker is SKELEC, the utility that serves Saint Kitts. Other than this difference, the major agreements in the project structure remain the same. Third, since NEVLEC and SKELEC are fully state-owned and do not have strong financial performance, it might be necessary to include a payment support mechanism that backs SKELEC’s and NEVLEC’s payments under the PPAs. That mechanism would reduce the project’s revenue risks 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: 382. The type of funding provided will differ based on the stage of the project’s development. Grants and contingent grants will 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 concessionary 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 concessionary loans. This funding will support the project during the stages with the highest risk, and will help reduce the overall cost of the project. 156PDF Image | Unlocking Geothermal Power Eastern Caribbean Powerhouse
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