Does ACWA Power = Solar Power’s Usain Bolt?

Saudi Arabia’s ACWA Power has been in the headlines over the last few weeks for having secured a 100 MW solar photovoltaics (PV) project in Dubai at the lowest-ever price globally. Ever since the announcement of $5.98 per MWh (5.98¢/kWh) bid stakeholders and experts have raised questions about the financial viability of the bid.

At Abu Dhabi Sustainability Week, Paddy Padmanathan, CEO ACWA Power aggressively defended his company’s decision to place such a low bid and expressed confidence that the tariff of the project is replicable around the world due to several favourable factors.

Padmanathan was part of a panel discussion at a side event at ADSW 2015 that focused on renewable energy markets and project finance around the world. The panel also included Kerry Adler, President of Sky Power, which had also participated in the bidding process for the 100 MW solar PV project auctioned by the Dubai Electricity & Water Authority (DEWA).

During a discussion on the most attractive renewable energy markets around the world, Adler stated that his company was looking at Africa, which offers numerous opportunities, but would generally look to any market that offers a “fair rate of return” to the company and its investors. In his opinion, the winning bid for the DEWA solar power project would actually result in losses for the successful bidder, ACWA Power. Sky Power is a “happy loser” of the bid, Adler added!

Padmanathan initially resisted to be drawn into an open argument over the financial viability of his company’s bid but eventually shared some finance-related details that he thinks would help his company earn a profit out of the power project.

Michael Liebreich, founder of New Energy Finance (now Bloomberg New Energy Finance), in a conversation with CleanTechnica director Zachary Shahan noted that Padmanathan might well be “the Usain Bolt of solar power.” He subsequently tweeted the idea as well:

ACWA Power will look to optimise all available resources and supply chain elements in order to keep the capital costs in check and maximise the returns on the project, said Padmanathan, who repeatedly stated that the project will be profitable to his company.

Padmanathan stated that his company has managed to convince the lenders to increase the debt component for the project to 86%, compared to a convention of 70-75%. The company will or has already secured debt financing at an interest rate of less than 4%.

Padmanathan further explained that the capital expenditure in a solar PV project includes 50% for the modules (which will be procured from First Solar) and other equipment, 15% for operation & maintenance (O&M), and 35% for debt financing. Debt financing will be secured at a very low cost while the company plans to optimise local resources to keep a check on the O&M costs.

The unique aspect of the auction organised by DEWA was the prospective project developers were free to propose alternative project schemes with capacity of up to 1 GW. Padmanathan stated that his company actually proposed a 1 GW installed scheme and is ready to implement it at a tariff even lower than $5.98 per MWh.

ACWA Power has won several bids over the last few months, especially in the Middle East and North Africa (MENA) region. The most recent success, apart from the DEWA project, is a 100 MW concentrated solar power (CSP) project in South Africa. The solar tower–based power plant will also have a 12-hour full load storage capacity. The company also secured bid to develop new thermal power projects in the Ouarzazate project in Morocco.