High in the Andes Mountains, near the town of Arequipa, two new solar photovoltaic farms are under construction. Spanish-based T Solar Group joined forces to fund this Peruvian project, which is the first large-scale solar photovoltaic energy project in Latin America.
In recent years, solar power has enjoyed rapidly growing popularity as a renewable source of energy. The T Solar Group uses photovoltaic technology to harness the sun’s power and create clean electricity: daylight is converted into electrical power using solar panels. ‘The sun projects 4,000 times more energy onto our planet than we actually consume,’ Iván Paja, Deputy CFO at T Solar, explains. ‘So it makes perfect sense to harness solar irradiation to produce clean energy.’ Since the company started business in October 2006 it has become one of the leading independent power producers in the international market for renewable energies. T Solar runs large-scale solar farms in Spain (picture), Italy and India, with projects under construction in India and now in Peru too.
Teaming up T Solar’s involvement in the Arequipa project began at the beginning of 2010. ‘We were looking at several international opportunities when we were asked to enter the tender for the Arequipa project,’ Iván Paja continues. ‘Analysis showed that it made perfect business sense: the area is one of the sunniest in Peru and offered opportunities to build the plants near a substation, making it easier to connect to the national grid.’
Once the decision to join in the tender had been made, it was time to look for financing. When FMO contacted him with a proposal for subordinated debt, Iván Paja immediately welcomed the opportunity to simultaneously reduce T-Solar’s equity requirements for the project and its overall cost. For FMO, this project is the first investment in a solar photovoltaic power plant but it will certainly not be the last (renewable) energy project to benefit from capital-decreasing and tariff-reducing subordinated debt. The total project cost is 166 million USD; FMO and Proparco will put up 14.4 million USD of this in subordinated loans whereas OPIC will provide a loan of USD132 million, partly guaranteed by Assured Guaranty Corp. Early this year, the finance deal was granted the “2011 Latin American Renewables Deal of the Year” award by Euromoney Institutional Investor PLC. ‘The Peruvian project is our first experience of working with FMO/Proparco, and it has been a very positive one,’ Iván Paja is happy to say.
Benefits for Peru
The Peruvian plants are located in the La Joya and Caylloma districts. They will generate 80 GWh a year, which is sufficient to supply some 80,000 inhabitants with electricity. Construction is currently under way. The connection to the grid is scheduled for June of this year. Although the project ran into some delays during the licensing and authorization process and almost all components have to be shipped from Europe to Peru, Iván Paja is confident that T Solar will be able to meet this deadline.
T Solar is working with local companies, which supplies some 100 people with work for about six months. This is very welcome in what is essentially a relatively poor and remote rural region. The area’s isolated location means that inhabitants will also benefit directly from the electricity generated, as it reinforces a stable supply of electricity. ‘We’re also working with local NGO’s to promote knowledge about renewable energy and its technologies among inhabitants, thus creating opportunities for new careers in this promising sector,’ Iván Paja adds.
Indeed, Peru will also benefit from the construction of the solar plants. Solar energy can make a valuable contribution to diversifying Peru’s energy mix and reducing its dependency on hydropower. The country previously invested heavily in this but though environmentally friendly, hydropower has met with significant opposition from locals. Iván Paja understands why: ‘Peru has to build dams to generate hydro energy. When these are built close to residential areas, people generally have concerns about safety and other issues.’
Being much more scalable – photovoltaic panels can be used in big solar farms or placed on rooftops to generate energy for domestic use – and easier to install close to communities than hydropower and wind energy, it’s not surprising that solar energy is currently the fastest growing renewable source. It also offers particular benefits for developing regions located near to the equator and with high dependence on fossil fuel imports. Iván Paja: ‘Solar irradiation is readily available. And the total costs for setting up and running a photovoltaic solar farm have decreased by some two-thirds over the past three years. This means that in some areas, the price of solar-generated electricity is very close to the grid price. Grid parity will become achievable in more and more countries.’
Needless to say, Iván Paja is confident that solar energy has a very promising future. ‘Grid parity will allow solar technology to grow without limits. This is good news for developing countries with limited access to fossil fuels, for instance due to price.’ He adds with a smile: ‘And of course, it’s good news for our planet, too!’