The 300MW Sakaka solar PV tender attracted two world record-breaking solar tariffs, though the lowest of which was subsequently rejected.

The competitive bidding process demonstrated market appetite for the nascent solar market in Saudi Arabia which promises an avalanche of opportunities. But the country’s first major solar project has not progressed entirely smoothly. 

An ACWA Power-led consortium was ultimately picked as preferred bidder and soon signed on a $240 million debt package. Financial close was not to follow until nine months later however, with land issues being blamed for the delay.

Nevertheless, Sakaka has successfully demonstrated the bankability of solar projects in Saudi Arabia, and the Gulf state will now look to push on with its solar roll-out. 

Record breaking bids

The Sakaka PV project was first announced in February 2017 by the then newly-formed Renewable Energy Project Development Office (REPDO). 

REPDO – an office within the Saudi Ministry of Energy – has been tasked with delivering the renewable energy objectives of Saudi Arabia’s Vision 2030 economic plan. 

REPDO prequalified 27 companies following the issuance of an RFQ in April 2017 which attracted 128 applications – a markedly strong response compared to other solar PVs in the region. Oman’s Ibri II, for example, received 28 responses in February 2018. 

The Sakaka project progressed quickly in its early stages, with a preliminary RFP issued in July 2017. REDPO opened eight commercial and technical bids on 2 October 2017, with the lowest three bidders:

• Masdar, EDF – SR0.6697736/kWh ($0.01786063)
• ACWA Power, AlGihaz Holding Company – SR0.87815/kWh ($0.023417)
• Marubeni (for 310MW) – SR0.9976/kWh ($0.0266027)

The Masdar consortium became the first ever to bid under 2 cents per kWh for a solar project anywhere in the world. ACWA’s bid, though somewhat higher, was also lower than any seen before. 

Sakaka had become just the latest in a string of record-breaking tariff bids seen in the Middle East, fuelled by an oversupply of solar panels and the availability of cheap debt. 

If the price offered by Masdar and EDF had shocked onlookers, REPDO’s response was also unexpected. It disqualified their bid and only progressed ACWA Power and Marubeni to the final RFP stage. 

REDPO’s official reason for the disqualification was the technology used in the bid. Masdar and EDF are understood to have included bifacial modules in their proposal and there are concerns over how bankable the relatively new technology is. 

REPDO’s solar projects have a high local content requirements for equipment and O&M, which also puts local company ACWA Power, which undertakes its own O&M, at an advantage over other bidders. 

The decision to pick the ACWA Power bid ahead of Masdar/EDF was politically sensitive however.

ACWA Power has an excellent record of winning power mandates in the region, and is developing phases II & III of DEWA's solar project in Dubai. But as a Saudi firm, which is part owned by Saudi's Public Investment Fund and Public Pension Agency, the selection risked looking like favouritism.  

The sponsors

ACWA Power and AlGihaz were picked as preferred bidder by REPDO in January 2018, and signed on a 25-year power purchase agreement a month later. 

The Saudi Power Procurement Company (SPPC), a newly set-up subsidiary of the Saudi Electricity Company (SEC), is the offtaker. SEC has a sovereign guarantee from the state, unless its credit rating dips below BBB. Before REPDO was formed, SEC was the direct offtaker of all power projects in the country (alternating with Saudi Aramco) but did not benefit from a state guarantee.

The ownership structure of project company Sakaka Solar Energy Company is:

• ACWA Power – 70%
• AlGihaz – 30%

The project’s EPC contract was awarded to a consortium of Mahindra Susten and Chint. An O&M contract was signed with Diaa Sakaka Operation and Maintenance Company – a subsidiary of NOMAC which is in turn fully owned by ACWA Power. 

The sponsors expect the project to begin operations in Q4 2019.

The financing

The total project cost is $320 million and it is being funded at a debt-to-equity ratio of 75:25. Financial close was first scheduled for 28 February (2018), however the deal was held up by land issues surrounding the chosen 6²km site, several sources told IJGlobal. 

Natixis Bank has underwritten all of the $240 million debt package for the project under a six-year soft mini-perm, with the intention of syndicating part of the loan soon. A source at Natixis told IJGlobal that a number of banks have already been lined up to join the deal.

The Natixis loan carries initial pricing of 130bp over Libor, which rises to 260bp over the life of the loan.

Arab National Bank is also understood to have participated in the deal, providing an equity bridge loan, though the details of this have not been disclosed. 

Sign of intent

The $0.023417/kWh REDPO will pay Sakaka Solar Energy Company is just below the $0.0242/kWh that Marubeni and Jinko Solar agreed for their 1,177MW Sweihan solar project in Abu Dhabi – the previous lowest tariff agreed.

ACWA Power’s chief investment officer Rajit Nanda said the record tariff demonstrates the “competitive market for renewable energy in the kingdom”, and the government will hope he is right. In line with Vision 2030, Saudi Arabia plans to build 9.5GW of renewables capacity within the next five years.

In March this year, the Saudi Arabian government and Japanese conglomerate SoftBank signed a MoU to build $200 billion of solar capacity in the country by 2030. And earlier this month SoftBank announced that it is planning an initial 1.8GW project north of Riyadh which will have an estimated total cost of $1.2 billion.

The finer details of the SoftBank deal are still not clear to market participants, or the government according to some sources, but everyone is expecting opportunities to participate in these upcoming project in some way. 

The disqualification has certainly not discouraged Masdar, which earlier this month (November 2018) was named preferred bidder (ahead of ACWA Power) for REPDO’s $500 million, 400MW Dumat al Jandal wind farm. It had bid SR79.97 ($21.30) per MWh – “you win some, you lose some” as one Masdar source said of the bidding results of Sakaka and Dumat al Jandal.

Advisers

Saudi Electricity Company was advised by:

• HSBC – financial

REPDO was advised by:

• SMBC – financial
• DLA Piper – legal
• Fichtner – technical

ACWA Power was advised by:

• Covington – legal

Natixis Bank and the Arab National Bank are being advised by:

• Hogan Lovells – legal