PV- Solar Synergies for Large Hydropower in Angola and Namibia - Epupa-Baynes Revisited
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This paper examines the financial viability for constructing and operating PV-solar in tandem with hydropower within the context of Sub Saharan Africa using the Baynes Hydropower Project on the border between Angola and Namibia as an example. Specifically, the study re-examines the previous and current optimised installed capacity at 360 MW and 600 MW with the option of a 50 MW floating PV-solar plant on the reservoir created by the 200 meter high dam. The motivational background is the increasing competition from other renewables, particularly PV-solar in the traditionally hydropower dominated market. Whether and to what extent this transition might influence the future development of hydropower in the region is in addition to a brief review of the power sector (i.e. market conditions) and resulting financial implications among the aspects that are addressed. In contrast to Angola, where electricity sector is in the process of adapting to increase tariffs and performance standards toward financial sustainability, Nambia´s power sector is more mature, is financially stable with electricity prices that albeit a slight loss in 2016 largely reflect the actual cost of service. Bridging the widely different political risk environments is a main challenge for securing financing at competitive rates. Using prevailing market prices for electricity in Namibia as a proxy for likely future prices and simplified reservoir model to simulate power production, the results show the impact of increasing installed turbine capacity and addition of PV-solar on tariffs and revenue from power sales. PV-solar increases the financial viability in all cases. However, marginal gains diminish with additional installed turbine capacity as well as with PV-solar installation cost. At the cost of US$1.13/ W (56.5 million) for the proposed 50 MW conjunctive PV-solar plant, the 360 MW with PV-solar emerge as the favoured development alternative for equity holders and host governments. Noting the prevailing uncertainty on development of market conditions the analyses also estimates the option value of delaying investment in anticipation of higher tariffs in the future. This uncertainty increases the value of the option to develop the project. Combined with higher variation in available flows due to climate change the analyses illustrates the importance of diversification in the power system. Given the reliability of financial assumptions (p 31) the risk mitigation capacity remains as the most vulnerable factor. Currency risk has been hedged, and to some extent passed on to governments and consumers. Others risks, like political and macro-economic, remains but has been included in cost of capital calculations. These risks have increased expected cost of capital, but no more than to a level where internal rate requirements still can be met. The importance of a healthy capital structure is a critical factor for Baynes. Even if a tax-shield benefit would increase NPV at higher debt-ratio than the proposed 70%, it is crucial for Baynes to raise enough equity. If not, we doubt the project´s ability to raise sufficient debt capital. The necessary World Bank backed loan depends on Baynes ability to show economic and financial credibility in a risk volatile environment. Angola-Namibia government cooperation is the main factor in gaining this credibility.
Executive Master of Management i Finansiell strategi fra Handelshøyskolen BI, 2017