Take or pay solar power purchase agreement
In Senegal, energy is produced by private operators and sold to the Senelec government energy corporation.
Since 2010, Senegal had pursued reform policies within the energy sector, and aimed to increase installed renewable energy to 20% of total installed capacity by 2017. In Senegal, energy is produced by private operators and sold to the Senelec government energy corporation. The Santhiou Mekhe Solar Power Plant (Senergy) is a 30MW installation in the Thies region to the northeast of Dakar, installed by Senergy PV with a 25-year power purchase agreement (PPA).
- There was insufficient depth in domestic capital markets to fund the project, particularly in debt markets.
- The private sector was hesitant to finance renewable energy projects without sovereign guarantees to mitigate off-take PPA risk.
- The project was developed by Senergy Suarl (the original developer of the project with 15% equity ownership), FONSIS (32% equity ownership) and Meridiam (53% equity ownership) under a partnership model similar to a ‘production sharing agreement, -- with Meridiam leading the project.
- Proparco provided a loan to help fund the project.
- Revenues for the solar PV power plant are generated by a 25-year PPA with the national utility Senelec, backed by the Government of Senegal on a take-or-pay basis.
- Senergy Suarl: Privately owned Senegalese energy corporation, and the original developer of the project
- FONSIS: Senegalese sovereign fund
- Meridiam: French sustainable infrastructure investor, with USD8 billion assets under management across 25 countries
- Proparco: Subsidiary of the French Development Agency, focused on private sector development
Results and impact
- Reduction in greenhouse gas emissions: The newly constructed solar plant provides electricity for up to 226,500 citizens at a lower price than the country’s thermal power plants, which still account for 90% of power supply. This will lead to an overall reduction in greenhouse gas emissions of 34,000 tonnes of C02 per year. Senegal now has the most non-hydro renewable electricity connected to the grid in West Africa.
- Reduction in requirements for fuel imports: Fixed-price power supply contracts through solar installations have reduced energy price fluctuations due to oil price changes and stabilised Senegal’s forex reserves.
- Domestic equity in the project (47%) was mirrored with local integration into solar installation through hiring local labour, supporting local farmers, and establishing microcredit lines for women in the project area.
Key lessons learnt
- Take-or-pay structure for PPAs encourage private sector investment by guaranteeing the government agency will pay for a certain amount of power, even if it does not off-take it (for example, due to grid issues).
- Higher levels of domestic financing – such as from sovereign funds and domestic investors – can help increase community support and involvement in the project.