Atlantic II - Lagoa do Barro

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Project Number: 
12009-03
Expected Consideration Date by the Board: 
10/03/2017
Date Posted: 
02/13/2017
Company: 
Lagoa do Barro
Sponsoring Entity: 
Actis Brazil/Atlantic Energias Renovaveis S.A.
Financing Requested: 
Up to Reais 430,000,000
Sector: 
Energy
Environmental and Social Category: 
B
Location: 
Piauí
Country: 
Scope Objective: 

Lagoa do Barro wind power project (the “Project” or “LdB”) will add 195 MW of renewable energy to the Brazilian electricity system, thus directly supporting the Government of Brazil’s (“GoB”) priorities to ensure a stable long-term electricity supply and the diversification of its energy matrix with the expected addition of around 10 GW from renewable sources by 2018. The Project consists of the construction of 8 adjacent wind farms totaling 195 MW and its associated facilities in the state Piauí, located in the Northeast of Brazil.

The 8 wind farms of the LdB cluster had their energy contracted in the Leilão de Energia Proveniente de Novos Empreendimentos de Geração (New Energy Auction or “LEN”) auction A-5 of 2014. The Project will benefit from a 20-year R$ denominated power purchase agreement (“PPA”) at fixed average price of around R$139.9/MWh (~US$55.3/MWh) as of November 2014, indexed to inflation (IPCA), signed with the system distribution companies (“DisCos”). The DisCos pay the generation companies through the Chamber of Electricity Energy Commercialization (Câmara de Comercialização de Energia Elétrica or “CCEE”- Electricity Clearing House) which is the institution that intermediates the energy contracts between the DisCos and the generation companies. Electrical studies were presented to the relevant authorities, which provided a favorable opinion to the Project´s interconnection specifications for the assigned node. The Borrower is expected to enter into turn-key EPC contracts covering civil works, equipment and turbines from first-tier manufacturers and a long-term O&M contract for at least the life of the IDB Group loan. The Project has an estimated [18]-month construction period, with construction starting by the first semester of 2017. Wind resource has been assessed by Aeroespacial and Inova Energy based on a four year on-site wind measurements at 120m hub height. The Project has a capacity factor of over 50% and estimated annual energy production at P90 of 997 GWh/year, with expected 5,107 equivalent hours.

Transaction Structure and Financing Highlights. The estimated total cost of the Project is of up to R$1.3 billion, which will be financed through (a) an IDB Group Partial Guarantee for the senior loan until financial completion and/or (b) an IDB Group Guarantee for the debentures to improve their risk profile and pricing or (c) a long-term loan with a 15-year door-to-door tenor and a grace period of up to [36] months. It is estimated that the IDBG participation will amount of up to R$430 million. The financial plan will be completed with the participation of one local development institution, as well as equity contributions for around 70/30 debt-to-equity ratio. The Project will be required to meet the customary debt sizing criteria applied to wind projects, DSCR 1.30x for P9010-years and 1.00x for P991-year. The IDBG Guarantee is expected to have a tenor of up to 12 years. The project will have the security package customary for this type of project finance transactions.

Development Impact. The Project will have positive developmental impacts, such as: (i) adding 195 MW of renewable capacity to the Brazilian grid and thus decreasing thermal and hydro generation reliance; (ii) reducing carbon emissions; (iii) assisting a growing private-sector company in the Brazilian power sector, positioned to promote the much needed consolidation of the market segment related to small and medium-sized renewable energy projects; and (iv) improving the sites’ local infrastructure and increasing local income.

 
Environmental Review: 

The Project has been preliminary classified as Category B (High Risk) operation according to the IIC’s Environmental and Social Sustainability Policy. The project categorization will be confirmed based on the results of the environmental and social due diligence, when more information is available.

The Project is located in the Caatinga biome, of predominantly dense shrubs with emerging trees, combined with converted agricultural land.  The project site overlaps with three type of areas of permanent conservation (Áreas de Preservação Permanente - APP): 30 meter corridors along water bodies, slopes over 45 degrees and mountaintops. The project will require deforestation of APP mountaintops type, which in turn require a permit from SEMAR with its associated compensation measures.

The Project prepared an EIA’s or RIMA (Relatório de Impacto Ambiental – Complexo Eólico Piauí) issued on May 2015. The RIMA was prepared for a wind farm complex consisting of 10 adjacent wind farms with 83 turbines totaling 255-MW, occupying an area of 3,494 hectares. The 83 km-long 230/500kV transmission line from the Lagoa do Barro 1 substation to the Sao Joao do Piaui substation was not included in the RIMA and will require a separate impact assessment.

The Project obtained licenses (LI – Installation Licenses) for 195-MW on November 25, 2016.

The Projects’ environmental and social impact assessments, its proposed management system and its direct and cumulative impacts will be evaluated in detail during the environmental and social due diligence (ESDD) process. 

The EIA (RIMA) has an Environmental and Social Management Plan (ESMP) that contains the following programs for the construction phase: Signaling, Environmental monitoring, and workforce training, Safety, deforestation control, natural resources and landscape conservation, soil erosion control, solid waste and liquid effluents control, among the most important. During the operation phase, the ESMP considers the following programs: Communication, Environmental training, Fauna monitoring and rescue, surface water and noise monitoring, archeological monitoring and rescue. Additionally, Social Management programs including population increasing, violence levels and community health indicators. Finally, an abandonment phase ESMP.

All these programs will be revised in more detail during the Environmental and Social Due Diligence (ESDD).

With the support of a specialized consultant with knowledge on local biodiversity, cumulative impacts and community engagement in Brazil, IIC will work with the Client to obtain additional information to complete the ESDD and to complement the RIMA in order to meet IIC requirements and evaluate the environmental and social risks, confirm the project categorization, assess management plans to mitigate these risks and define a project environmental and social action plan (ESAP).

During the ESDD the IIC and the consultant will visit the site and further assess the Project’s Environmental, Health and Safety Management System, including plans and procedures, review the main Projects facilities, verify the extent of public consultation, assess baseline information pertaining to key environmental and social concerns, and evaluate the social and labor issues related to the Project.

The following key issues are expected to require the most effort: (i) cumulative impact assessment (CIA); (ii) comprehensive consultation with stakeholders; (iii) biodiversity assessment to determine impacts on birds, bats and areas of conservation value; and (iv) natural disaster risk.  The Client will be required to ensure the Project meets the requirements of the IIC Sustainability Policy and address any gaps in the form of an action plan.

The Environmental and Social Review Summary (ESRS) as well as the EIA for the Project can be found below.