Atlantic - Santa Vitoria do Palmar

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Project Number: 
12009-02
Expected Consideration Date by the Board: 
05/30/2017
Date Posted: 
02/13/2017
Company: 
Santa Vitoria do Palmar
Sponsoring Entity: 
Actis Brazil/Atlantic Energias Renovaveis
Financing Requested: 
Up to Reais 162,000,000
Sector: 
Energy
Environmental and Social Category: 
A
Location: 
Rio Grande do Sul
Country: 
Scope Objective: 

Santa Vitoria do Palmar wind power project (the “Project” or “SVP”) will add 207 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 12 adjacent wind farms totaling 207 MW and its associated facilities in the state of Rio Grande do Sul, located in the South of Brazil.

The 12 wind farms of the SVP 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 2013 (10 of the wind farms) and A-3 of 2014 (2 of the wind farms). The Project will benefit from a 20-year R$ denominated power purchase agreement (“PPA”) at fixed average price of around R$124.5/MWh (~US$52.8/MWh) as of December 2013, indexed to inflation (IPCA, IGPM), 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 has entered 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 22-month construction period, with construction having started by the third quarter of 2015. Wind resource has been assessed by AWS Truepower and Inova Energy based on a three 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 935 GWh/year, with expected 4,516 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 an IDB Group Guarantee for the debentures to improve their risk profile and pricing. It is estimated that the IDBG participation will amount of up to R$162 million. The financial plan will be completed with the participation of two local development institutions, as well as equity contributions for around 65/35 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 207 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 A (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.

In particular, the Project is adjacent to Lagoa Mangueira, which is part of an Important Bird Area (IBA) BR234 Banado do Taim, and south of the Taim Ecological Station. The area primarily includes wetlands (banhados) and land converted to rice crops. There is occurrence of at least 33 migratory birds and some species in a conservation category, at least one of which is an Endangered bird “Spix Macaw” (Sporophila palustris).  The Complexo dos Campos Neutrais, consisting of three windfarms in different stages of development, is located south of the Project and may be within its area of influence.  The area is primarily dedicated to rice crop cultivation, although in 2012, the government declared Rio Grande do Sul an area for renewable energy development. There are also tourism and trade/ commerce activities.

The Project prepared three (3) EIA’s or “Simplified Environmental Reports” (RAS – Relatório Ambiental Simplificado), an original document and two updates:  (i) “RAS 1 - Complexo Eólico Aura Mangueira – Fase I” of 110-MW, (ii) “RAS 2- Complexo Eólico Aura Mangueira – Fase II”, an expansion to a total of 346-MW and (iii) “RAS 3 - Complexo Eólico Aura Mangueira – Fase III”, an expansion to a total of 528-MW. 

It is worth to point, that the final expansion of RAS 3 is not operationally viable at the present, therefore, only RAS 1 and RAS 2 are considered for the Project. Moreover, the environmental permit (Licença de Instalação– LI) was obtained for 207-MW on December 21, 2015.  Based on the information available to date, IIC understands that proposed financing is also intended for 207-MW.

The Project is reported under construction. The information described above will be confirmed during due diligence.

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 (RAS) has an Environmental and Social Management Plan (ESMP) that contains the following programs: i) Physical Environment Management Program, that includes several programs to manage and control erosion, recover of soil degraded areas, surface water, groundwater, noise among the most important; ii) Biotic Environment Management Program, that comprises programs to manage habitats and sensitive species as well conservation programs; and iii) Social Management Programs, that includes communication and public participation, environmental education, tourism areas preservation as well as cultural, landscape and paleontological rescue programs. 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 RAS 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 high conservation value (e.g., IBA, Taim Ecological Station); 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.

An Environmental and Social Review Summary (ESRS) as part of the Environmental and Social Due Diligence (ESDD) process is available in Portuguese in the following links.  Translation into English will be available soonExecutive Summaries of the EIAs for the Project are available below.