Overall the plant is expected to cost $600m and create 1,300 new jobs, the ministry claimed. Masdar will design, finance, build, and operate the plant over a 25-year period, with the project to generate some 1.9GWh per year.
The Abu Dhabi-based firm is also planning a 100MW PV project at Navoi, under the World Bank's Scaling Solar programme.
It won a competitive tender to build the project in October, offering a price of 2.679 cents per kWh, one of the lowest tariffs seen in emerging markets.
It was Uzbekistan's first solar PPP tender, and while over 20 firms made the longlist and 11 prequalified, only five developers submitted final bids.
The Uzbek government aims to increase generation from wind and other renewable sources significantly over the next decade, to 5GW in solar and 3GW in wind capacity overall.
A first competitive winder for a 100MW wind farm at Nukus attracted more than 70 EOIs, the energy ministry said last month. Contract awards are expected over the summer.
Q&A: Unicase Law on renewable energy in Uzbekistan
The Uzbekistan Energy Monitor recently spoke to Ayana Unerbayeva, Counsel for Unicase Law's Uzbekistan office, about the legal environment for renewables projects in the country.
Can you give us an overview of how Uzbekistan has improved the legal environment for investment in renewable energy since 2017?
Over the past two years, Uzbekistan has made a huge step towards developing the potential of renewable energy sources in Uzbekistan. Namely, in 2019, two main documents regulating this area were adopted.
In May 22, 2019, the Republic of Uzbekistan has adopted its first statute providing comprehensive regulation of its renewable energy sector, i.e. the Renewable Energy Law (the "RE Law").
The country's previous legislation in this area mainly consisted of different Presidential resolutions, often relating to particular projects.
The country's President, Shavkat Mirziyoyev, in his Development Strategy of Uzbekistan for 2017-2021, stressed the importance of moving toward greater use of renewable energy.
The RE Law covers not only generation of electricity from renewable energy, but also the production of the equipment that generates such energy.
Under the RE law the renewable energy sources are defined as energy of solar, wind, geothermal, hydrothermal, hydropower, biomass, which are naturally renewed in the environment.
Today, Uzbekistan has opened up great prospects for foreign investors by developing several major projects and signing them on the basis of PPP.
In general, how does the legal framework for energy in Uzbekistan compare to other Central Asian countries? What are the respective strengths and weaknesses?
The development of renewable energy sources is a very relevant topic today. Central Asian countries are trying to increase the percentage of RE in the energy sector as much as possible.
Some countries start earlier; this explains the different level of development of RE in Central Asia.
It is worth recognizing that the leading place today is occupied by Kazakhstan, which mainly develops solar and wind power plants.
By 2019, 83 renewable energy projects with a total installed capacity of almost 1000 megawatts were launched in the country.
In the next 5 years, this volume is planned to triple and increase to 3000 megawatts, which in principle is quite realistic. Moreover, Kazakhstan pays great attention to modernization and energy efficiency.
As for Uzbekistan, it should be noted that at the moment there are a lot of blind areas in the legislation of Uzbekistan in the field of RE, and at the same time, the potential for the development of RE is no worse than in Kazakhstan.
Blind areas in legislation do not hinder projects in any way, but rather attract investors rather than scare them away. In particular, licensing of RE activities remains a big issue today.
For your international clients in the energy sector, what are their main concerns when considering projects in Uzbekistan? For example, currency risk, payment default risk, etc.
Risk mitigation is particularly important in renewable energy projects because of their high straight capital requirement.
Financial de-risking instruments accompanied by sound policy can reduce the financing costs of renewable energy investment and help attract capital at scale.
1. Uzbekistan ran its first solar site-specific auction in 2018-19 with the assistance on structuring and implementation from IFC, a member of the World Bank Group. The 2nd and the 3rd auctions are under preparations thus making it a systematic scheme. However, currently Uzbek legislation lacks proper regulations for the procedure of conducting RE auctions. Nevertheless, it is understood that the procedure of the bidding process will be further determined in the subordinate legislation.
2. PPA is a contractual agreement between a guaranteed energy buyer and an alternative energy power generator (a seller). As of today, there is no standard form of power purchase agreement (PPA). However, it is expected that the PPA is to be drafted and approved by the Ministry of Energy in the near future.
Some of the required conditions to make a PPA effective are as follows:
- Comprehensible text (concept, terminology);
- Fair allocation of risks between the Parties;
- Predictability of key elements (fees, liability of the parties, etc.)
- Procedures and instruments to address problems (non-performance of obligations, compensations, force-majeur, etc.)
3. Currency risk arises in situations in which the project has revenue in one currency and loan payments in another. For renewable energy projects, a mismatch between the financing currency (hard) and the revenue currency (local) is often a problem for debt repayment. Due to these concerns, some transnational project developers would only sign a contract in hard currency to insulate themselves from currency risk.
Although it can remove currency risk, it also opens up exposure to non-payment risk if the off-taker cannot pay the PPA price in hard currency. Some governments take some of the currency risk by offering USD tariffs payable in local currency.
4. Technical risk on connection of RE facility to the network that investors should pay attention: in the PPA, the Seller requires to provide responsibility for the reception and transmission of electricity produced by RES facilities, and for dispatching the capacity of RES facilities, by including certain obligations in the PPA (Take-or-Pay, curtailment, etc.)
Originally published 17 June, 2020
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