I would like to propose a new method to finance and build a photovoltaic utility project in Kuwait. The proposed PV project will have a 14.88 GW capacity and will aim to supply half of the residential and governmental sectors power consumption in Kuwait without affecting the current government budget.
The project will be funded through a mix of debt and an equity participation program. The Equity will be collected by issuing subsidised shares to homeowners in Kuwait that are equivalent to half of their annual consumption paid over 4 years, while the Debt will be financed through Bank Loans.
The Medium Case Scenario of the financial model built for this proposal shows that the government will be able to save 6.18 billion KD (Net Present Value) over 23 years, reducing approximately 20M tonnes of CO2/Year (15% – 20% of Kuwait’s annual CO2 Emissions), and free up to 33% of Kuwait’s fossil fuel power generation capacity, all without increasing the current budgetary spending at all.
The Current Situation
In 2021, the Kuwaiti government spent 1.3 Billion KD on fuel subsidies to power stations, while the total income of the Ministry of Electricity and Water peaked at 300 Million KD in 2019. Furthermore, in 2020 cost of power generation for the MEW was 39.3 fils/kWh while the residential customers pay 2 fils/kWh ( 95% subsidy).
Kuwait’s subsidy budget drain is bound to increase as the population increases and the country industrialises more. Recently, the MEW mentioned that it is planning to produce a Feed-In Tariff plan to motivate homeowners to install PV panels on their rooftops and sell the remaining electricity to the government. However, Kuwaiti Houses consume a huge amount of electricity and the sizes of their rooftops are not always enough to accommodate the systems needed to cover their annual consumption.
Furthermore, residential apartments are responsible for 20-30% of the residential sector’s electricity demand. The future government plan will not be able to tap into this sector due to the lack of rooftop space.
Moreover, increasing the electricity tariff in Kuwait will surely reduce power demand, however, this approach will face a heavy political backlash in the National Assembly, and it still will not help with the fact that 70% of the residential sector demand is for Air Conditioning, which is a must due to the country’s extreme weather for 6 months of the year.
The Solution
Phase 2 of Al Shagaya project received bids with a Levelized Cost of Energy as low as 11 fils/kWh, while the government is currently paying 39.3 fils/kWh. Therefore, PV Utility provides Kuwait with a massive savings opportunity, especially for MEW’s governmental customers who pay 25 fils/kWh.
The proposed project targets half of the power consumption of the MEW’s residential customers and the full demand of the governmental customers, approximately 24 TWh/Year. The required PV capacity will be 14.88 GW, which is nearly 10 times more than Phase 2 of Al Shagaya.
The graph below outlines the projected monthly output of the project once the four phases have been built, and as a percentage of the MEW’s total power generation in 2020. Kindly, note that the output was modelled after the year 2020 output of the MEW’s 1 MW rooftop projects.
Project Finance
The total cost of the project has been modelled using the parameters outlined in the table below. Note that the price per Watt is low, however, it is achievable for PV projects of such sizes.
The total cost of the project will be 3.89 billion KD (Excluding OpEx Costs), which will be financed with a mix of Equity(14%) and Debt (86%) over 4 phases to reduce the effect of the loan maintenance fees and the OpEx costs on the government’s budget while allowing the net annual savings from each operable phase to cover the costs of the total annual loan payments and OpEx.
Equity
At the moment, the government pays 94% of the MEW customers electricity bill, I propose to provide the same subsidy, but for the cost of the capacity needed to cover half of the consumption of the customers, as per the piechart shown below.
The customers will be able to buy the subsidised shares with a maximum amount equivalent to half of their annual consumption over 4 years. This will provide the government with 541 Million KDs in cash. In exchange, the residential & governmental customers will have the opportunity to own half of their capacity at a much cheaper price, while also allowing the residential customers to selling their capacity to others if they decided to sell their homes or move out of the country.
Additionally, once a carbon trading system is implemented in Kuwait, the Equity owners can trade their share of the carbon certificates on the market.
Debt
The remaining 3.35 Billion KD will be funded via multi-stage medium-term loans with an interest rate of 5.5%. First Loan has a grace period of 2 years, while the 3 other loans have 1 year grace period.
Each part of the loan will be allocated to the project prior to the construction of each of the 4 phases. This way, the government will not be burdened with the total amount of the interest payments while the project is not operational, and the net savings will be able to cover the annual costs of the interest payments, loan repayment, and OpEx costs.
The graph below outlines the costs and net savings produced during each fiscal year of the construction phases of the project.
Furthermore, the graph below outlines the payback period of the project without the implementation of the suggested Equity Participation program.
Finally
The financial benefits of implementing renewable energy in Kuwait are huge enough to reduce the subsidies on the annual budget, while also allocating the savings to profit-generating projects that can transform Kuwait’s Energy economy.