Green Venture Projects 14.7MW Solar Plant, Regional Contribution

2014/03/25 13:42
Kenji Kaneko, Nikkei BP CleanTech Institute

Itako City, Ibaraki Prefecture, is a lakeside town located between Lake Kasumigaura and Lake Kitaura. The town prospered as an important water transportation point during the Edo era. It is now the end of the Higashi Kanto Expressway, and "Road Station Itako" is always crowded with many drivers thanks to its convenience for cars.

On February 1, 2014, the 14.7MW-output mega (large-scale) solar power plant "Suigo Itako Solar" was completed on an 18-hectare area of land that adjoins the roadside station; the completion ceremony was also conducted. This is currently the largest operating mega-solar power plant in the Kanto area (Fig. 1).

On the premises of the roadside station, there is an observatory, from which the overall mega-solar power plant can be viewed. By displaying "Suigo Itako Solar Observatory" signs throughout the roadside station, the solar power plant is spotlighted as a new prefectural landmark. The 60,000 solar panels neatly arrayed across the land extend to an area 3.8 times the size of the Tokyo Dome. And, seen from the observatory, the furthest panels look like they are overlapping one another and creating a blue sea (Fig. 2).

Overall plan led by environmental venture

The power producer is TMK Suigoitako Solar Inc (Itako City, Ibaraki Prefecture). The site where the power plant was constructed is the property of Itako City and multiple private landowners. The landowners formed a land management union, which is represented by Itako City. Suigo Itako Solar rents this land and runs the power selling business.

Suigo Itako Solar is financed by the environmental venture Renova Inc (Chiyoda-ku, Tokyo) (38%), Mitsuuroko Green Energy Co Ltd (32%), Fuyo General Lease Co Ltd (19.9%) and Mizuho Capital Co Ltd (10.1%). Renova leads the project as the developer, with Representative Director & CEO Yosuke Kiminami also serving as the president of Suigo Itako Solar.

Renova changed its name from the former Recycle One Inc in January 2014. Since it was established by Kiminami in 2000, the company has grown by focusing on the recycling business. Renova can be referred to as Japan's representative environmental venture.

"We decided to change the name of our company as it did not fit our business content any more since we started developing the mega-solar power plant business," Kiminami said.

Amid the fierce competition in discovering candidate sites and the construction of mega-solar power plants among developers backed by major capital throughout Japan, it is unusual that a venture company is leading a mega-solar power plant whose output is as large as about 15MW. Regarding this point, Kiminami looked back, "We could never have won the project order from Itako City if we had not been a venture company."

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The project to build a mega-solar power plant on the idle site adjacent to "Roadside Station Itako" selected the power producer in October 2012 through the open-type proposal style organized by Itako City. Along with the corporate group led by Renova, several leading companies participated in the competition. Itako City set up a selection board consisting of experts, which evaluated the proposals and finally gave the highest scores to the proposal by Renova's corporate group.

The proposals were evaluated from a comprehensive perspective including the terms of land lease, policy effects and regional contribution.

"We eventually selected Renova's group based on our appraisal from a comprehensive perspective, but the proposal for the group's regional contribution was highly appreciated, in particular," said Seiichi Hanawa, chief of the Promotional Office to Attract Enterprises, Itako City.

Kiminami also described the features of the proposal, saying, "We incorporated measures that could contribute to the local community, considering the background to Itako City's decision to construct a mega-solar power plant on the huge idle site as well as the fact that the city was in one of the areas affected by the Great East Japan Earthquake."

Founding 'Taiyo-no-Megumi Fund'

The regional contribution includes constructing an observatory to view the mega-solar power plant and to make it easy to use the facility as a place for environmental education (Fig. 3); to locate the headquarters of the TMK that runs the power generation business in Itako City and make it pay the municipal corporate tax to Itako City; and to install solar panels on the roof of the adjoining roadside station and contribute to making the road station a disaster prevention base by equipping it with mobile rechargeable batteries that store generated power.

"Leading companies cannot implement such detailed measures to contribute to the local community," Kiminami said.

Even after being selected as the power producer, President Kiminami of Suigo Itako Solar has considered additional contribution measures by listening to requests from Itako City. One of those measures is the "Taiyo-no-Megumi Fund." This fund is aimed at donating part of the revenues from the mega-solar power plant business as a regional contribution.

First, Kiminami handed over a certificate of ¥1 million (approx US$9,780) to the principals of elementary and junior high schools in Itako City at the completion ceremony on February 1 (Fig. 4). There are six elementary schools and four junior high schools in Itako City, and Suigo Itako Solar donated ¥100,000 to each of them. The company is now discussing with Itako City how they are going to run and develop this fund from now on.

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The site of Suigo Itako Solar was a 24.5-hectare piece of idle land dubbed "Roadside Station Itako periphery," the effective use of which had been continuously discussed for over 20 years since the city started taking over farmland. In 1987, the land was originally planned to be a sightseeing farm, in which the farm was rented for earning fees with the aim of combining the set-aside policy and local development.

Following some later changes in the plan, the Itako Suigo Rakuen Framework was established and development was permitted; however, the mayor changed and the project was frozen partly because of the significant impact on municipal finances from the huge project cost of ¥5.2 billion.

In 1998, the Roadside Station Establishment Framework was planned, and construction started targeting about 2 hectares of the site. The city has continued to increase the size of the land and establish other parts of the area with a view to attracting industrial plants. However, as production increasingly shifted overseas, the city could not attract plants as it had expected.

Itako City had thus far invested approximately ¥2.5 billion into Roadside Station Itako periphery for land acquisition, design commissions, building an embankment, etc. Moreover, it cost Itako City ¥6 million every year for weeding and renting the private property that could not be then acquired.

Approx ¥1.1 billion income for Itako City over next 20 years

Since the feed-in tariff (FIT) program for reusable energy was implemented in July 2012, Itako City has had inquiries about the Roadside Station Itako periphery as a location for a mega-solar power plant and proposed business projects by numerous enterprises. Considering the sum of money it had invested thus far, Itako City wished to place its hope in the attraction of manufacturing plants, which would have a significant employment effect. But it could not keep up with the maintenance costs. As a result, the city made the tough decision to build the mega-solar power plant.

Although the solar power plant does not have the same employment effect as an industrial plant would, Itako City can expect about ¥1.1 billion income from the operation of Suigo Itako Solar over the next 20 years. The breakdown is rent for the land of about ¥676 million, an estimated fixed asset tax of ¥300 million and an estimated municipal corporate inhabitants’ tax of ¥140 million.

Itako City initially announced the annual rent for the land was more than ¥180 per 1m2, but it finally reached ¥250 per 1m2 when the contract was signed. In addition, the yearly maintenance cost of ¥6 million is no longer required. Yet, the amount still falls short of the ¥2.5 billion that has thus far been invested. Kiminami pushed forward "regional contribution" based on these circumstances.

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Although the project features regional contribution measures that no one else but an environmental venture can come up with, the mega-solar power plant cannot be constructed without raising funds for the project. The reason why Renova, who only logged consolidated sales of ¥4.3 billion for the fiscal year ended May 2013, could lead a mega-solar power plant project worth as much as ¥4 billion in total was its success in structuring project finance.

Behind the success were the fact that Renova secured a project IRR (internal rate of return) of 7 to 8% through efficient procurement and construction that leveraged the advantage of scale as well as a fixed purchase price of ¥40 (before tax). Of the project costs of roughly ¥4 billion, Mizuho Bank Ltd loaned 90%.

Even so, the debt service coverage ratio (DSCR) reached 1.5x. The DSCR is the rate of cash flow available to meet interest and principal payments on debt, and is a benchmark for the borrower's annual debt servicing ability. A DSCR of 1.5x indicates that the amount of cash flow calculated by deducting tax, dues and costs from net income is 1.5 times the amount of principal and interest payments on debt.

Visit to solar panel plant in China to confirm production management

With regard to engineering, procurement and construction (EPC), consideration was paid to bankability (loan eligibility). EPC services as well as operation and maintenance were entrusted to Toko Electrical Construction Co Ltd, which boasts experience in mega-solar power plant construction.

Solar panels manufactured by Chinese Yingli Green Energy Holdings Co Ltd, which held the largest global market share in 2012 (Fig. 5), and PV inverters manufactured by Toshiba Mitsubishi-Electric Industrial Systems Corp (TMEIC) (Fig. 6) were chosen. Also, an on-ground-type foundation (Fig. 7), which is a concrete secondary product, was deployed. TMEIC's PV inverters boast excellent results, and their reliability is highly appreciated.

As to solar panels, "We confirmed quality management and inspection in the production process, actually visiting Yingli plants in Baoding City, China," Kiminami said.

Since completion in February 2014, "The plant has been operating smoothly with the amount of power generation reaching 10% more than expected," he said. The new company name Renova means "renew" in Latin, and "to make the environment newer" has been advocated as a corporate philosophy. The Roadside Station Itako peripheral, which drifted about in terms of land use, has established itself as Suigo Itako Solar and is bringing about a new environment to Itako City.