How Do You Expand an Existing Solar Power Project?July 21, 2023
With the aim of shifting to clean energy, the Royal Government of Cambodia (“RGC”) has included solar power projects as an area of focus in the country’s energy development vision to 2040. Recent years have seen a number of new solar projects being approved, such as the 100MW national solar park.
Existing developers might also be offered the opportunity to generate more power for Electricite Du Cambodge (“EDC”). However, one of the key questions when considering expansion is whether the additional capacity will be regarded (and licensed) as a new project, or as the extension of an existing one.
In this article, we review the practical aspects of developing a new solar power project versus expanding an existing one.
Land is an important asset for a solar energy project. Usually, land will be leased under a perpetual lease entered into between the project company and the land owner or project landholding company. For a government-tendered project, the land is usually provided by the RGC, or occasionally, by the EDC.
In the event of an expansion, additional land will be required. If leasing from a private owner, the lease process for additional land is usually fairly flexible and straightforward.
However, if leasing from a government body, the developer has two options: (1) enter into a new lease agreement; or (2) amend the current lease agreement.
In our experience, the first option entails a lengthy process that requires various ministries’ involvement and approval. Amending the current lease agreement is a much simpler process with less administrative steps.
Under both options, the final registration of the perpetual lease certificate with the relevant Department of Land is still compulsory.
With regard to bankability, we have not seen any challenge by a lender on either lease structure. Normally, security is registered via hypothec registration on the actual perpetual lease certificate.
For the development of a solar power project in Cambodia, the developer will have to enter into a power purchase agreement (“PPA”) with the EDC and an implementation agreement (“IA”) with the RGC, usually represented by the Ministry of Economy and Finance (“MEF”) and the Ministry of Mines and Energy (“MME”).
Similar to leasing, the developer can choose to either: (1) prepare and enter into a new separate PPA and IA (which means the expansion will be considered a new separate project); or (2) prepare and enter into an amendment to the current PPA and IA.
Generally, the process of preparing a new PPA and IA under the first option, is basically the same as the process to initiate development of an entirely new project—the developer would have to obtain project approval first from the Council of Ministers, and subsequently from the relevant ministries (i.e. the MEF, MME, and EDC). The process is quite administratively complicated and time consuming.
In contrast, under option 2, the developer will only need to obtain approval from EDC for extension of the project. Once EDC approves the extension, the developer can then prepare amendment of the current PPA and IA to include the additional generation capacity. This process is much simpler and the approval timeline should generally be much shorter.
Investment license (qualified investment project)
Normally, qualified investment project (“QIP”) status is provided by the Council for the Development of Cambodia (“CDC”) for a specific project. For solar power projects, the project production capacity and location are clearly indicated in the QIP approval. Therefore, in the event that there is an expansion of the project’s generation capacity, approval of the additional capacity is required.
Similar to the above, developers have two options: (1) apply for a new QIP approval for the expanded portion of the project, which would be considered a separate project and necessitate the full application process, which requires a lot of documentation and is quite a lengthy administrative process.
The second option would be to request an expansion of the existing QIP to cover the additional generation capacity. This would reduce the amount of paperwork, costs, and timeline to obtain approval.
Since the expansion of a solar power project results in an increase in generation capacity, the generation license will need to be amended to correspond to the increased capacity.
Applying for a new generation license is one option but the downside is that the process entails the preparation of a large amount of complicated documentation and a long timeline. The other option is to request an amendment to the current generation license, which in our experience is less complicated and time consuming.
From the tax perspective, there is no difference in the tax incentives a project receives whether it is through a new QIP or an expanded QIP. The CDC will still award incentives for the additional portion that are separate from the existing one. The trigger period for tax exemption of the additional portion will start from the date the first revenue is generated from such additional portion.
From our perspective, comparing the two options: (1) establishment of a new project; or (2) expansion of an existing project, our view is that pursuing option 1 would enable the developer to separate the 2 project into 2 different entity which benefit the developer once it wishes to transfer a part of such developed project. However, pursuing option 2 is more efficient in terms of expense, time, and complexity.
Since this article is intended to provide general information only, before making a final decision on how to proceed, developers should consult a legal adviser to review the specifics of their circumstances.