GuarantCo, part of the Private Infrastructure Development Group (PIDG), and Bank Alfalah have provided Shams Power with a PKR 2 billion (c. USD 11.3 million) financing solution to support the construction of approximately 21 MW small rooftop and ground mounted solar plants at commercial, industrial and institutional (e.g. university, hospital) sites across Pakistan to reach grid connected users.
In addition to GuarantCo’s existing guarantee of PKR 1.5 billion (c. USD 9 million), covering 75 percent of the loan facilities, the company has committed an additional guarantee of PKR 1.5 billion to support Shams Power’s debt raising in 2022 to construct a further 21 MW of distributed solar plants.
Against GuarantCo’s guarantee facility, Bank Alfalah will provide the PKR 2 billion first phase of financing in the form of a 10-year term loan that benefits from the Renewable Energy Refinancing Scheme set up by the State Bank of Pakistan.
The project will improve Pakistan’s power sector efficiency by producing clean and green power near the point of usage, thus reducing wastage and line losses associated with the national grid and by stabilising the grid at peak times. Shams Power helps to reduce carbon emissions and has a positive impact on mitigating climate change through the provision of clean, sustainable solar power.
This transaction has the potential to transform the rooftop solar market in Pakistan by demonstrating the ability for rooftop solar providers to access debt funding locally; this will allow for developers to scale up to unlock more solar potential. The transaction also builds the capacity of energy regulators and the State Bank of Pakistan (SBP), allowing them to create a supportive and practical regulatory and financial framework whilst also building the capacity of banks who are new to this asset class. Shams is also committed to continue the provision of training and potential employment opportunities to female engineers as the company grows.
Shams Power offers a Build Operate Own and Transfer (BOOT) model to commercial, industrial and institutional customers. Being the pioneer in Power Purchase Agreement (PPA) based clean energy generation and BOOT model in Pakistan, they faced challenges in raising funds for further expansion and therefore GuarantCo’s support was required. Their business model is to build and operate small solar power generation units at commercial, industrial and institutional sites, serving the local private sector, including SMEs, through its own complete solutions under long-term (10-20 years) PPA or equipment sales on deferred basis agreements.
Business and institutional users will benefit from lower electricity costs through the rooftop systems installed without incurring any upfront capital expenditure. The proposed solution also increases users’ electricity reliability and reduces their reliance on back-up diesel generators. Given climate considerations and business continuity reasons, Shams Power’s solution represents an efficient alternative to existing solutions. In addition, the transaction will lead to long-term job creation in the project value chain. It is expected that there will be over 60 local permanent jobs created by Shams Power.
Emily Bushby, Interim CEO of GuarantCo, said:
“The innovative financing mechanism for this transaction has the potential to drive significant growth in the rooftop solar market in Pakistan. The model is scalable, replicable and the need for guarantee support will hopefully reduce over time. This transaction supports Pakistan’s commitments to decarbonise its power sector and to meet GuarantCo’s mission of mobilising new sources of local currency financing. Through our transaction with Shams Power, we will support Pakistan in its ambition to provide economical, clean and consistent energy supply to businesses and gradually shift towards renewable energy supply and improve energy access, involving the private sector and local currency financing.”
Omar Malik, CEO of Shams Power, said:
“We are delighted to have successfully completed this landmark transaction. This will enable Shams Power to expand our portfolio of high-quality projects across the C&I sector and extend our renewable energy footprint. These projects will enable our clients to reduce their carbon emissions, meet sustainability targets, and reduce costs of production. They will also generate employment during construction. GuarantCo’s credit guarantee and Bank Alfalah’s tremendous support were critical in making this possible.”
Atif Bajwa, CEO of Bank Alfalah, said:
“While Bank Alfalah is at the forefront of facilitating our clients’ energy needs, this is a first of its kind distributed solar model of such magnitude for the Bank. Successful execution of this model will not only set up a framework for future distributed solar projects to follow but will also pave way for numerous businesses to achieve significant energy savings with minimal capital expenditure. In line with Bank Alfalah’s Green Banking policy, Bank Alfalah remains committed towards renewable energy financing and is proud to play its part in reducing carbon footprint across Pakistan and combating climate change. We would also like to applaud State Bank of Pakistan’s Financing Scheme for Renewable Energy which is encouraging investments and taking us a step closer to achieving the government’s clean energy vision.”
Asif Elahi, Partner of Capital Resource, said
“We are thrilled to have had the opportunity of supporting Shams Power in achieving their financing objectives. There has been exponential growth in roof top solar power in regional countries with us lagging behind. The credit enhancement and financing support from GuarantCo and Bank Alfalah teams will go a long way in helping bridge this gap allowing Shams Power to become the leading distributed solar company in Pakistan.”
Signing ceremony attended by: Saad ur Rahman Khan, Group Head, Corporate, Investment Banking and International Business Group Bank Alfalah (left); Atif Bajwa, CEO Bank Alfalah (middle); Omar Malik, CEO Shams Power (right); Asif Elahi, Partner Capital Resource and Emily Bushby, Interim CEO GuarantCo (virtual)